Opportunity Zones: An Expert Guide to the Changes in the One Big Beautiful Bill

The law makes opportunity zones permanent, creates enhanced tax benefits for rural investments and opens up new strategies for investors to combine community development with significant tax advantages.

By Daniel Goodwin

published 9 July 2025

in Features

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The investment landscape for tax-advantaged community development is about to undergo its most significant transformation since the original opportunity zones program launched in 2017.

The One Big Beautiful Bill, signed into law on July 4 by President Donald Trump, marks a pivotal moment that will reshape how investors approach distressed community investments for decades to come.

This comprehensive legislation transforms the temporary opportunity zones experiment into a permanent fixture of American tax policy.

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The implications for investors, communities and the broader economy are profound, creating both unprecedented opportunities and new challenges that demand careful consideration.

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From experiment to institution

The original opportunity zones program emerged from the 2017 Tax Cuts and Jobs Act (TCJA) as a bold experiment in place-based economic development. By offering substantial tax benefits to investors who reinvested capital gains into designated distressed communities, the program aimed to channel private capital toward areas that traditional markets had overlooked.

Now, seven years later, that experiment is graduating to permanent status.

The permanence provision represents perhaps the most significant change in the One Big Beautiful Bill. No longer will investors face the uncertainty of potential program expiration, enabling longer-term planning and more substantial commitments to community development projects.

This stability should prove particularly attractive to institutional investors who have historically been cautious about programs with sunset clauses.

However, permanence comes with important caveats. The current program's structure and benefits will sunset as scheduled on December 31, 2026. What emerges in 2027 will be a more streamlined version of the original concept, with some important changes in the deferral of the initial capital gains.

The new incentive structure

Under this new framework, investors who deploy capital gains into qualified opportunity funds after December 31, 2026, will still enjoy the permanent elimination of capital gains taxes on their opportunity zone investments held for at least 10 years — the program's signature benefit remains intact.

What changes is the treatment of the original deferred gains. The new system offers a rolling five-year deferral period for the initial capital gains invested, replacing the current program's more complex timeline that provided basis step-ups at five and seven years before the final tax elimination benefit.

The legislation introduces a tiered approach to basis step-ups, acknowledging the varying challenges of different investment environments. Standard QOF investors will receive a 10% basis step-up after five years, providing modest tax relief on their original deferred gains.

More significantly, the bill establishes a new category of qualified rural opportunity funds, recognizing that rural areas face unique economic challenges that warrant enhanced incentives.

Rural investors will enjoy a 30% basis step-up, a substantial improvement that reflects the higher risks and longer development timelines typically associated with rural investments.

These areas, defined as locations outside cities or towns of 50,000 people or contiguous urbanized areas, will also benefit from a reduced substantial-improvement threshold of 50% rather than the standard 100% requirement.

The enhanced rural incentives create particularly compelling opportunities in the oil and gas sector, where many projects are naturally located in rural areas that could qualify for qualified rural opportunity fund status.

With energy markets already showing robust fundamentals and the Trump administration's pro-energy policies creating a favorable regulatory environment, the ability to layer substantial tax advantages onto energy investments represents an exciting convergence of market timing and tax strategy.

The 30% basis step-up, combined with the reduced improvement threshold and ultimate tax-free treatment of gains, could make rural energy projects among the most tax-efficient investments available to sophisticated investors seeking both energy sector exposure and community development impact.

Geographic reshuffling

One of the most consequential aspects of the One Big Beautiful Bill involves the periodic redesignation of opportunity zones themselves. Starting July 1, 2026, governors will be required to select new Census tracts every decade, with the first new designations taking effect January 1, 2027.

This rolling approach ensures that the program's benefits remain targeted toward areas of greatest need rather than becoming entrenched in communities that may have already experienced significant improvement.

The redesignation process will operate under tighter criteria than the original program. The "low-income community" threshold will drop from 80% to 70% of area or statewide median family income, a change that will eliminate about 22% of current zones.

Additionally, the exception that allowed non-low-income tracts contiguous to qualified areas will disappear, further concentrating benefits in the most economically distressed locations.

Puerto Rico faces particular challenges under the new framework. The island will lose its blanket designation status and will be limited to selecting only 25% of eligible tracts, the same limitation that applies to all states. This change reflects a broader congressional effort to ensure that opportunity zone benefits are distributed more equitably across all American communities.

Strategic timing considerations

The transition period between the current program and Opportunity Zones 2027 creates a complex strategic landscape for investors. Those who can deploy capital gains before the December 31, 2026, deadline will enjoy the current program's more generous benefits.

However, a timing quirk in the legislation may discourage some 2026 investments. Investors receiving K-1 distributions or other gains late in 2026 might find themselves better served by waiting until 2027 to make their opportunity zone investments, when they can take advantage of the new five-year rolling deferral rather than being locked into the abbreviated timeline of the current program's final year.

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This "dead zone" issue highlights the importance of sophisticated tax planning during the transition period. Investors with significant anticipated gains should work closely with their financial advisers to model various scenarios and optimize their investment timing.

What didn't make the cut

Hey, nothing's perfect ... especially where legislation is concerned.

Despite the bill's comprehensive nature, several provisions sought by opportunity zone advocates failed to make it into the final legislation. The program continues to restrict benefits to capital gains, excluding ordinary income and other forms of investment capital.

This limitation has historically made the program less attractive to certain types of investors and may continue to constrain its overall impact.

Operating businesses with significant tangible property requirements will continue to face challenges in qualifying for opportunity zone benefits. The legislation also maintains the prohibition on fund-of-funds structures, limiting the ability of smaller investors to access diversified opportunity zone portfolios.

Affordable housing advocates will be disappointed by the absence of additional incentives specifically targeted toward residential development. Given the ongoing affordable housing crisis in many American communities, this omission represents a missed opportunity to align opportunity zone investments with critical housing needs.

Looking ahead

The One Big Beautiful Bill represents both an ending and a beginning for opportunity zone investing. The current program's sunset creates urgency for investors seeking to maximize their tax benefits under existing rules, while the new permanent framework offers long-term stability for community development initiatives.

Success in this evolving landscape will require careful attention to the program's new geographic boundaries, incentive structures and reporting requirements. The expanded transparency measures taking effect in 2027 will provide greater visibility into the program's community impact, potentially influencing future policy refinements.

For investors, the key will be balancing the immediate opportunities available under current rules with the long-term potential of the restructured program. Those who can navigate this transition effectively will find themselves well-positioned to participate in what promises to be a new era of tax-advantaged community development investing.

The transformation of opportunity zones from a temporary experiment to a permanent policy tool reflects broader recognition that private capital can play a vital role in addressing America's economic development challenges.

While the program's benefits may be somewhat more modest going forward, and a number of current Census tracts appear destined to lose their OZ designation, the newfound permanence of the program provides the stability necessary for sustained community investment and development.

The coming months will reveal whether investors and communities can effectively harness these new tools to create lasting economic opportunity across America's most distressed areas.

As always, remain in close contact with your financial advisers to navigate these new waters successfully. Now more than ever, you need a team that understands not only the nuances of opportunity zones and the tremendous opportunities they present, but also the ways to minimize the risks inherent in any investment, including this one.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Daniel Goodwin is a Kiplinger contributor on various financial planning topics and has also been featured in U.S. News and World Report, FOX 26 News, Business Management Daily and BankRate Inc. He is the author of the book "Live Smart - Retire Rich" and is the Masterclass Instructor of a 1031 DST Masterclass at www.Provident1031.com. Daniel regularly gives back to his community by serving as a mentor at the Sam Houston State University College of Business. He is the Chief Investment Strategist at Provident Wealth Advisors, a Registered Investment Advisory firm in The Woodlands, Texas. Daniel's professional licenses include Series 65, 6, 63 and 22. Daniel’s gift is making the complex simple and encouraging families to take actionable steps today to pursue their financial goals of tomorrow.