On July 4, 2025, President Donald Trump signed into law legislation (H.R.1), known as the One Big Beautiful Bill Act (the “Act”). The legislation was passed through the budget reconciliation process and cements many of the individual and business tax provisions that were originally established under the 2017 Tax Cuts and Jobs Act (“2017 TCJA”) which were set to sunset in 2025. The Act also adds several new provisions that were promised during the 2024 Trump campaign.
This is the fourth alert in our series analyzing key aspects of the Act. In this alert, we focus on significant updates to the federal Qualified Opportunity Zones (“QOZ”) program.
Qualified Opportunity Zones: A Refresher
QOZs were established under the 2017 TCJA as a temporary, place-based tax incentive designed to encourage long-term private investment in economically distressed communities. Under the original framework, taxpayers who reinvested capital gains into Qualified Opportunity Funds (“QOFs”) could benefit from:
- Temporary deferral of capital gain recognition;
- Partial exclusion of the deferred gain through basis step-ups (10% after five years, 15% after seven years);
- Permanent exclusion of capital gains that occurred after the investment in the QOF if the QOF investment is held for at least 10 years.
Importantly, under the 2017 rules, all capital gain deferrals were set to expire on December 31, 2026, regardless of the investment date.
Key Changes to QOZ Provisions Under the Act
1. Permanent Status for QOZ Incentives
Section 70421 of the Act makes the QOZ program a permanent fixture of the federal tax code. However, it significantly revises the incentive structure for investments made after January 1, 2027.
2. Rolling Five-Year Deferral Period
Rather than a fixed deferral date (i.e., December 31, 2026), the Act provides a rolling five-year deferral period for capital gains invested in QOFs after January 1, 2027. The deferral ends on the fifth anniversary of the investment date.
3. Basis Step-Up Adjustments Simplified
The prior 10% (five-year) and 15% (seven-year) basis step-ups have been replaced with a single 10% basis step-upavailable at the end of the new five-year deferral period. The seven-year holding period is eliminated.
4. Legacy Rule Expiration and Market Concerns
Capital gains invested in QOFs before January 1, 2027, are still subject to the original TCJA rule – deferral ends on December 31, 2026, with no basis step-up for investments made after 2021. As a result, there is growing concern in the QOZ community that investors may be disincentivized from making QOF investments before the new rules take effect.
5. Long-Term Investment Limitations
The Act retains the exclusion of capital gains that occurred after the initial investment in the QOF if the QOF investment is held at least 10 years. However, for investments held longer than 30 years, the basis is frozen at the fair market value as of the 30th anniversary, effectively capping the tax-free appreciation period.
New Incentives for Rural QOZs
The Act introduces enhanced tax benefits for QOZs located in designated rural areas – defined as towns or cities with fewer than 50,000 residents:
- 30% basis step-up at year five (compared to 10% for non-rural zones);
- Relaxed substantial improvement requirement, lowered to 50% of the property’s original basis (versus 100% for traditional QOZs).
These changes aim to direct greater capital investment into underserved rural communities.
Takeaway
The One Big Beautiful Bill Act marks a transformative shift in the Qualified Opportunity Zone landscape. While the permanence of the program and new rural incentives offer exciting opportunities, the transition period before 2027 poses planning challenges. Businesses and investors must carefully consider the timing of their investments and whether to pursue opportunities under the legacy or revised rules.
If you have questions about how these changes may impact your investment strategy or business planning, please reach out to attorney Kevin Scott or any member of Barley Snyder’s Business or Tax practice groups. Be on the lookout for the next alert in our series covering key provisions of the Act affecting charitable contributions.
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Check out our other alerts in this series focusing on tax provisions impacting choice of entity decisions, businesses and individuals.
