By Carson Lorts, CPA, Senior Manager at Blue & Co.
Qualified Opportunity Zones have now been around for nearly 10 years after their creation under the Tax Cuts & Jobs Act. This program was set to expire at the end of 2026, but has been given new life by One Big Beautiful Bill being enacted. Below, we will explore the original legislation, how it impacts investors with previous qualified investments, what opportunities have been opened for new investments going forward, and all related tax impacts.
Tax Cut & Jobs Act – The Creation of the Qualified Opportunity Zone
After the Tax Cuts and Jobs Act was signed in 2017, one of the hottest topics of discussion was the addition of Qualified Opportunity Zones (“QOZ”). These new regulations were created to spur economic development and job creation in distressed communities across the country. To incentivize this economic investment, investors were lured in with the following tax benefits:
- Eligible gains were allowed to be deferred until the earlier of:
a. The date the investment in a qualified opportunity zone was sold or exchanged
b. December 31, 2026
In addition to the benefit of kicking the proverbial (tax) can down the road on your original deferred gain, a portion of that deferred gain could wind up being non-taxable at the inclusion dates outlined above. If the underlying investment in a QOZ was held for five years, you would receive a 10 percent reduction in the amount of capital gain to pick up at the inclusion date. If the investment was held for seven years, an additional five percent would be included in the basis of your investment without paying tax on the original gain at the inclusion event. Now, as an investor, you could have 15 percent of your original gain become non-taxable, with the biggest benefit still to come.
- Step-up in basis of the investment to fair market value if held for at least 10 years.
This second benefit allows you to step up the basis of your qualifying investment to its fair market value after holding it for at least 10 years. At the inclusion event outlined above in point one, your basis in the investment would be increased to the amount of your original capital gain contribution. At the 10-year mark, your basis in the qualifying investment would further be stepped up to fair market value to include the asset’s appreciation over that 10-year span.
In a perfect world, an investor would be able to forever avoid paying tax on 15 percent of their original capital gain invested, hold their appreciating asset for 10+ years, and not pay tax on any of that appreciation up until that point. However, December 31, 2026 is less than a year away, and any thought of that original 15 percent gain exclusion has long passed.
That leads us into the biggest question: Are investments into qualified opportunity zones still worth it? The answer to that question is never an easy one to answer, because as always… it depends.
In addition to tax planning required for the upcoming inclusion event for previously invested capital gains, there is new tax legislation that has brought new life to Qualified Opportunity Zones. In the summer of 2025, the One Big Beautiful Bill (OBBB) was signed into law, which brought a plethora of changes to the tax world, but the impacts on QOZ investments specifically will be outlined below.
One Big Beautiful Opportunity Zone
If you’ve felt like you’ve missed out on investing in a Qualified Opportunity Zone, then the One Big Beautiful Bill has provided a second chance to make a qualifying investment. With OBBB, the QOZ program has been extended indefinitely. The previous law was set to expire as of December 31, 2026. Going forward, the qualified zones will be designated every 10 years beginning on July 1, 2026.
As mentioned above, all deferred gains under the original program would need to potentially be recognized as of December 31, 2026. Going forward, deferred gains will be recognized on the fifth anniversary of the investment, rather than on a universal inclusion date, as was the case under the original law.
Upon holding a new qualified investment until the fifth anniversary, a 10 percent basis step-up on your investment will take place immediately before recognizing your original deferred capital gain. The additional five percent step-up, outlined above in the original law, has not been included.
In addition to the 10 percent step-up, the QOZ investment will still be eligible for another basis step-up after 10 years, with a new wrinkle. If you liquidate the investment after 10 years but before 30 years, the investment’s basis will be stepped up to reflect its fair market value at the date of sale. If you hold the investment for 30 years or longer, the fair market value will be frozen as of the 30th anniversary of your investment.
Additionally, OBBB included rural areas to be eligible for QOZ investment. Under the TCJA, the focus of this program was largely to promote investment in urban areas. Treasury provided guidance on this topic, defining a rural area as an area other than a city or town with a population greater than 50,000 AND not being continuous and adjacent to a city or town with a population greater than 50,000.
Is a Qualified Opportunity Zone Investment Right for You?
To wrap this up, we’ll ask the same question we asked earlier – are investments into Qualified Opportunity Zones worth it?
Again, it depends. The prospect of deferring capital gains for five years, potentially eliminating tax on 10 percent of that gain forever, and being able to step-up the investment’s basis to fair market value after 10 years is an attractive opportunity for potential investors.
Qualified Opportunity Zones are complex investments with continuous reporting requirements. If you are interested in learning more about Qualified Opportunity Zones and how they may apply to your personal situation, we encourage you to reach out to a trusted Blue & Co. advisor.
