The recently enacted One Big Beautiful Bill Act (OBBBA) is reshaping the Qualified Opportunity Zone (QOZ) program, creating both urgent challenges and fresh opportunities for real estate investors, developers, and fund managers. Signed into law on July 4, 2025, the legislation revises incentives, introduces a new round of QOZ designations—particularly focused on rural areas—and imposes strict reporting requirements, all while making the program permanent beyond 2026. 

For stakeholders, the implications are clear: act quickly on existing benefits, prepare for enhanced opportunities ahead, and adapt to a more demanding compliance environment. To help make sense of these sweeping changes, Connect Money sought perspectives from RL Widmer, Principal, Tax Services, and Ruchi Shah, Senior Manager, Tax Services at Baker Tilly, about what investors need to know now and how to position for the next phase of the QOZ program.    

CM: The new law maintains the 10-year exclusion of post-investment gains but caps basis step-ups at 30 years. How should long-term investors think about this freeze when modeling after-tax returns? 

RL and RS: Under the new bill, the 10-year holding period for tax-free appreciation remains; however, it is capped at the 30th anniversary. Investors should plan to get a valuation done for their investment in a Qualified Opportunity Zone (QOZ) to know the basis step-up or built-in gain at the 30-year mark if they plan to hold longer than 30 years. Investors should continually analyze the market situation to determine the optimal time to sell. 

CM: For investors considering rural-focused funds with enhanced 30% basis step ups, how meaningful is that benefit in practice compared to traditional urban QOFs?  

RL and RS: The change to an enhanced 30% basis step-up for investment in rural areas versus 10% basis step up for investment in regular QOZ, reflects a clear policy shift toward encouraging rural investment through the QOZ program. A reduction in gain recognition by 20% is very attractive to the investors and developers.  

Generally, due to lower real estate and development costs, Rural Qualified Opportunity Funds (RQOFs) make the rural areas more attractive to investors and developers by improving after-tax returns and long-term infrastructure projects. It also opens doors for advanced manufacturing in rural communities. As part of the US Government’s efforts to build domestic supply chains and boost local production facilities, RQOFs could provide the investment vehicle needed to bring industrial production back to the country and minimize reliance on imports. 

CM: The new law introduces strict reporting requirements and steep penalties. What kinds of compliance challenges do you foresee for fund managers and investors? 

RL and RS: The bill added significant new reporting requirements for QOFs and QOZBs to enhance transparency and avoid program abuse. Maintaining accurate information will be very important, including details on asset values, QOZB property locations, NAICS codes, census tracts, employee count, etc. We are awaiting further guidance from the IRS regarding the reporting requirements. 

CM: What are some of the biggest mistaken assumptions you’re hearing from clients and investors about QOZ 2.0? 

RL and RS: We have not seen a lot of mistaken assumptions from the clients and investors, just a lot of questions around understanding QOZ rules under the new Bill, compared with the rules under TCJA. 

CM: Looking beyond the “dead zone,” where do you expect the most robust OZ activity to emerge once the new designations and incentives take hold? 

RL and RS: The number of OZs in each state is highly correlated with the total population of the state. We anticipate robust OZ activity in CA, TX, New York, Florida, among the top states (similar to the current OZ designations). 

CM: Many investors are worried about an 18-month “dead zone” before the new designations take effect in 2027. From your perspective, is this truly a period of inactivity, or do you expect continued investment under QOZ 1.0 rules? 

RL and RS: We expect slow activity for new investments in the existing QOZ for the next 18 months. If an investor currently has a capital gain and can’t wait until 2027 due to the 180-day period to invest an eligible gain in QOF, they can still invest in a QOF in order to be eligible for the 10-year exclusion on the appreciation in their QOF investment, which is still very valuable. Therefore, we do still expect some investment under QOZ 1.0, given the 180-day requirement and the long-term advantage of the 10-year exclusion. 

CM: How do you respond to the view that nothing will happen in Opportunity Zones until the new framework launches? 

RL and RS: Similar to the previous question, investors still have an option to invest in QOZ under the OZ 1.0 rules. They can still avail the benefits of 100% gain exclusion upon 10-year anniversary. 

CM: What types of investors or funds are still deploying capital under the current QOZ program, and why might they be unable or unwilling to wait until 2027. 

RL and RS: Same as above, we expect investors limited by the 180-day deadline to invest under the current QOZ program. 

CM: Are you seeing any regional or sectoral fundamentals that continue to draw dollars sooner rather than later, despite the pending rule changes? 

RL and RS: Real estate sector continues to be one of the most popular sectors for investors as the value is likely to appreciate over time. 

CM: Do you anticipate that some investors will try to structure property sales or transactions specifically to push gain recognition into 2027 under the new rules? 

RL and RS: We anticipate that the investors will structure the property sales to push gain recognition into 2027 to take advantage of the gain deferral under the new Bill. Partners & Shareholders in pass-through entities also have additional options on when their 180-day reinvestment period begins if the pass-through entity recognizes a gain. They can choose either the date of the transaction, the last day of the pass-through entity’s fiscal year, or the due date of the entity’s return to begin the 180-day period. This will give owners of pass-through entities with 2026 capital gain the flexibility to wait until 2027 to invest in a QOF if they so desire.