Authors
Gerret J. Baur
Director, Boston
gbaur@goulstonstorrs.com+1 617 574 3857
Martha J. Nahill Frahm
Director, Boston
mfrahm@goulstonstorrs.com+1 617 574 4063
Abraham Leitner
Director, New York
aleitner@goulstonstorrs.com+1 212 878 5158
Leah B. Segal
Director, Boston
lsegal@goulstonstorrs.com+1 617 574 2202Related Expertise
On July 4, 2025, the President signed into law, a reconciliation bill that is also referred to as the One Big Beautiful Bill Act (“OBBBA”). In significant part, the OBBBA extended or made permanent various provisions of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) that were set to expire at the end of this year. The OBBBA also permanently extends and updates the qualified opportunity zone (“QOZ”) program, which had previously been set to expire for new investments made after December 31, 2026. Below is a high-level summary of key impacts relating to the QOZ program.
Goulston & Storrs continues to closely monitor the OBBBA and its implications for individuals and businesses across sectors. If you have any questions about how these changes may affect you or your business, please contact your G&S attorney or a member of our Tax Group or Real Estate Group for assistance.
Qualified Opportunity Zones
The QOZ program, enacted under the TCJA, aims to boost long-term investment in economically distressed and low-income areas by deferring, and in some cases permanently excluding from income, certain capital gains invested in a qualified opportunity fund within a 180-day window.
The OBBBA made several changes to the QOZ program, including a new designation process, deferral mechanics, changes to the designation of qualified census tracts, incentives to promote investments in rural low-income communities, and new information return reporting requirements and associated penalties.
Previously, so called “qualified opportunity zone business property” needed to be acquired after December 31, 2017, but before December 31, 2026; now the required acquisition date will reset with each new 10-year cycle. Additional guidance will be required as to the specific mechanics of the new decennial redesignation program. Under the prior regime, investors could defer the gain that would otherwise be recognized on a sale of property to the extent that gain was rolled over into a qualified opportunity fund (“QOF”) within 180 days of the sale. Such gain would be deferred until December 31, 2026, unless the QOF investment was disposed of prior to that date. The amount of the deferred gain would be capped at the fair market value of the investment as of December 31, 2026, or the earlier acceleration date, if applicable. In addition, the prior QOZ regime provided for potential reduction of the deferred gain through a basis increase of up to 15% of the original deferred gain amount if certain holding requirements were satisfied by the earlier to occur of the disposition date or December 31, 2026 (10% increase for a 5-year holding period and an additional 5% increase for a 7-year holding period). If the QOF property was held for 10 years (a “10-year investment”), there generally was a complete elimination of the gain attributable to the appreciation in value of the taxpayer’s QOF investment, which elimination was effected by an elective step-up in basis of the QOF investment subject to an outside date limitation described below.
G&S Insight: The rolling nature of the revised QOZ program will provide investors with the opportunity for predictable and level benefits. As the revised QOZ program will apply to investments made after December 31, 2026, investments made in the 2025 and 2026 calendar year generally will be subject to the more limited benefits still available under the old regime.
Under the OBBBA, deferred gains with respect to QOZ investments made after December 31, 2026, will be recognized on the fifth anniversary of the investment date, instead of a fixed date. The OBBBA also provides for a permanent 10% basis step up which applies immediately before the end of the 5-year gain deferral period. This results in all QOZ investments that are held for at least 5 years having a 10% basis increase (30% for certain rural investments as described below).
Under the new QOZ program, new QOZ designations will be certified starting on July 1, 2026, and every 10 years thereafter. The OBBBA tightened the rules regarding the census tracts that may qualify as QOZs (i.e., low-income communities). After December 31, 2026, in order to qualify as a QOZ, a census tract’s median family income may not exceed 70% of the applicable metropolitan or state area median family income (a 10% reduction from the prior rule’s 80% median family income limitation) or, alternatively such census tract must have a poverty rate of at least 20% and a median family income that does not exceed 125% of the metropolitan or state median family as applicable. The OBBBA also repealed the rule for contiguous census tracts, which previously allowed a census tract contiguous to a low-income community to be a QOZ if its median family income did not exceed 125% of the median family income of the contiguous low-income community. The special designation for low-income communities in Puerto Rico is also repealed, effective as of December 31, 2026.
G&S Insight: Under the revised QOZ rules, subject to certification by the Secretary of the Treasury, Governors will designate new qualified opportunity zones for their respective states during the designation period beginning July 1, 2026. The changes to the designation standards along with the repeal of the contiguous census tract rule likely will narrow the tracts that qualify for QOZ benefits under the new QOZ regime.
The OBBBA expands the QOZ program to focus on “rural areas” by creating a new type of fund, a “Qualified Rural Opportunity Fund” which provides greater tax benefits to investors. For this purpose, a rural area is any area other than 1) a city or town with a population greater than 50,000 and 2) an urbanized area adjacent to a city or town with a population greater than 50,000. The enhanced tax benefits include a 30% basis step up for investments held for more than 5 years (as opposed to the 10% basis step up for “regular” QOZ investments described above). In addition, Qualified Rural Opportunity Funds have a reduced substantial improvement requirement; the reinvestment must exceed only 50% of the property’s adjusted basis, instead of an investment in excess of 100% of the property’s adjusted basis.
Under Treasury Regulations promulgated under the old QOZ regime, gain elimination was only available for dispositions of 10-year investments that were disposed of on or before December 31, 2047. The OBBBA now removes the 2047 sunset date, and allows rolling 30-year periods for 10-year investments instead. In the case of a 10-year investment sold before 30 years, the basis step up will equal the fair market value of the investment on the sale date, but in the case of a 10-year investment sold after 30 years from the date of investment, the basis step up will equal the fair market value of the asset on the 30-year anniversary of the original investment date.
The OBBBA now requires Qualified Opportunity Funds to file annual returns to provide information including, among other things, the value of the QOF assets, the value of the fund’s QOZ assets, the QOZ census tract it invests in, the number of residential units, the number of full-time employees and reports of investors’ sales of interests in a QOF. Failure to file such returns may result in penalties of up to $10,000 per return or up to $50,000 for QOF with asset values over $10 million. The reporting requirements introduced by the OBBBA will apply to taxable years beginning after July 4, 2025.
For questions about how these changes may affect your business, please contact your Goulston & Storrs attorney or a member of our Tax Group or Real Estate Group.
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