On July 4, 2025, President Trump signed the "One Big Beautiful Bill Act" (the “OBBBA”), which contains amendments to sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code (the “Original Statute”)—the provisions that establish and govern the Opportunity Zone program. Enacted in 2017 by President Trump in his first term, the Original Statute created a framework for incentivizing investment in economically distressed areas by offering timebound tax benefits to investments in qualified businesses and property within designated Opportunity Zones. Through the OBBBA, President Trump enshrined in the Code one of the signature pieces of legislation from his first term by removing the original sunset provisions and making additional enhancements (the “OZ Amendments”), including those described below. Without the OZ Amendments, key provisions of the Opportunity Zone program would have expired on December 31, 2026. Generally, the Opportunity Zone program provides three (3) significant tax benefits for taxpayers who invest capital gains in a Qualified Opportunity Fund (a “QOF”), provided the QOF then invests its cash in qualified property or a Qualified Opportunity Zone Business (a “QOZB”) that is located in a low-income census tract designated by the chief executive of a state or US territory (a “Qualified Opportunity Zone”): First, a taxpayer can defer paying tax on capital gains that are invested in a QOF and subsequently properly invested by the QOF in qualified property or a QOZB; Second, a taxpayer can reduce the amount of capital gains tax ultimately due with respect to capital gains that are invested in a QOF and subsequently properly invested by the QOF in qualified property or a QOZB; and Third, a taxpayer can benefit from tax-free gain with respect to the sale of any QOF interest held for more than 10 years. Changes to Code Section 1400Z-1: Designations of Qualified Opportunity Zones Under the Original Statute, states and territories had one opportunity to designate Qualified Opportunity Zones, all of which designations were scheduled to expire on December 31, 2026. Following the OZ Amendments, however, new Qualified Opportunity Zones may be designated on July 1, 2026, and every 10 years thereafter, with each designation effective for a 10-year period. Also, the OZ Amendments redefine which census tracts are eligible to be designated as Qualified Opportunity Zones. Beginning on July 1, 2026, any census tract, as determined by the most recent decennial national census, in which the median family income does not exceed 70% (lowered from the previous 80% threshold) of the statewide or metropolitan median family income, as applicable, may be designated as a Qualified Opportunity Zone. In addition, any census tract that, as determined by the most recent decennial national census, has a poverty rate of at least 20% and a median family income that does not exceed 125% of the applicable statewide or metropolitan area median family income, as applicable, may be designated as a Qualified Opportunity Zone. Under the Original Statute, only the 20% poverty rate threshold applied; the income limitation is a new requirement introduced by the OZ Amendments. Finally, census tracts that are contiguous with a qualifying census tract can no longer be designated as a Qualified Opportunity Zone. The new designation regime establishes 10-year investment periods for Qualified Opportunity Zones, creating a steady pipeline of new tracts available for QOF investors. This structure offers greater flexibility and certainty for investors seeking to make QOF investing a permanent part of their capital allocation and investment strategies. At the same time, the OZ Amendments introduce stricter criteria for designating Qualified Opportunity Zones, helping achieve the Opportunity Zone program goals of directing benefits to genuinely underserved communities. Changes to Code Section 1400Z-2: Tax Effects of the OZ Amendments Under the OZ Amendments, the payment of capital gains tax that would be due but for the investment of such capital gains in a QOF is deferred for up to five (5) years following the date of the QOF investment or until the investment is sold, whichever comes first. Additionally, if a QOF investment is held for at least five (5) years, the amount of capital gains tax due is reduced by 10%. The OZ Amendments also introduce the concept of a Qualified Rural Opportunity Fund (a “QROF”). A QROF essentially operates in the same manner as a QOF, but for purposes of the qualifying under the Opportunity Zone program, as amended by the OZ Amendments, at least 70% of the assets owned or leased by the QROF must be located in a Qualified Opportunity Zone comprised entirely of a “rural area” or at least 70% of the assets owned or leased by a QOZB that is owned by a QROF must be used in a Qualified Opportunity Zone comprised entirely of a “rural area.” As defined in the OZ Amendments, a “rural area” is either a city or town with a population of less than 50,000 or any urbanized area contiguous and adjacent to a city or town with a population greater than 50,000. The OZ Amendments encourage investment in QROFs by providing a 30% reduction in capital gains tax on qualifying amounts invested—an increase from the previous 10% reduction available for investments in QOFs. Further, the OZ Amendments relax the “substantial improvement” standard for preexisting structures located in a “rural area.” Outside of a “rural area,” a QOF or QOZB must invest at least an amount equal to the purchase price of a preexisting structure in improvements to qualify for Opportunity Zone benefits. For preexisting structures in “rural areas,” however, the required investment in improvements is reduced to 50% of the acquisition price. Finally, the OZ Amendments cap the holding period for each QOF or QROF investment at 30 years. The investment must be disposed of within 30 years of the investment date; otherwise, on the 30-year anniversary, the basis in the QOF or QROF interest is stepped up to its fair market value. The QROF framework dramatically expands the potential of the Opportunity Zone program and unlocks multiple new potential strategies for investors. The reduced “substantial improvement” standard for QROFs could qualify relatively smaller or lower-value rural properties for Opportunity zone benefits by making it possible and profitable to renovate or repurpose existing rural structures that would not meet the cost thresholds for QOFs, such as the revitalization of historic “main street” properties, the adaptive reuse of barns or warehouses for community or light industrial purposes, and small-scale hospitality renovations (e.g., motels, campgrounds, B&Bs). In addition, QROFs can more feasibly support the improvement and expansion of rural infrastructure—such as broadband, water, waste management, or renewable energy installations and facilities for agriculture or forestry—where project costs may not justify high QOF-level improvement requirements or where initial investment outlays and improvement costs are lower. QROFs present potential for smaller workforce or affordable housing projects in rural areas, which may struggle to hit QOF investment thresholds. Moreover, community centers, healthcare clinics, and educational/training centers—often serving populations too small for QOF economics—fit better within the QROF structure. New Reporting Requirements The OZ Amendments impose additional reporting requirements for QOFs, QROFs, and QOZBs. These new reporting requirements include the reporting of the value of the assets purchased and leased, the census tracts in which the qualifying investments are located, and the number of employees located in the Qualified Opportunity Zone, or other information related to the employment impact of the QOF, QROF, and QOZB. For real property, the number of residential units must also be reported. The names, addresses and taxpayer identification numbers of investors that sell an interest in a QOF or QROF must also be identified each year.  Also, the OZ Amendments impose penalties for the failure to file the required information and appropriate funds to the IRS to enable the IRS to make annual reports showing information such as the number of QOFs and QROFs, the employment impact, and the aggregate amount invested. These new reporting requirements enable regulators and the public to better assess whether Opportunity Zone incentives are achieving their intended economic and social benefits, particularly in underserved or rural areas. This regulatory shift, including stricter documentation, regular reporting deadlines, and potential penalties for inaccuracies or omissions, may increase administrative costs, but it also builds greater market confidence in the Opportunity Zone program and helps ensure that tax benefits are tied to demonstrable community impact. Takeaways The OZ Amendments make the tax benefits permanent, ensure that there will be a reduction in capital gains tax due if an investment in a QOF or QROF is held for at least five (5) years, and create a process for new Qualified Opportunity Zones to be designated every 10 years. Additionally, the OZ Amendments' new OZ Statute encourages investment in rural areas by providing additional tax savings to investments in those areas, helping deliver Opportunity Zone benefits to small-scale projects that could create a steady flow of investment to rural communities. Finally, the new reporting requirements create a more robust framework for oversight, improve program credibility, and drive more targeted and responsible investment activity in Opportunity Zones.

Late last week, a bipartisan group of U.S. Senators and U.S. Representatives introduced an expansive bicameral bill, titled the Opportunity Zones Transparency, Extension, and Improvement Act (the “OZ Bill”). This proposed legislation would amend Sections 1400Z-1 and 1400Z-2 (the “Original OZ Act”) of the Internal Revenue Code (the “Code”) in substantial ways, including: disqualifying certain census tracts that have previously been designated as Qualified Opportunity Zones; designating unpopulated industrial brownfields as Qualified Opportunity Zones; introducing additional information reporting requirements for Qualified Opportunity Funds (“QOFs”), persons investing in QOFs, and Qualified Opportunity Zone Businesses (“QOZBs”); introducing penalties for failing to comply with the information reporting requirements; extending the time in which a QOF investor has to pay capital gains tax on an initial investment by two (2) years; allowing an additional 5% reduction in the capital gain tax ultimately due if a QOF investment is held for six (6) years; allowing for feeder funds to invest in a QOF; and providing federal funding for certain projects. Disqualification of Census Tracts The OZ Bill would eliminate any previously designated Qualified Opportunity Zone (“QOZ”) if the associated census tract has a median family income in excess of 130% of the national median family income, unless the poverty rate in such census tract is 30% or more (not including college students). In addition, the chief executive officer of a state may request that certain other census tracts be disqualified as QOZs if the continued designation of such census tract as a QOZ is not consistent with the purposes of the OZ Bill or the Original OZ Act. These “disqualified census tracts” would have to be identified no later than 12 months following enactment of the OZ Bill. The chief executive of a state may nominate replacement census tracts as Qualified Opportunity Zones. Importantly, preexisting trades or businesses operated by a QOF or QOZB in a disqualified census tract can retain the tax benefits of the Original OZ Act so long as a registration statement under the Securities Act of 1933 or similar offering memorandum or disclosure statement has been prepared disclosing an intent to invest in the disqualified census tract, and (1) the QOF or QOZB has made, or has entered into binding commitments to make, an investment of at least $250,000 that has been designated in writing for use in the trade or business, or (2) the IRS has determined that the entity has relied upon the designation of the disqualified census tract as a QOZ and has suffered a loss as a result of the removal of the designation. Brownfield Industrial Tracts The OZ Bill would allow unpopulated brownfield industrial tracts that are contiguous to a QOZ or has been merged into a QOZ as a result of the 2020 Census to be designated as QOZs. Such tracts would have to be nominated by the chief executive of each state or territory and would not count against the limitation on the number of QOZs in each state or territory. Information Reporting Requirements The OZ Bill would introduce a new section of the Code, section 6039K.  Code section 3039K would require every QOF to annually file an information return that reports a host of information, including the value of property held by the QOF, the name and taxpayer identification number (“TIN”) of the QOZB a QOF has invested in, the NAICC code for the business conducted by the QOF or QOZB, the census tract the QOF or QOZB operates in, the value of the property owned or leased by the QOF or QOZB, the number of residential units held by the QOF or QOZB (if any), and the average number of full time equivalent employees of the QOF or QOZB. Additionally, each QOF would be required to identify the name and TIN of each person who disposed of an interest in the QOF, as well as the dates acquired and disposed, and the amount of investment disposed.  The QOF would also have to provide some of this information to its investors. In addition, the OZ Bill would introduce new Code section 6039L, which would require QOF investors to provide information annually regarding an investment in a QOF.  Such information would include the name and TIN of the QOF, the amount of short- and long-term gains invested, and information related to the disposition of any QOF investment. Finally, the OZ Bill would introduce new Code section 6039M, which would require a QOZB to report certain information to be determined by the IRS by Regulation. The OZ Bill would also impose penalties for the failure to provide the information returns identified above, ranging from $500 to $50,000 (adjusted by inflation after 2023), depending on the nature of the failure and the amount of assets in the QOF. Data Reporting The OZ Bill would require, as soon as practicable after enactment, a report on QOFs that will include the total number of QOFs, the dollar amount of assets held in QOFs, the dollar amounts by investments across each NAICC industry code, the percentage of census tracts that have received QOF investment, the number of employees of a QOZB in each QOZ, and the amount of QOF investment in real property and other qualified opportunity zone property. The OZ Bill would also require studies into of the effects of QOF investment on poverty and employment, and new businesses. Modification of Certain Rules for Investment The OZ Bill would effectively extend the opportunity zone program for two years by making December 31, 2028 the date upon which the tax would be due on any deferred capital gains invested in a QOF. As noted above, the OZ Bill would also allow for an additional 5% reduction on the capital gains tax due if the investment in a QOF is held for six (6) years. These provisions would apply to QOF investments made after December 22, 2017. The OZ Bill would also allow for so-called “feeder funds” to invest in QOFs. A feeder fund, for the purposes of the OZ Bill, is any investment vehicle organized as a partnership and formed for the purpose of investing in a QOF. All investments into the feeder fund must be made in cash, and no less than 95% of the assets of the feeder fund must be QOF investments.