Part 2: The One Big Beautiful Bill Act (OBBBA) and Investment Real Estate:

What’s New with Qualified Opportunity Zones and Funds

By Rich Arzaga, CFP®, CCIM

The 2017 Tax Cuts and Jobs Act (TCJA) introduced Qualified Opportunity Zones (QOZs) as a way to incentivize long-term investment in underserved communities. With the passage of the One Big Beautiful Bill Act (OBBBA), investors and advisors should take note of several important enhancements and permanent changes that elevate the utility and accessibility of Qualified Opportunity Funds (QOFs).

This post summarizes the most notable updates under the OBBBA and their implications for real estate investors and their professional advisors.

Provision	2017 TCJA	2025 OBBBA	What’s Different Now
QOZ Designation Period	Set to expire December 31, 2026	Establishes a recurring framework	Investors now have more time and flexibility to identify and invest in QOZs
OZ Tracts	Focused primarily on urban areas	Reorients focus toward rural areas	Investors are incentivized to invest in rural and underserved markets
OZ Tract Selection	Initial 10-year designation ending in 2026	Beginning in 2027, new tracts will be identified in 10-year cycles and certified by the Treasury	Makes the QOZ program permanent through cyclical renewal
Adjacent Tracts	Permitted investment in tracts adjacent to designated QOZs	Repeals adjacent tract eligibility	Tightens QOZ usage to more targeted communities
Appreciation of QOZ Investment	Tax-free appreciation available after a 10-year hold	Tax-free appreciation renews with each 10-year cycle	Enables repeat tax benefits for new investments over time
Deferred Gain Basis Step-Up (Urban Tracts)	10% basis step-up after 5 years, +5% after 7 years (only if invested by 12/31/2019)	10% basis step-up available for urban investments made after 2026 and held 5+ years	Step-up benefit is renewed each cycle, but the 5% add-on is eliminated
Deferred Gain Basis Step-Up (Rural Tracts)	Same as above	30% basis step-up for rural investments held 5+ years (for investments made after 2026)	Substantial new incentive for rural QOZ investing
QOF Fund Structure Flexibility	Only allowed direct investments in QOZ businesses or property	Permits "fund of funds" structures for greater diversification	Makes QOZ investing more accessible to smaller and diversified investors
Reporting and Compliance	Basic IRS forms required	Introduces third-party audits, stricter disclosures, and public transparency	Enhances oversight, integrity, and investor confidence
Community Impact Requirements	No formal standards	Establishes thresholds for job creation, local investment, and affordability	Enforces a stronger connection between capital and community benefit

📌 Also see: Part 1: The One Big Beautiful Bill Act (OBBBA) and Investment Real Estate — Urgent Highlights for 2025 and Beyond Tax Planning

¹ This content is for educational purposes only and should not be considered tax advice. Please consult with your tax professional to evaluate how these provisions may apply to your situation.