A new bill proposes changes to the Qualified Opportunity Zone program, addressing criticisms and boosting potential for economic development.
The U.S. House passed the “One, Big, Beautiful Bill Act” (OBBB), a sweeping legislative proposal that could significantly reshape the Opportunity Zone (OZ) landscape — particularly for rural communities.
Now, the Senate has entered the conversation with its own draft legislation, released by Senate Finance Committee Chairman Mike Crapo.
While both versions share common goals, they remain in legislative drafts and are subject to change before any final vote.
Key provisions that may redefine opportunity zones
The following is a side-by-side analysis of the OZ provisions in the House and Senate versions of the OBBB.
| Provision | House Version | Senate Version |
|---|---|---|
| Permanence | Temporary | Permanent |
| Rural emphasis | At least 33% of new OZs must be rural or all rural low-income tracts in a state | Same |
| Duration and redesignation | January 1, 2027, through December 31, 2033 |
Permanent with OZ designations occurring every 10 years |
| Eligibility criteria | Tightened: excludes tracts with median income ≥125% of state/metro median; eliminates contiguous tracts adjacent to low-income communities | Same |
| Gain deferral | 2033 recognition period | General 7-year maximum deferral |
| Basis step-up | 10% after 5 years; 30% for rural OZ investments |
Incremental increases over six years (1% for years 1–3, 2% for years 4–5, 3% in year 6) for a total of 10%. Rural OZ step-ups are tripled. |
| Ordinary income deferral | Up to $10,000 allowed | Not applicable |
| Improvement threshold | Reduced to 50% for rural OZs (was 100%) |
Same |
| Enhanced reporting and transparency | Mandatory: property location, NAICS codes, employment, residential units, values | Same, with additional $15 billion in funds for implementation |
| Qualified Rural Opportunity Fund (QROF) | Must hold 90% of assets in rural OZs; receives enhanced tax benefits | Same |
Addressing the shortcomings of OZ 1.0
The original Opportunity Zone program was groundbreaking, but not without flaws. The proposed OZ 2.0 framework seeks to address several key concerns:
Wealth concentration
Critics argued that OZ 1.0 disproportionately benefited wealthy investors rather than the low-income communities it was designed to support.
Lack of oversight
Minimal reporting requirements made it difficult to track how funds were used or whether they delivered community benefits.
Zone selection issues
Some designated OZs were not truly distressed, diverting resources from areas with greater need.
Unclear economic impact
Limited data made it hard to assess whether the program delivered meaningful economic development.
By tightening eligibility, enhancing transparency, and prioritizing rural and underserved areas, the new proposal aims to realign the program with its original intent.
Key takeaways from potential OZ policy changes
More potential for rural impact
The new rural requirements could drive more meaningful investment into non-metro areas — addressing a major shortcoming of the original OZ 1.0 program.
Rehabilitation-friendly
Lowering the improvement threshold in rural OZs to 50% of basis may allow additional existing properties to qualify, opening the door for impactful rehab projects.
Greater transparency
New reporting requirements would provide clearer insights into how OZ investments affect housing and employment — two areas where the original program faced criticism.
Senate influence
Senator Tim Scott, a key proponent and co-sponsor of the original OZ legislation, is expected to play a major role in shaping the final version of the bill. His input and policy priorities could lead to further enhancements to the program before passage.
Navigating the “dead zone” transition period
One unanticipated consequence of shifting from the temporary OZ 1.0 framework to a permanent OZ 2.0 structure is the emergence of a potential “dead zone” — a transitional period that could disrupt new investments.
Under the current proposal, capital gains recognized in 2025 and 2026 would be taxed in the 2026 tax year. Since the new OZ 2.0 designations are not set to begin until January 1, 2027, this creates a gap where investors may delay activity to wait for the new, more favorable provisions.
This lull could temporarily stall Opportunity Zone investments, particularly in rural areas that stand to benefit most from the updated incentives.
However, there are potential solutions under consideration:
- Strategic deferral: Consider postponing the contribution of 2026 capital gains until 2027 to align with the anticipated launch of the updated Opportunity Zone program.
- Retroactive enactment: Lawmakers may also revise the legislation to make the effective date retroactive to the bill’s passage, helping to smooth the transition and avoid a drop-off in investment activity.
This “dead zone” is not a flaw in the policy but rather a natural result of transitioning from a temporary to a permanent framework.
What this means for real estate investors
The proposed Opportunity Zone 2.0 framework presents both new opportunities and added complexity for real estate investors, developers, and fund managers, particularly those focused on rural markets. Enhanced tax incentives, such as the increased basis step-up and reduced improvement thresholds for rural OZs, could make certain projects more financially attractive.
However, the updated program introduces significantly more rigorous compliance and reporting requirements. Investors should be prepared for a more complex regulatory environment that demands careful planning and documentation.
While the bill has passed the House, its final form will likely be shaped in the Senate. Given the current Senate majority, Republicans may be able to advance the bill without bipartisan support, though negotiations could still influence the final provisions.
How to prepare for changes to the Opportunity Zone program
Evaluate your pipeline
Identify rural projects that could qualify under the new OZ 2.0 criteria.
Plan for 2026 tax exposure
Investors with deferred gains from OZ 1.0 should begin strategizing now. Since no legislative relief is currently proposed, proactive tax planning will be essential to manage the upcoming liability.
Engage early
Consult with legal and tax advisors to assess how the proposed changes might affect your strategy.
Leverage specialized knowledge
Given the increased complexity and compliance requirements, it’s crucial to work with professionals who are deeply familiar with Opportunity Zone regulations.
How CLA can help with Opportunity Zone strategies
CLA’s dedicated Opportunity Zone team is well-equipped to help you navigate these potential changes. Our CPAs and wealth advisors are immersed in the real estate field, the investment market, tax reform, and the industries our clients operate businesses in. We can help you make clear decisions and realize the full benefits of the OZ program.
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