The federal Opportunity Zone (OZ) program has undergone its most significant update since it was created in the Tax Cuts and Jobs Act of 2017 (P.L. 115-97). Under the One Big Beautiful Bill Act (P. L. 119-21, enacted July 4, 2025), the program is now permanent and includes new rules aimed at tightening eligibility, expanding rural incentives, and increasing transparency. These changes respond to long-standing concerns about how and where OZ investments are made, while setting the stage for a new round of designations in 2027.
Key Changes Under the New Law (OZ 2.0)
The OZ program is now a permanent part of the tax code. Current designations will end on Dec. 31, 2026, and governors will select new OZs every 10 years, starting July 1, 2026, with designations taking effect on Jan. 1, 2027. Capital gains deferrals after that date will be available only in the newly designated areas.
Eligibility criteria have been tightened. The “low-income community” threshold has been reduced from 80% to 70% of area median income, the contiguous tract exemption has been removed, and any area with a poverty rate of at least 20% must also have median family income no greater than 125% of the state or metropolitan median.
Rural areas stand to benefit from new incentives. Investments in these communities will now receive a 30% basis step-up (compared to 10% previously), and the “substantial improvement” requirement has been lowered to 50% of a property’s adjusted basis rather than 100%.
Transparency is increasing through new reporting requirements for Qualified Opportunity Funds, which must now disclose total assets held, investment amounts, and data on employment and housing.
However, the law does not include provisions to direct investment toward specific types of projects such as operating businesses, nor does it limit eligible uses such as cryptocurrency- related facilities or self-storage.
What This Could Mean for Economic Developers
New Designation Opportunities: Communities that did not previously qualify may be eligible starting in 2027 under the stricter income thresholds.
Rural Development Boost: Enhanced incentives could make rural projects more attractive to investors.
Planning Ahead: Current OZ benefits end in 2026 for existing tracts—developers should track designation timelines and prepare project pipelines now.
More Data for Evaluation: Expanded reporting may help local leaders measure the impact of OZ investments and adjust strategies.
Caution on Project Types: Without new restrictions, speculative investments remain eligible—local partnerships may be key to directing capital toward community-benefiting projects.