Will Qualified Opportunity Zone Changes Have Investors Hitting Pause?

The 2025 Tax Act cements tax benefits offered under the Qualified Opportunity Zone ("QOZ") program, which was created to incentivize investment in low-income and high-poverty areas, and adds specific tax benefits for rural QOZ investors under the program, potentially making rural investments more attractive.

Under the original QOZ regime, investors received a 10% step-up in basis on the 5th anniversary of their investment, and an additional 5% step-up in basis on the 7th anniversary, thereby reducing their capital gain on dispositions before December 31, 2026. Thus, to reap the full 15% step-up benefit, investors would have needed to invest in a QOZ on or before December 31, 2019. Additionally, investments held for at least ten years were free from federal income tax upon disposition.