Opportunity Zones: What Developers Should Know

Ancient Greeks established trading posts in promising territories, creating economic growth in previously overlooked areas. Similarly, today’s developers can build wealth through strategic investments in Opportunity Zones. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, has changed this program from a temporary initiative to a permanent component of U.S. tax policy. For developers planning projects, understanding these updates is crucial for making informed decisions in this changing environment.

The State of Opportunity Zones in 2025

The Opportunity Zone program underwent significant reform in 2025. The OBBBA makes the program permanent and establishes 10-year rolling zone designations starting January 1, 2027. This provides developers with certainty for planning projects across multiple years.

Investments reached over $42 billion through June 2025. The second quarter of 2025 saw more than $1 billion in new capital, the strongest investment period since early 2023.

Current zone designations remain valid through 2026, with new zones becoming effective Jan. 1, 2027. The qualification criteria now focus on disadvantaged areas, requiring census tracts to have either a median family income below 70% of the metro area or a poverty rate of 20% with a median family income no greater than 125% of the surrounding area.

Key Tax Benefits for Developers in Opportunity Zones

Understanding the transition between the original Opportunity Zone law and the new provisions is critical for developers. Investments made through December 31, 2026, fall under the original 2017 Tax Cuts and Jobs Act rules, while the OBBBA’s enhanced provisions take effect January 1, 2027.

The OBBBA maintains and enhances tax advantages while simplifying the timeline. Developers should consider the key benefits that differ between the two regulatory periods:

Current Rules Through December 31, 2026 (OZ 1.0)

For capital gains invested in Qualified Opportunity Funds (QOFs) during 2025 and through December 31, 2026, the original deferral rules apply. Investors can defer capital gains taxes, but the deferred gain must be recognized no later than December 31, 2026, when filing 2026 tax returns. This means any capital gains invested in a QOF during 2025 will only receive approximately one year of tax deferral before the gain becomes taxable.

The 10-year holding period for tax-free appreciation on the investment itself remains available for these investments, allowing zero capital gains tax on growth if held for at least a decade.

New Rules Starting January 1, 2027 (OZ 2.0)

The OBBBA introduces a rolling five-year deferral period for eligible gains invested on or after January 1, 2027. Instead of a fixed 2026 deadline, deferred gains will be recognized on the earlier of selling the QOF interest or the fifth anniversary of the investment.

Standard OZ investments receive a 10% basis step-up on the deferred gain after five years. For rural development through Qualified Rural Opportunity Funds (QROFs), the OBBBA provides an enhanced 30% basis step-up on the deferred gain after five years. These rural-focused investments apply only to capital gains invested in QROFs on or after January 1, 2027, according to IRS and Treasury Department guidance.

The 10-year tax-free appreciation benefit continues under the new rules, with an additional provision: investments held beyond 30 years receive a basis step-up to fair market value at the 30th anniversary, effectively capping the exclusion benefit at that point.

For developers considering adaptive reuse projects in rural OZs starting in 2027, the IRS has reduced the substantial improvement requirement from 100% to 50% of the adjusted basis for properties in rural areas, lowering barriers to entry. This reduced threshold became effective July 4, 2025, for qualifying rural tracts.

Strategic Location Selection for Maximum ROI

With permanent status and rolling designations, strategic zone selection is essential for developers. Projects in the 3,309 rural zones identified by Treasury Notice 2025-50 can benefit from both enhanced tax incentives and lower improvement thresholds beginning in 2027.

Developers are using data-driven approaches to zone selection, assessing:

• Population growth and migration patterns
• Local economic indicators, including job growth
• Housing supply gaps and demand forecasts
• Infrastructure investment and transportation access
• Community needs that align with project capabilities

The U.S. Department of Housing and Urban Development provides resources for analyzing these factors across all 8,764 designated zones, helping identify markets with both tax advantages and strong fundamentals.

Funding and Partnership Structures for Opportunity Zone Projects

The permanent nature of the program has influenced capital structures for OZ developments. Successful projects often feature funding approaches that combine:

• Qualified Opportunity Fund equity from investors seeking tax advantages
• Traditional debt from financial institutions
• Public-private partnerships with local governments
• Complementary incentives like New Markets Tax Credits or Low-Income Housing Tax Credits

Many developers create their own QOFs or partner with specialized funds that understand specific project needs. This allows for customized capital timing and investment structures that align with development phases.

The real estate development team at James Moore helps optimize these financial structures to balance tax benefits with project returns.

Compliance and Reporting Requirements

The enhanced benefits of the OBBBA include increased accountability measures. New reporting requirements become effective in 2027 and mandate detailed annual information returns with penalties for non-compliance reaching up to $50,000 for large funds.

QOFs investing under the new 2027 rules must track and report:

• Location and value of investments
• Industries supported using the North American Industry Classification System codes
• Employment impacts, including full-time equivalent jobs
• Housing units developed (for residential projects)
• Community impact metrics

How James Moore Can Help With Opportunity Zones

Understanding Opportunity Zones requires knowledge at the intersection of tax strategy, real estate and economic development. James Moore advisors understand the updated program rules and have experience with successful OZ projects.

We assist developers in evaluating potential sites, structuring funding arrangements, navigating compliance requirements, and optimizing tax advantages during development. With the program now permanent, we also provide planning strategies that address the 30-year holding period cap introduced by the OBBBA.

For developers with either new or existing OZ projects, our business advisory services offer guidance for this complex environment.

Next Steps for Developers

The 2025 changes to Opportunity Zones create possibilities for developers who approach them strategically. The program’s permanent status, rural incentives and regulatory framework provide valuable options for those with appropriate projects.

For questions about how these changes might affect your plans, contact a James Moore professional to discuss your specific situation. With proper planning, Opportunity Zones can create financial returns alongside community benefits.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.