Tax Talk - Changes To The Opportunity Zones Under New Law

The following boxes outlines the key differences between the Opportunity Zones under the TCJA and the Opportunity Zones under the OBBBA.

Opportunity Zones Under the TCJA

Expires in 2026.
The basis steps up by 10% if held for 5 years and by 15% if held for 7 years.
Income can become permanently excluded from taxable income if the qualifying property is held for 10 years.
Debt could not be used to finance the transaction.
There is a temporary deferral of capital gain until 2026, or until the asset is disposed of.
These rules will remain in effect until December 31, 2028.

Opportunity Zones Under the OBBBA

No expiration.
Zones will be established on a 10-year rolling cycle.
The qualifications to be considered a zone are stricter, which will result in fewer zones overall.
Basis steps up by only 10% if held for 5 years and not considered a rural zone.
Rural opportunity zones have been established.
There's a 30% basis step up if held for 5 years.
Substantial improvement only requires 50% of the investment amount.
If held for 30 years, the basis will step up to fair market value (FMV).
New Treasury reporting requirements are expected to include the value of total assets, value of its property, and employee counts, among other things.
New accuracy penalties will be in place. Failure to comply with reporting requirements can trigger a $10,000 penalty per return or $50,000 for qualified opportunity funds (QOFs) with over $10 million in assets.
These new rules will take effect on January 1, 2027.