A Revamp to Opportunity Zone May Mean a Major Tax Savings Opportunity for Investors

Congress is cooking up a refreshed version of the Opportunity Zone program—call it OZ 2.0—with a slate of investor-friendly updates that could make the next wave of OZ investing more flexible, more accessible, and may be a welcomed injection of opportunity for real estate investors. While we do not know what changes will be proposed by the Senate and what the final bill enacted into law will ultimately be, the current bill passed by the House has revamped tax incentives, more lenient time restrictions, and expanded eligibility. Here is where the bill currently stands, so you can start to get a sense of what could be coming—and why now might be the right time to take a second look at this tax deferral strategy.

Reduction in Taxes

The proposed bill would replace the previous tiered system of basis step-ups (10% after five years, 15% after seven) with a simplified and more generous model:

• 10% basis step-up after a five-year hold for non-rural QOZ investments
• 30% basis step-up after a five-year hold for rural QOZ investments

These apply to new investments made after December 31, 2026^1,2,3. Importantly, the 100% basis step-up after a 10-year hold- which eliminates capital gains tax on gains that take place within the QOZ fund. This means that holding an investment for 10 years could still result in zero tax on the growth^4,5.

Deferment of Taxes Extended

Currently, deferred capital gains must be recognized by the end of 2026. However, the proposed legislation may extend that deadline to 2028 or beyond, giving investors more time to realize gains and reinvest them into OZ funds⁶.

This deferral effectively works like an interest-free loan from the IRS, giving investors the opportunity to put that capital to work for an extra two to three years before taxes are due.

Expanded Eligibility

For the first time, investors may be allowed to contribute up to $10,000 of ordinary income (not just capital gains) to a QOZ fund over the life of the program. While the tax advantages for these contributions are more limited, this provision gives smaller or non-institutional investors an opportunity to participate—especially those who are investing based on project fundamentals rather than tax strategy alone^7,8,9.

60-Month Working Capital Safe Harbor

Under current rules, Qualified Opportunity Zone Businesses (QOZBs) face tight deadlines for deploying investor capital—typically requiring rapid action to acquire assets, begin development, or grow operations.

The new proposal would extend the Working Capital Safe Harbor period to 60 months (five years), giving QOZBs significantly more breathing room to execute their business plans. This added runway could increase the likelihood of success by allowing more time to address unforeseen delays or market shifts¹⁰.

What to Expect Going Forward

With OZ 2.0 on the horizon, the Opportunity Zone landscape could become more investor-friendly than ever—offering stronger tax perks, greater flexibility, and a longer runway to deploy capital.

Whether you’re sitting on capital gains, exploring your first OZ deal, or just intrigued by the idea of tax-advantaged real estate in emerging markets, now is the time to start planning.

Because if these reforms pass, the investors who are ready to move quickly may be the ones best positioned to benefit.

Schedule a call with our team to explore how these potential changes could fit into your 2025 strategy.