By Jessica I. Marschall, CPA
President, MAS LLC
July 7, 2025
Introduction
Since their introduction under the Tax Cuts and Jobs Act of 2017, Opportunity Zones have emerged as a powerful tool to encourage long-term investment in economically distressed communities. These provisions offer significant tax advantages to individuals and entities willing to reinvest capital gains into designated Qualified Opportunity Zones (QOZs) through Qualified Opportunity Funds (QOFs). At MAS LLC, we work closely with clients to evaluate whether these programs align with their investment, tax planning, and social impact goals.
This article provides a technical overview of Opportunity Zone tax benefits, the structure and requirements of Qualified Opportunity Funds, and recent legislative updates enacted through the Big Beautiful Bill.
Overview of Opportunity Zones
Opportunity Zones are designated census tracts identified by state governors and certified by the U.S. Department of the Treasury. These areas are intended to stimulate private investment and job creation in underserved communities by offering tax deferral and exclusion benefits to investors.
As of 2025, there are 8,764 certified tracts across all 50 states, the District of Columbia, and five U.S. territories. These zones include a wide variety of urban, suburban, and rural communities targeted for economic revitalization.
Key Tax Benefits
Investors who realize capital gains and reinvest those gains into a Qualified Opportunity Fund within 180 days may receive the following tax benefits under Internal Revenue Code Sections 1400Z-1 and 1400Z-2:
- Deferral of Capital Gains:
Capital gains reinvested in a QOF can be deferred until the earlier of December 31, 2026, or the date the QOF investment is sold or exchanged.
- Permanent Exclusion of QOF Investment Gains:
Gains realized from the QOF investment itself may be excluded from federal capital gains tax if held for at least 10 years. This exclusion applies only to post-investment appreciation, not to the original deferred gain.
- Renewed Step-Up in Basis for New Investments:
Under the Big Beautiful Bill, the step-up in basis has been reinstated for new QOF investments. Investors who hold QOF interests for five years will receive a 10 percent basis increase, and those holding for seven years will receive an additional 5 percent basis increase, allowing up to 15 percent of the original gain to be excluded from taxation.
Structure and Requirements of Qualified Opportunity Funds
A Qualified Opportunity Fund is an investment vehicle organized as a corporation or partnership for the purpose of investing in Qualified Opportunity Zone Property (QOZP). To qualify, at least 90 percent of a QOF’s assets must be invested in:
- Equity interests in a Qualified Opportunity Zone Business (QOZB), or
- Tangible property used in a trade or business that meets the original use or substantial improvement test.
QOFs must file IRS Form 8996 and comply with semi-annual testing dates. Penalties may apply if asset tests are not met, although reasonable cause exceptions are available.
Legislative Enhancements Under the “Big Beautiful Bill”
The bill, passed on a Republican party-line vote, includes several critical provisions affecting Opportunity Zones:
- Permanent Program Extension:
The QOZ program is no longer subject to expiration and has been made permanent under federal law.
- New Eligibility Requirements:
The bill redefines which areas can qualify as Opportunity Zones by requiring zones to demonstrate continued economic need and alignment with stated policy goals. This may result in the sunset of underperforming or misaligned zones.
- Elimination of State and Territorial Caps:
The previous geographic cap on the number of zones per state and in Puerto Rico has been eliminated, allowing for more flexible designation of qualifying tracts.
- Enhanced Reporting and Transparency:
QOFs will now be required to publicly report data on project outcomes, including job creation, environmental impact, and capital deployment, as part of a new compliance framework intended to promote accountability.
- Technical Simplifications and Clarifications:
Provisions have been added to clarify testing periods, related-party rules, and investment timelines to encourage participation and reduce administrative burden.
For detailed analysis of the bill, see Pillsbury’s summary here, Buchanan Ingersoll & Rooney’s breakdown here, and Duane Morris’s commentary here.
Compliance Considerations
Investors should continue to track:
- The date and amount of the original capital gain,
- The 180-day reinvestment window,
- QOF certification and testing deadlines,
- Updated zone eligibility criteria and program rules following the legislation.
It is also important to consider state-level conformity. Not all states align with federal Opportunity Zone treatment, which may affect state tax outcomes.
Conclusion
The Opportunity Zone program continues to offer one of the most advantageous tax planning tools available to U.S. investors. With enhanced incentives, renewed compliance standards, and expanded eligibility, the program has taken a significant step forward in promoting long-term, sustainable investment in underserved communities.
At MAS LLC, we help clients evaluate the legal, financial, and strategic implications of Opportunity Zone investing. Our team is available to assist with QOF formation, due diligence, and compliance planning as this transformative program enters its next phase.
References
- Internal Revenue Code §§ 1400Z-1 and 1400Z-2
- IRS Form 8996 and Instructions
- IRS Opportunity Zones FAQs: irs.gov
- Pillsbury: Opportunity Zones and the Big Beautiful Bill
- BIPC: One Big, Beautiful Bill…Simplified
- Duane Morris: Permanent Opportunity Zone Program Clears Senate
- Tax Cuts and Jobs Act of 2017, Public Law No. 115-97
