Tucked within the One, Big, Beautiful Bill, the House GOP’s signature tax reform package introduced this week, is a major revamp of the federal opportunity zone program. The legislation proposes a second round of OZ designations and introduces several structural reforms aimed at redirecting capital to rural and deeply distressed communities.
The proposed framework, backed by President Donald Trump and House Republicans, would renew and expand the OZ incentive beginning in 2027. While it builds on the original program enacted under the 2017 Tax Cuts and Jobs Act, the update reflects lessons learned, and criticisms faced, during the initial deployment of OZ funds.
Key Changes in the Proposal
- New Designation Window (2027–2033): States would be authorized to nominate a new slate of opportunity zones for a six-year window starting in 2027. This second round is distinct from the original 2018 cohort, which expires at the end of 2026.
- Stricter Eligibility Rules: The bill tightens the criteria for census tract selection by removing the “contiguous tract” provision that allowed gentrifying or adjacent areas to qualify. Instead, only census tracts with more severely depressed income levels would be eligible, with final selection guided by IRS rules yet to be proposed.
- Rural Investment Requirement: At least 33% of newly designated OZs must be located entirely in rural census tracts. The bill also creates a subcategory of “rural qualified opportunity funds,” or RQOFs, to attract capital to underdeveloped regions.
- Tiered Basis Step-Up: Investments in standard OZs would earn a 10% step-up in basis after five years, while RQOF investments would receive a 30% step-up after the same holding period, a notable enhancement designed to accelerate rural development and boost returns for long-term capital.
- Lower Substantial Improvement Threshold for Rural Projects: The substantial improvement requirement for rural OZ investments would be reduced from 100% to 50%, making it easier to rehabilitate distressed or underutilized assets in areas with low redevelopment capacity.
- Post-Tax Investment Flexibility: The bill allows individuals to contribute up to $10,000 in post-tax income into a QOF or RQOF annually, a change that could increase participation among middle-income investors and broaden retail access to OZs.
- Mandatory Transparency and Reporting: To address longstanding criticisms over data opacity, the proposal includes new reporting requirements for funds and project sponsors, including impact metrics and compliance disclosures.
Proponents of the changes argue they bring sharper focus and more equitable outcomes to the OZ incentive. “This bill builds on the original success of opportunity zones by ensuring investments go where they’re needed most — rural towns and deeply underserved communities,” said House Ways and Means Chairman Jason Smith, R-Mo., in a statement.
The OZ overhaul is part of a broader tax package that Republicans are advancing through the budget reconciliation process, which allows them to bypass a Democratic filibuster in the Senate. If enacted, the updated OZ framework could dramatically reshape capital flows into place-based private equity and real asset strategies.
Democrats, however, remain skeptical. While some have previously supported opportunity zone reforms focused on transparency and accountability, many view the current proposal as part of a broader partisan tax agenda. In a statement Monday, the Democratic National Committee called the overall bill a “cowardly” attempt to deliver tax breaks to the wealthy while undermining health care and social programs.
The bill is currently under review by the House Ways and Means Committee and is expected to advance to a full House vote in the coming weeks. If passed, reconciliation in the Senate would likely follow this summer.
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