Congress Made Opportunity Zones Permanent. Here’s What Happens Next

Many commercial real estate developers and investors have been anxiously waiting to see what the second iteration of the opportunity zone tax incentive program would look like, and now they have their answer.

The final version of the One Big Beautiful Bill Act that Congress passed last week and President Donald Trump signed included a provision to make the opportunity zone program permanent, as it was scheduled to sunset next year. The bill also made changes to the program intended to better steer investment toward the economically distressed communities for which it was designed.

But those communities may have to wait a while: OZ 2.0 isn’t set to go into effect for another 18 months, and as the first version approaches its end date, industry players expect investment in the current zones to dwindle.

"I think there's just a risk deploying capital into a program that's sunsetting," said LD&D Managing Partner Diego Bonet, whose firm has built projects with OZ funding. 

The new program is set to redraw the map of opportunity zones — areas where investors receive tax benefits for putting money into real estate projects and operating businesses.

Governors are scheduled to begin designating new OZ census tracts in July 2026, and the designations would become final by Jan. 1, 2027, when the new tax benefits go into effect. 

In the meantime, the U.S. Department of the Treasury is expected to roll out new regulations for the second iteration of the program. The first rollout of regulations was a lengthy process that wasn’t finalized until two years after the December 2017 passage of the bill that created the program, but OZ experts believe it will be an easier process this time around.

"It's a little more stable," Pillsbury partner Andrew Weiner said. "You're starting from a program that's knowable, even though you're going to have to have some new regulations put in, particularly transition regulations, but people are excited."

As governors decide what areas to designate as opportunity zones, the bill tightened the criteria for what census tracts are eligible. It lowered the income threshold from 80% to 70% of the area median income and removed the ability of census tracts adjacent to low-income areas to qualify.

The first iteration created 8,764 opportunity zones across the United States, and roughly 66% of these zones received investment by the end of 2022, according to the Urban Institute. At the end of 2024, the opportunity zone funds Novogradac tracks raised roughly $40B since 2017.

The program has faced some pushback from critics who said it offered tax breaks to investors building in areas that were already seeing development move forward, and not enough for the most economically distressed communities. 

While the new bill makes the program permanent, it won’t set the same OZ map in stone forever.

The map of qualified opportunity zones is slated to reset every 10 years starting Jan 1, 2027, and governors will be able to adjust their maps using data on how it is working. The bill also adds a new reporting aspect, requiring investors and the U.S. Treasury Department to report data on investments made in opportunity zones.

"It helps them to better target where they want to designate opportunity zones," said Jill Homan, who has managed an opportunity zone fund and is now deputy director of economy and trade at America First Policy Institute. "You'll get into the rhythm of getting data and where governors will designate zones."

Weiner, who specializes in opportunity zone tax law, said under the new iteration of the program there could be fewer zones allocated by each state.

"A lot of current opportunity zones will not be eligible, but some will," Weiner said. "People who are already working in an opportunity zone may have a leg up on that too, if they think the opportunity zone is going to be re-upped."

Each state is required to designate a minimum of 25 census tracts as opportunity zones, and they can nominate no more than 25% of the total eligible tracts in a state.

Economic Innovation Group CEO John Lettieri said the one-year window before submitting census tracts for OZ 2.0 should help governors make informed decisions, and they can learn lessons from the first iteration.

"There is some delay — 18 months of delay — before the new benefits themselves actually kick in," he said. "That's more than enough time to get all that out."

Lettieri said the new Treasury Department regulations shouldn't stray too much from the ones for the current program, though it will have to create new rules for the reporting process created in the bill.

Before instilling the new regulations, the agency will also solicit public comments on how the government should implement the new rules.

With OZ 1.0 sunsetting and the deferral period getting smaller by the day, Lettieri expects most investors will wait until the new program begins before deploying new capital into these communities.

The period between the bill’s passage last week and the launch of OZ 2.0 in early 2027 has been dubbed the "dead zone," and industry players expect opportunity zone projects will slow.

This is in part because some of the tax benefits from the first iteration of the program have already expired.

The program has three main tax benefits: a 10-year hold that allows investors to receive tax benefits after holding the asset for that period, a five-year deferral period on taxes, and the 10% step-up in basis on an investor's original capital gains deferral.

As the current program stands, investors are no longer eligible to receive the 10% step-up because it was a time-limited benefit, and the deferral period is getting shorter by the day and isn’t as strong as it was earlier in the program’s life cycle.

Investors looking to push money into opportunity zones can still get the 10-year-hold tax incentive on their investment, which for some is the big-ticket item. This allows investors to hold an investment for a decade without having to pay capital gains taxes on the value appreciation.

"It's not a risk thing, it's a reward thing for why somebody might choose to wait — if they can — to deploy their capital until the new benefits kick in," Lettieri said.

LD&D's Bonet said there isn't much investors can do to prepare for the new program. He said all eyes are on next year when zones start to be designated, which will give investors a better picture of what's out there.

"The problem is we don't know what the opportunity zones will actually be until midway next year," Bonet said. "I think our strategy will be to try to get all of our ducks in a row so that once those opportunity zone areas are released, we can quickly scout for deals."

LD&D finished work on the 20-story, 224-unit Wynwood Haus in Miami that opened last year using OZ funding, and it is working on a second OZ project called DoMo at Cass Square in Tampa, Florida.

Homan said although there could be a slowdown in investment, there are still opportunities for investors now.

"We don't need to wait till opportunity zones 2.0," Homan said. "You can invest right now. It's been a very challenging fundraising environment right now. This renewed attention will provide some renewed investor appetite."

Bonet said there are still OZ funds with capital that needs to be deployed, and that money might flow toward shovel-ready sites so investors can get the most benefit in the limited window.

But for sites that aren’t shovel-ready, there could be risk.

"You run the risk that when the new opportunity zone regulation is implemented, your site is no longer in an opportunity zone," Bonet said. "It probably does create a little bit of a standstill period for 2026, but there's capital that has been raised that needs to be deployed."

With the government focused on implementing all of the wide-ranging provisions and programs from the One Big Beautiful Bill, there could be a log jam for releasing the OZ regulations as other things get sorted out.

"That's a huge exercise," Lettieri said. "The part that makes me a little cautious about the timeline expectations is that this is one of many, many things that they have to implement."