The One Big Beautiful Bill Act (OBBBA) is transforming the landscape of Opportunity Zone investing, with new provisions that affect how investors can defer gains, step up basis, and achieve tax-free appreciation. One of the most notable updates is the introduction of OZ 2.0, which reinstates benefits previously limited under the original program and creates new incentives for rural investments.

To break down what these changes mean for investors and developers, we sat down with Joe Tamburo, KLR’s Opportunity Zone Practice Leader, who brings extensive experience guiding clients through Opportunity Zone strategy and planning. In this Q&A, Joe explains the key benefits of the program, how to navigate the transition to OZ 2.0, and why careful planning now can maximize tax advantages and position investors for long-term success.

Q: High level, what are the biggest changes to Opportunity Zones under the new law?

Joe Tamburo: If you haven’t already, be sure to check out my recent blog: 2025 One Big Beautiful Bill Act: Key Changes to Opportunity Zones. The biggest change, of course, is that the opportunity zone (OZ) program is now a permanent part of the tax code. It started as a one-off idea to generate investment in certain zones designated by governors. Initially, it was a wait-and-see approach to gauge how the program would be utilized and received.

Because it gained a lot of traction in the marketplace and was popular on both sides politically, it’s now a permanent piece of tax legislation. The Opportunity Zone program now operates on a 10-year rolling period, which gives our clients and investors the ability to plan around those timelines and continue to take advantage of the program.

Q: What are the key benefits of the opportunity zone program? 

Joe: There are three main benefits to making an Opportunity Zone investment, beyond the altruistic goal of directing money into areas that need it:

1. Gain Deferral – If you create a capital gain (for example, by selling Apple stock) and make a timely investment into an Opportunity Zone, you can defer that gain into the future rather than paying tax immediately.
2. Step-Up in Basis – If you meet certain holding periods (previously five and seven years), you receive a step-up in basis, which means you pay less capital gains tax on the original gain.
3. Tax-Free Appreciation – If you hold your investment for 10 years, any appreciation is not subject to tax. For example, if you invest $1 million into an Opportunity Zone and it grows to $2 million over 10 years, the $1 million of appreciation is tax-free upon sale of the QOZ investment.

Currently, only the 10-year hold benefit remains on investment made under OZ 1,0 program before 12/31/2026. Under the new program, what I call OZ 2.0 or the OBBBA OZ program, all three benefits will be reinstated starting in January 1, 2027. Investors can begin taking advantage of these three benefits again at that time.

Q: How can investors plan around these transition dates for the opportunity zone program? 

Joe: There’s going to be specific timing and planning around gains this year, next year, and into 2027 regarding which program people will be able to utilize. The original program has a stop date of December 31, 2026, and the new program starts in January of 2027. There will be more benefits available to those who sell appreciated assets in 2027 compared to 2026.

Q: So you're recommending that people move toward the new program rather than the old one?

Joe: Yes. There are other considerations too as it relates to timing of capital gains. Some people already participated in OZ 1.0 and may want to finish their investments in those projects. They can continue to make those investments until the end of 2026.

Another key change is the redesignation of zones starting in January 2027. Every governor will have the ability to redesignate their state’s zones. A zone in Massachusetts that qualified under OZ 1.0 may or may not be part of OZ 2.0. Redesignation will happen every 10 years, so if you’ve already invested, you’ll need to plan carefully for how to handle future investments through the end of 2026 (OZ Program 1.0)

Q: Do these changes interact with any other OBBA provisions, like bonus depreciation or interest expense limits?

Joe: Certainly. Opportunity Zone funds operate like any other business entity or real estate investment entity, so they’re subject to these provisions. With increased depreciation, bonus and cost segregation, taxpayers with large, deferred gains coming due in 2026 can potentially use depreciation to offset some of that tax liability. The same principle applies in OZ 2.0 starting in 2027: you can generate tax benefits to offset some of the deferred gain.

Q: What is the new incentive for rural Qualified Opportunity Zone Funds?

Joe: The OBBBA introduces a new subset of Opportunity Zone funds called Rural Qualified Opportunity Zone Funds. These are designed to encourage rural investments.

If you invest in rural areas, you can receive even greater benefits. In these rural funds, your basis step-up could be as high as 30%, meaning you’d only pay tax on 70% of your original gain. Thinking ahead, investors should look at each state, the current zones that may be redesignated, and areas that could qualify as Rural Opportunity Zones. If people do the legwork now, they’ll be ahead of the game and may be able to actualize those investments earlier than others.

Q: If you had to give investors one piece of advice right now, what would it be?

Joe: Make sure you plan very carefully. If you're currently invested in an Opportunity Zone, you need to analyze where you are in the life cycle of that investment. Then look towards the new program and how you can leverage OZ 2.0, either with current investments or new ones, to get the most beneficial tax result possible.

Wondering what other tax strategies are being reshaped by OBBBA? This conversation with Joe Tamburo adds to our ongoing Inside OBBBA series, which has already featured insights from Meyer Levy, Deb Pallasch, and Brad Lombardi. Check them out here: 

Inside OBBBA: How 100% Bonus Depreciation is Reshaping Cost Segregation

Inside OBBBA: Restoring the Power of R&D Credits

Inside OBBBA: How International Taxes Are Changing

Next up, Dave Desmarais will share his perspective on year-end giving and how OBBBA is affecting charitable strategies. Stay tuned as we continue to break down the provisions that matter most to investors, businesses, and their advisors.

Don’t forget to register for our 2025 Year-End Tax & Business Planning Webinar, which will feature key insights from Laura Yalanis, Anthony Mangiarelli and Joe Tamburo.