This post updates a previous post, to now reflect the provisions of the final enacted legislation.
“Opportunity Zones,” created in 2016 under the Tax Cuts and Jobs Act, were designed to encourage investment in “distressed areas” by way of deferrals and exclusions on otherwise taxable capital gains. With Trump’s “Big Beautiful Bill” having made its way through Congress and being signed on July 4th, we’d like to take this time to walk you through some of the resulting changes to the program.
The biggest change to come from the Bill’s passage is that the Opportunity Zones program is now permanent. Previously, it had been set to expire at the end of next year, meaning no new investments would qualify for the preferred tax treatment. Now, the program itself is permanent, and the zones themselves will be redefined every 10 years.
The new rules also heavily encourage rural investment. In the previous iteration, all investments in Opportunity Zones were given equal credit. Under the new rules, investments in areas defined as rural will receive triple the benefit (30% vs 10% tax credit) as opposed to all other types.
Finally, requirements on what constitutes as a qualifying area have changed. The new law requires that designated tracts meet stricter standards, namely either a median household income below 70% of the state or metro median, or a poverty rate of at least 20% combined with household income below 125% of the median. With these requirements being imposed in the new law, fewer areas will be eligible when zones are re-adjudicated in 2027. It remains to be seen what guidance will be given on how to handle investments made in areas that stop qualifying as an opportunity zone.
States were able to nominate up to 25% of their low-income census tracts to be considered Opportunity Zones. This left North Carolina with 252, with at least one in every county. This number is likely to go down under the new version of the program.
It’s important to note that, as a local government, an investor interested in Opportunity Zones does not require any special approvals from you outside of your normal construction or land-use types. This, however, does not mean there’s nothing for you to do to encourage investments in your community’s Zone(s). “Site prep”, co-locating public functions, and additional incentives for businesses to locate within your Zone are concrete ways to be better positioned to take in Opportunity Zone investment.
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