Opportunity Zones have long been a meaningful tool for pairing real estate investment with community development. In episode 76 of The Local Real Estate Developer™, VF Law Attorney Coni S. Rathbone discussed the updated program, often called Qualified Opportunity Zones 2.0 (“QOZ 2.0”), and why developers, investors, and project sponsors should be planning now.
As of July 2025, the program is permanent and designed to offer a clearer long-term incentive structure for qualifying investments. Three program benefits include tax deferral of 5 years from the investment date, a 10% basis step-up once taxes are paid, and a 100% basis step-up if investors hold the asset for 10 to 30 years and then liquidate.
Four Key Takeaways
- Opportunity Zones remain a real estate financing conversation, not simply a tax conversation.
The potential tax benefits can make an otherwise viable project more attractive to investors. But a project still needs sound fundamentals: a viable location, a realistic capital plan, experienced operators, and a clear path to development, stabilization, or disposition.
- QOZ 2.0 is intended to provide a more durable planning horizon.
Qualifying investments made in the new program period generally use an investment-based deferral period, giving sponsors and investors a more predictable basis for planning multi-year development projects.
- Rural projects receive enhanced incentives.
Given the inherent challenges of financing and delivering rural projects, QOZ 2.0 places particular emphasis on rural investment. Projects that qualify under the rural rules are eligible for more favorable tax treatment, a 30% step up in basis when taxes are paid on the investment instead of 10% for non-rural, and a 50% substantial improvement requirement instead of 100% for non-rural, encouraging developers and investors to assess whether rural communities fit their development strategy.
- Execution matters as much as eligibility.
A project located in an eligible census tract is only the starting point. Investors and sponsors must consider the Qualified Opportunity Fund structure, timing of the contribution, asset and business tests, substantial improvement requirements where applicable, reporting obligations, and the project’s anticipated exit. Early legal and tax coordination can help preserve flexibility and reduce the risk of losing anticipated benefits.
A renewed opportunity to plan strategically
Coni’s conversation is a helpful reminder that tax incentives work best when they support, rather than substitute for, a well established business plan. Developers and investors should evaluate the new rules’ impact on entity structure, projected capital gains, timeline, project location, and exit strategy.
To discuss whether an Opportunity Zone structure may fit your next project, contact VF Law Of Counsel Coni S. Rathbone.