Are Opportunity Zones about to become a lot more important?

Question

I've had several conversations lately with investors who think Opportunity Zones are either going away or that they missed the boat.

The reality is that the program was recently made permanent, and some significant changes are coming beginning in 2027.

What surprises me most is how much confusion still exists around Opportunity Zones.

Some investors think the primary benefit is tax deferral.

Others believe all current Opportunity Zones will remain in place indefinitely.

I've even heard investors say they aren't paying attention because they assume the program is ending.

Meanwhile, states will soon have the opportunity to redesignate zones, eligibility requirements are changing, and additional incentives are being created for certain rural areas.

That raises an interesting question.

Will the next generation of Opportunity Zone investments look very different from what we've seen over the past several years?

For investors, developers, CPAs, attorneys, and fund managers:

What is the biggest misconception you hear about Opportunity Zones today?

And do you see the upcoming changes creating more opportunities or more uncertainty in the market?

Christopher Tile · Answer

Hey @Matthew Schumacher,

I'd say one of the bigger missed items is the actual qualifying structure. A fund must formally elect QOF status and self-certify via Form 8996 AND must hold at least 90% of its assets in qualified opportunity zone property.

I underlined "fund" because typically a QOZ strategy involves a tiered structure. Fund over the business that owns the assets/property. The fund will satisfy the asset test by owning the business interest in the property.

Jason Malabute · Answer

Great thread Matthew. The piece I see people gloss over the most is the actual structure that makes the tax benefits work, not just buying inside a zone. The fund itself has to elect Qualified Opportunity Fund status and self-certify every year on Form 8996, and it has to keep at least 90% of its assets in qualified opportunity zone property to pass the asset test. In practice most of these deals get built in two tiers, with the QOF sitting on top of a lower business or project entity that actually owns the real estate, and the fund meets its 90% test by holding the interest in that lower business rather than owning the property directly. That setup usually gives you more breathing room on the day to day qualification rules, which is why you see it used so often. The right structure really depends on the specific deal and your own facts though, so it is worth confirming with your own CPA before you build it out.

Janet Behm · Answer

Matthew,Thanks for stirring the OB3 pot.Depending on the investors' outcome, OZ is VERY MUCH on the table. Well presented!I'm following you. Janet

Rohullah Sharifi · Answer

this is attractive and during consult mention to clients. However, due to 10 years delay and tax planning, mostly clients are reluctant to discuss further or show interest.

Are Opportunity Zones about to become a lot more important?

Are Opportunity Zones about to become a lot more important?

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