The enactment of the in July 2025 restructured the Qualified Opportunity Zone (QOZ) program. It’s now permanent, encouraging developers and investors to learn about the benefits and implementation. QOZ should no longer be viewed as a temporary tax stimulus but rather (like the IRC 1031 exchange) as a tool to improve project feasibility and investor outcomes.

The 2025 version (QOZ 2.0) of the program includes updates. Two key changes are permanence and provision of additional benefits for rural developments. Permanence was accomplished via a rolling deferral structure. Instead of a fixed date for recognizing invested capital gains, gains invested through a QOF are deferred for five years from the investment date. At that point, the deferred gain is recognized with a 10 percent step-up in basis.

The most significant benefit from QOZ 1.0 remains: if investors hold the asset for between 10 and 30 years, there is a 100 percent step-up in basis when liquidated, eliminating tax gains during the hold period.

Anatomy of a QOZ project

QOZ projects are not fundamentally different from traditional real estate developments. They are typically structured using limited liability companies (LLCs) and investor return waterfalls, with QOZ rules operating as an overlay on existing laws.

LLC and securities laws still apply. The standard test considers whether there is an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. Manager-managed LLCs are generally treated as securities, while member-managed LLCs are not.

QOZ and Qualified Opportunity Zone Business (QOZB) entities must have at least two members, preventing disregarded entities. Clear structuring and documentation are particularly important given the added risks of rural development.

Emphasis of rural development

Congress to encourage rural development. Post-COVID shifts have increased migration from metropolitan areas to rural ones, where daily life often presents fewer obstacles. However, financial viability of rural development has historically been difficult.

QOZ 2.0 adds two benefits for projects in rural areas (under 50,000 in population): a 30 percent step-up in basis when deferred gains are recognized, compared to 10 percent for projects in non-rural areas, and a reduced “substantial improvement” threshold of 50 percent of existing value rather than the normal 100 percent. While the second benefit can support rehabilitation, many rural projects involve original-use land, making the enhanced step-up in basis more impactful.

Rural development challenges

Rural projects remain difficult to finance and deliver. Lenders are often hesitant to fund them, requiring higher equity contributions. Limited comparable data complicates valuation, and concerns about population trends persist.

Construction challenges add to the difficulty. Fewer contractors are based in rural areas, material costs can be higher due to limited purchasing scale, and transportation expenses can also be greater. These factors make projects harder to underwrite and market.

The 30 percent step-up in basis helps offset these challenges by attracting more capital gains investors and increasing available equity.

Impacts of incentives

QOZ incentives are most effective when paired with federal, state, and local economic development tools. They can address infrastructure costs, financing gaps, and early operating expenses.

Bonus depreciation allows 100 percent of improvement costs to be depreciated in the first year for manufacturing facilities. In a non-QOZ development, this must be recaptured upon sale. In QOZ projects, the 100 percent step-up in basis eliminates recapture, increasing after-tax returns.

Additional tools include property tax abatements, development charge waivers, tax increment financing, low-interest loans, infrastructure funding, revolving loan programs, tax credits, and targeted grants. Each supports a different part of the capital stack and helps reduce project risk.

Coordinating these tools requires collaboration among developers, planners, municipalities, and state economic development agencies. While structured effectively, they can reduce up-front costs and improve returns.

Conclusion

The permanent Qualified Opportunity Zone program allows developers and property owners to combine tools to support rural development where it may not have been feasible previously. Creativity and research are the keys. Every state is different, so working with local professionals is essential to building a successful capital stack and delivering strong returns to QOZ investors.

Attorney Coni S. Rathbone is of counsel at VF Law. She works in the firm’s business and real estate practice groups. Contact her at 208-469-3773 or crathbone@vf-law.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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On July 4, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a sweeping piece of legislation with a wide range of initiatives. One area in particular stands out for real estate professionals and investors: the permanent extension and expansion of the Qualified Opportunity Zone (QOZ) program — unofficially referred to as QOZ 2.0.

The original QOZ legislation, enacted under the 2017 Tax Cuts and Jobs Act, was designed to spur long-term investments in economically distressed communities. Despite a delayed regulatory rollout and disruptions tied to the COVID-19 pandemic, QOZ has driven billions of dollars’ worth of development across the United States. With its renewal and upgrade, the program is now a permanent fixture in the U.S. tax code — an encouraging move for real estate developers, investors, and the communities they serve.

What’s new and why it matters

1. Program permanence

Perhaps the most important update is that QOZ 2.0 is no longer subject to an arbitrary sunset date. Investors and developers can now confidently plan long-term projects without racing the clock. The 2017 framework was always intended as a pilot to test effectiveness; the permanence in QOZ 2.0 is a clear acknowledgment of the program’s success.

2. A rolling five-year tax deferral

Under QOZ, capital gains invested into Qualified Opportunity Funds (QOFs) had to be recognized and taxed by Dec. 31, 2026. QOZ 2.0 introduces a more flexible approach: capital gains tax is due five years after the investment date, regardless of when it occurs. This rolling deferral opens the door to continuous participation and strategic planning.

3. 10 percent step-up in basis after five years

QOZ 2.0 brings back the coveted 10 percent step-up in basis — but with an upgrade. In the previous iteration, this benefit was phased out and only applied to early investors. Now, all participants who hold their investment for at least five years receive the 10 percent basis increase, leveling the playing field for latecomers and incentivizing sustained investment.

4. The signature 100 percent step-up after 10 years

This remains the crown jewel of QOZ participation. Investors who hold their QOF investment for at least 10 years enjoy a full step-up in basis upon sale — eliminating capital gains taxes entirely. This unique provision continues in QOZ 2.0, with the bonus that if an investor holds the asset for more than 30 years, gains accrued after the 30-year mark will be taxed; however, everything prior remains exempt. It’s a once-in-a-lifetime tax opportunity — without requiring the investor to pass away first.

5. Rural incentives and lower substantial improvement thresholds

Recognizing the development challenges in rural areas, QOZ 2.0 provides enhanced benefits for these locations. Investors in designated rural QOZs receive a 30 percent step-up in basis when taxes are paid and only need to improve existing structures by 50 percent of their current value (down from 100 percent in non-rural developments). This change could significantly accelerate rural development.

6. State control over zone designation

Beginning July 1, 2026, state governors and economic development agencies may designate or retire QOZs every 10 years. This allows for recalibration and ensures that truly disadvantaged areas continue to receive support. New designations must be finalized by Jan. 1, 2027, when QOZ 2.0 will officially take effect.

7. Improved reporting requirements

A key criticism of the original legislation was the lack of transparency. QOZ 2.0 addresses this with built-in reporting obligations — hopefully structured in a way that provides clarity without burdening investors or fund managers with excessive compliance.

What didn’t make the cut

Despite strong support from industry leaders, QOZ 2.0 won’t take effect until Jan. 1, 2027, potentially creating an 18-month dead period between programs. Many investors may choose to delay investments to take advantage of the better terms in QOZ 2.0. However, as Jimmy Atkinson of OpportunityZones.com points out, QOZ still has strong appeal:

• an earlier clock start for the 10-year hold period,
• certainty in zone maps, and
• more mature infrastructure in existing zones.

Another notable change is a stricter eligibility requirement for new QOZs. The qualifying threshold has shifted from 80 percent of the state median income to 70 percent, reducing the number of eligible census tracts by an estimated 22 percent.

The bonus depreciation advantage

Another powerful incentive in the OBBA is the 100 percent bonus depreciation for newly constructed manufacturing facilities. This will apply nationwide and allow owners to deduct the full value of facilities, fixtures, and equipment in the first year — a move aimed at reviving domestic manufacturing. When the facility is eventually sold, the owner must recapture the depreciation but has had the benefit of using those funds throughout the holding period —essentially gaining up-front tax savings that can be reinvested into the business or project.

Here’s where it gets interesting: when combined with a QOF investment, the depreciation strategy becomes even more powerful. Typically, investors in QOFs don’t gain basis until they pay deferred taxes (after five years), or unless they personally guarantee a project loan. Once basis is established, they may then take the 100 percent depreciation deduction.

If that asset is held for over 10 years in a QOZ, the investor enjoys a 100 percent step-up in basis at the time of sale — meaning no depreciation recapture. This could be a game-changing benefit for manufacturing developments in disadvantaged areas, helping to create jobs and increase tax revenue without long-term tax exposure for investors.

A final word

As always, QOZ participation should be approached with careful planning. Partner with a knowledgeable CPA and experienced attorney to ensure proper structuring and compliance with IRS regulations.

The Qualified Opportunity Zone program has already transformed neighborhoods and sparked substantial economic activity. With QOZ 2.0 and additional incentives now in place under the OBBBA, the potential for long-term impact just grew.

Attorney Coni S. Rathbone is of counsel at VF Law. She works in the firm’s business and real estate practice groups. Contact her at 208-469-3773 or crathbone@vf-law.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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Opportunity Zones have many benefits, but what they are lacking is proper transparency and accountability. It seems that Congress has gotten the message as it is considering several pending modifications via the Opportunity Zones Transparency, Extension, and Improvement Act, but these changes do not go far enough.

In 2016, during the Obama administration, Cory Booker and Tim Scott proposed the original, bipartisan Investing in Opportunity Act. Although it was not approved during the Obama administration, the act, with modifications, was swept up into the 2017 Tax Cuts and Jobs Act.

Unfortunately, the 2019 Opportunity Zones ramp-up crashed headlong into the COVID-19 shutdowns, but the ramp-up progressed swiftly last year. Because of the tremendous success of the program, Congress is proposing amendments via the Opportunity Zones Transparency, Extension, and Improvement Act (H.R. 5761). It is not particularly long, as legislation goes, but it does propose a few very substantive changes to the program.

One of the proposed changes, and the easiest to describe, is that the program would be extended for two years. So, instead of paying your taxes on Dec. 31, 2026, capital gains investors would have until the end of 2028. Originally, within certain time periods (that have now passed), investors were eligible for up to a 15 percent step-up in basis when paying taxes. H.R. 5761, as now written, would bring back one 10 percent step-up in basis.

The most meaningful benefit of the previous program – no taxes on the gains created during the hold period of 10 to 30 years – remains in place. This means not only that existing investors don’t have to pay their taxes until the end of 2028 but also that additional Qualified Opportunity Funds (QOFs) will be created until the end of 2028.

A minor but meaningful change is the proposal to allow QOFs to invest in other QOFs. Presently, if a husband-and-wife fund desires to invest with a large fund, the small QOF must invest in the subsidiary Qualified Opportunity Zone Business Entity (QOZB). The biggest problem with this existing structure is that for those funds that are sold as securities offerings, it requires an entirely new securities offering at the QOZB level, which many sponsors are reluctant to allow.

A proposed State and Community Dynamism Fund would allow flexible grants to help states direct private and public capital to underserved businesses and communities. Yet another proposal in this bill would vastly expand reporting and accountability requirements to allow for better compliance and to track long-term outcomes for these same communities.

Finally, probably the most substantial change is creating an early sunset for certain Qualified Opportunity Zones that no longer represent impoverished areas. While most of the QOZs designated throughout the United States are in impoverished areas, some are not because of the old census data used for their original designations. The perfect example is Portland’s Pearl District.

The proposal in the bill would terminate the qualification of tracts with a median family income at or above 130 percent of national median family income and allow states to then disqualify other zones. Moreover, because the program has been successful, some of the zones that were originally impoverished are not any longer – and can thus be redesignated to create room for other needy areas. The proposal would allow states to replace any disqualified tracts with others. Thankfully, the proposal does allow for strong grandfathering provisions for projects that have already begun in tracts that are being disqualified.

Of course, all of this is meaningless unless H.R. 5761 passes. So, the big question is: Will the bill pass? Or when will the bill pass? I believe that most people can agree that the substance of the bill is good, but because it is a tax bill, it must be packaged with a larger tax bill that can only gain traction in Washington. While it might be possible for the Senate and House to pass any tax bill prior to the 2024 election, I am not optimistic. More work remains to be done to craft the perfect bill, as the case for these economic zones could not be more apparent.

Attorney Coni S. Rathbone is of counsel at VF Law. She works in the firm’s business and real estate practice groups. Email her at crathbone@vf-law.com.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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Imagine being a tenant-in-common – or TIC – owner and a consultant promises to “save your property.” Before you know it, that consultant owns 90 percent of your property.

So what just happened? You’ve been hit by one of the predators flooding the TIC industry.

These predatory companies enter the picture like wolves stalking their prey, pr with the promise of turning around what is usually a distressed property. However, underneath the wolf’s feigned promises of improved management, lies a sinister motive – the desire to acquire the property owned by TIC owners for pennies on the dollar.

Lacking a watchful shepherd, the trusting and inattentive owners sit idly by as the wolf drains reserve accounts and makes unnecessary and predatory loans. Having consumed all the property’s resources, the wolf then finishes off its prey by proposing a plan that allows it to acquire part or all of the property’s equity or even the property itself.

Changing times

Over the last six years, many TIC owners have been struggling to hold on to their properties. They have funded capital calls, they have changed asset managers, and they have held their breath for an improving economy. When TIC sponsors created the investment programs, they would regularly acquire the property and resell it to the TIC owners only a few days or weeks later for $1 million to $10 million more. Even in a thriving market, it is difficult to justify such an increase in such a short period, and it is nearly impossible for a property to recover from being buried in debt from day one.

Although the economy is now improving, many of these TIC owners remain in the same circumstances, with property values less than, or equal to, the balance of their loans, and with loan terms that are likely maturing on or before 2017. Predatory asset managers and consultants have entered the scene with business plans focused on owning these properties and squeezing out the owners entirely.

Many of the predators are the same companies that originally syndicated the properties to the TIC owners.

As certain sponsors and managers have struggled, many have “sold” their management portfolios to new asset managers. This often happens without approval of the TIC owners or lenders. So, one day, a TIC owner receives a letter from an unknown company saying, “I am your new asset manager,” even though the Revenue Procedure requires that all TIC owners unanimously approve the engagement of a new asset manager.

Additionally, loan documents universally require lender approval for a change in asset management. These struggling sponsors, who are seeking to capitalize on their own demise, justify their actions through loopholes they drafted into their own documents. The failing sponsors will engage these new predatory asset managers as “sub-asset managers,” which does not require lender or owner approval.

Alternatively, they will simply sell the company that is the asset manager to the new predatory third party. The TIC owners are then forced to work with a new manager that they never met, never approved and do not want. Nevertheless, because the owners are fatigued and not organized as a group, they fail to object and continue to hope for the best. If the TIC owners suspect that their sponsor or asset manager may be insolvent, it is critical for them to get ahead of the game, get professionals involved, and take action.

Upon assuming management, the new asset manager will tout its qualifications and provide assurances and rhetoric about how much better this new asset manager is going to be for the TIC owners. Nevertheless, the business plan of the predator is as follows:

• Take over a portfolio.

• Allow properties to fail through negligence, mismanagement and general lack of attention.

• Drain reserve accounts, make predatory loans, and sometimes even steal operating cash.

• Need for new capital arises, sometimes as a result of predator’s actions or inactions.

• Provide new capital in exchange for a huge percentage of the property.

The manager simply blames the economy, the market, or any other number of factors for the property’s decline. Not wanting to lose the property to foreclosure, and seeing no other alternative, the owners consent to the predator’s plan.

Credibility counts

Of course, the majority of asset managers and consultants in the TIC industry are honorable, credible and have the best interest of the owners at heart. Unfortunately, there are also many who do not. Here are a few tips to identify a credible manager or consultant versus a predator:

• Don’t engage anyone that attempts to obtain your engagement through fear.

• View skeptically consultants agreeing to waive fees in exchange for a large percentage of your property.

• A credible asset manager will welcome questions and will not be defensive in answering.

• Be suspicious of any asset manager that incorporates in their agreements the right of the asset manager to purchase interests rather than the other TIC owners.

• Seek an asset manager that will share all financial information on the property and also identities of the other TIC owners.

• Run from any asset manager who bullies owners on calls to accomplish their agenda.

• Be very conscious of double talk and vague answers to specific questions.

Time to act

What can the TIC owner do to protect an interest? First, recognize that a TIC structure under the Revenue Procedure should not create a passive investment. All TIC owners must approve all asset managers and all TIC owners must approve all leases. While TIC owners may have purchased their TIC interest hoping to be a passive investor, they must now become an active and involved owner. The TIC owner cannot rely on anyone else to look out for its best interest. TIC owners are entitled to answers, so ask questions. Don’t tolerate being put off or ignored.

TIC owners need to read all of the information that is delivered by the asset manager. The financial statement should show what is going on with the property. Watch the reserve columns. If the property has substantial reserves one month and none the next month, there is a reason. If the owners don’t clearly understand the reason, it may be that the asset manager has inappropriately utilized those funds. If the owners have any suspicions, investigate further. A good and honorable asset manager will not shy away from questions about the property or the property’s performance. They will welcome active participation by the owners.

Owners should also coordinate among themselves. Ask the asset managers for contact information for fellow owners. Owners should coordinate on a regular basis, without the asset manager involved. Many owners have continuing relationships with the broker dealer and registered representatives that sold them the property. Through their knowledge and contacts in the industry and their history with the property, these brokers can be very valuable assets to the TIC owners. Ask for this help and involvement, particularly with respect to keeping apprised of what is going on in the industry.

Having the owners working together for the benefit of all is of critical importance in obtaining a good outcome.

Finally, if you have reason to suspect something is awry, seek professional guidance. There are a handful of good TIC owner group lawyers and consultants across the country who seek to aid TIC groups in working through challenging situations and defend against predators. The information communicated in this article is not intended to terrorize TIC owners or to imply that all is lost. However, all TIC owners should decide that it is time to become an active owner. Don’t let a TIC owners’ desire to own passively allow a TIC predator to devour the property.

Coni Rathbone is a real estate and business transactions lawyer in the Portland metro area who specializes in representing tenant-in-common (TIC) owner groups all over the country. Contact her at 503-968-8200 or email her at coni@zupgroup.com.

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As we look forward to the next 12 months, one area to watch closely is the ever-evolving face of commercial financing. It will be interesting to see whether conventional or alternative financing arises as the predominant financing tool for 2014. The changes in private financing, triggered by the 2012 JOBS Act, will finally create a significant impact in the private market, and likely in the financing market as a whole.

During the last several years, particularly in 2013, the U.S. economy continued a steady crawl out of the deep 2008-09 financial recession. The outlook for 2014 looks positive, with economists predicting continued “measured” growth.

One of the greatest challenges to the economy during the financial crisis was the unavailability of money from traditional sources. Moreover, private money was sitting on the sidelines awaiting some certainty in the recovery. In the current climate, and I expect well into 2014, money will be much more readily available, albeit under much more stringent underwriting requirements and guidelines.

Banks and life companies are making loans again; however, their underwriting criteria are considerably more onerous. This change is positive in that pre-2008, underwriting criteria seemed to be entirely missing in action. Loan-to-value ratios currently fall in the 60 percent to 80 percent range.

Completely absent for several years were “CMBS loans.” They are back in 2014 with a vengeance. Borrowers can often obtain 10 percent more loan proceeds from a CMBS loan, when compared to a Freddie or Fannie loan. CMBS lenders’ rates are competitive, so if the project can tolerate the substantial yield maintenance requirements, this form of lending may be a good option. It’s interesting that the CMBS market has recovered relatively quickly, given that is was one of the primary drivers of the financial crisis.

Recall that in 2012 Congress passed the Jumpstart Our Business Startups Act in an effort to provide better access to equity through securities offerings. Congress intended for the JOBS Act to provide a relatively immediate source of new financing for the country, as evidenced by its fairly aggressive 2012 and 2013 deadlines for proposed implementation rules. Unfortunately, the SEC missed each deadline, causing great delay of the JOBS Act. However, many of the rules are now in effect, or are at least proposed. Therefore, I rate the implementation of the effect elements of the JOBS Act as the top area to watch in 2014.

We should watch three primary aspects of the JOBS Act: 1, advertising and general solicitation of Regulation D offerings; 2, crowdfunding; and 3, rules affecting Regulation A offerings.

Regulation D

The SEC now, for the first time ever, allows advertising and general solicitation in Rule 506 offerings to accredited investors. This means that an issuer in a Rule 506 offering can run an ad in a newspaper for investors for a particular private offering, or – and this is more likely – list their offering in an Internet portal set up for this purpose. These portals are like dating sites, matching investors with investment opportunities.

One complication with an advertised offering is that the issuer must certify that the investors are accredited. This has raised significant concerns for issuers and in the broker-dealer community with respect to determining “what is enough” for purposes of providing a certification of accreditation of the investors.

Moreover, registered securities’ broker-dealers are worried about being cut out of the sales process altogether. Despite this certification issue, the ability to advertise Reg D offerings is a fundamental change in raising private capital through securities’ offerings and will have a dramatic effect on private financing all over the country.

Crowdfunding

In crowdfunding, an issuer is allowed to raise up to $1 million over a 12-month period in small increments from accredited and non-accredited investors. People regularly confuse the Reg D portals for crowdfunding. This product is truly targeted to startups with low capital requirements.

A big concern with crowdfunding is whether one offering will be integrated with other offerings of related issues for purposes of exceeding the $1 million cap. The SEC has not yet issued proposed rules for crowdfunding. Once implemented, crowdfunding will be popular, but likely not huge in commercial financing arenas due to the $1 million cap.

Regulation A

Finally, the JOBS Act made Reg A much more attractive by raising the maximum offering amount from $5 million to $50 million. Reg A can be described as a “mini” registered offering. Previously, the $5 million limit made Reg A unattractive because of the transactional costs.

Securities issued under a Reg A offering can be sold to accredited and non-accredited investors, and can be resold in over-the-counter markets. Rules for Reg A were issued on Dec. 18, 2013.

One important element of the proposed rules is that offerings greater than $5 million would be exempt from state regulations. With the new limits, Reg A offerings are a much more viable source of financing into the future.

It appears that the long drought of financing is over. Although harder to qualify, loans and financing are again available. The products to watch are those made available by the JOBS Act.

Coni Rathbone is a shareholder with Lake Oswego-based Zupancic | Rathbone Law Group PC. Contact her by calling 503-704-2795, or by visiting www.ZRLawGroup.com.

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