Overview
Designed to promote the flow of private capital into lower-income communities, OZs allow investors to defer capital gains taxes and step up their basis on certain qualifying investments.
Nationally, the Opportunity Zone (OZ) program has drawn more than $100 billion in investment since its launch, with roughly 75% of that money going into real estate. Real estate projects operating as a trade or business, including offices, hotels, residential real property, manufacturing, hospitals, schools, flex spaces, mixed use, retail, and industrial projects, may benefit from the OZ program.
Tax Cuts and Jobs Act of 2017
Florida’s current OZs were first proposed in 2018 under the Scott administration. The nomination process included the review of over 1,200 recommendations submitted by local governments, regional planning councils, nonprofits, developers, investors and others. Final nominations were based on a comprehensive review and detailed statistical analysis of relevant population, poverty and unemployment rates and other economic indicators. Florida received 427 of the 8,764 OZs nationwide. The current OZs will sunset at the end of 2026.
One Big Beautiful Bill Act of 2025 (OBBA)
The next round will have many of the same benefits for investors and opportunities for developers as the original program, plus the enhanced stability of a permanent tax-advantaged scheme. Specifically, capital gains invested in qualifying OZ projects will enjoy the following benefits under the OBBA:
- A five-year deferral for tax payments.
- Investment year five → 10% step-up of basis.
- Investment year 10-30 → No tax on any appreciation of the original investment.
- Investment year >30 → Basis will remain at the FMV of the investment at year 30.
- Investments in “rural” OZ funds → Investors will receive a 30% basis step-up in year five.
However, due to stricter income and poverty eligibility criteria under the OBBA, there will be approximately 22% fewer OZs in Florida. Additionally, new OZs will have enhanced reporting requirements and heightened penalties for noncompliance.
The DeSantis administration will begin making nominations to Treasury on July 1, 2026, if not sooner. Certified and approved OZs will go into effect January 1, 2027, and will remain in place for 10 years.
Why Should You Care?
Favorable Valuation: Property owners in an OZ may have an opportunity to sell, or develop and sell, their property to investors who are willing to pay a premium for favorable tax treatment.
Enhanced Access to Investors: Qualified OZ projects may attract additional interest from investors looking to make a 5-10 year capital commitment in a property you plan to develop.
Tax-Advantaged Investment from a Recent Sale: Defer and reduce the capital gains you realized from a recent transaction by investing it in a new project that is located in an OZ.