The Return of OZ? Opportunity Zone Renewal Gains Momentum in Congress

ATOMIQ Capital's May 2025 Strategy and Legislative Brief

May 14, 2025

A significant wave of optimism is building for savvy investors, fund managers, developers, and local communities as a fresh legislative push in Washington seeks to revive and enhance the Opportunity Zones (OZ) program—one of the most significant tax incentives of the past decade. And it seems to be playing out as hoped, as a bipartisan nugget of gold with tax-advantaged wealth compounding and incentives for capital gains repatriation.

House Republicans have begun advancing a comprehensive package aimed at reauthorizing and modernizing OZ incentives, with support from industry groups like Novogradac and reform-minded lawmakers. The proposal is part of broader reconciliation legislation expected to hit the House floor before Memorial Day 2025. If passed, it could become one of the most investor-friendly policy packages in years, and it is something we at ATOMIQ Capital have been planning for since election night with our fund strategy and deal pipeline.

Let’s examine the bill’s contents, why they matter, and what savvy investors should pay attention to right now.

Key Legislative Provisions

1. Capital Gains Deferral Extended Through 2033

Under current law, only capital gains realized and reinvested into Qualified Opportunity Funds (QOFs) before December 31, 2026, are eligible for deferral. The proposed legislation would extend this deadline, allowing gains realized beyond 2026 to be deferred until December 31, 2033.

Implication: This extension reopens the deferral window, enabling a new wave of investors to unlock the benefits of capital gains tax deferral. This is particularly important given recent liquidity events, business exits, and equity market volatility.

2. Basis Step-Up Incentives for Long-Term Investors

The proposal would reinstate the 10% basis step-up for non-rural Opportunity Zone investments and introduce a 30% basis step-up for investments located in designated rural OZs. These benefits are granted to investors who maintain their QOF interest for at least five years.

Implication: The basis increase reduces the portion of the originally deferred capital gains subject to tax when the deferral period ends in 2033, creating a more favorable after-tax outcome for long-term investors.

3. Preservation of the 10-Year Tax-Free Gain Provision

The most significant feature of the original Opportunity Zone law—the complete exemption from capital gains tax on appreciation after a 10-year holding period—remains unchanged in the current proposal.

Mechanics:

Any capital appreciation on a QOF investment held for at least 10 years is permanently excluded from federal capital gains taxation.
No upper cap exists on the amount of appreciation eligible for exclusion.
This benefit applies to both real estate and equity investments in QOZBs. (NOTE: If you want to receive either of the ATOMIQ Capital QOZB prospectus strategies below to maximize tax-deferred compounding stable growth in our QOZB roll-up strategy with BTC treasury strategy accumulation, email me to schedule a call: cjs@atomiqcapital.com)

Implication: This provision continues to position the Opportunity Zone structure as one of the most powerful tax optimization strategies available to high-net-worth individuals, family offices, and long-term institutional investors.

4. Prioritization of Rural Zone Designations

The legislation requires that a fixed percentage of new OZ designations be allocated to rural areas to ensure equitable geographic deployment of capital. Additional provisions aim to lower the property improvement thresholds for rural QOZB and real estate projects.

Implication: Investors and fund managers seeking higher yields and lower entry costs may find outsized opportunities in rural Opportunity Zones, particularly given the enhanced 30% basis step-up incentive.

5. Enhanced Transparency and Reporting Requirements

The proposal includes detailed requirements for data collection and reporting, aimed at addressing early criticisms of the OZ program’s lack of transparency and measurable community outcomes.

Implication: Increased accountability may attract institutional capital and broader bipartisan support, improving the long-term credibility and durability of the OZ framework.

Implications for Qualified Opportunity Zone Businesses (QOZBs)

While real estate has dominated OZ implementation to date, the original legislation also supports direct investment into operating businesses. The current proposal maintains this structure and offers enhanced benefits to QOZBs in rural zones.

Treatment of QOZBs Under the New Proposal:

Basis Step-Ups Apply to Business Equity: Investors in QOZBs are eligible for the 10% or 30% basis step-ups if holding periods are met, reducing deferred tax liabilities in the same manner as real estate holdings.
Full Capital Gains Exemption Still Applies: Upon exit, appreciation on a QOZB equity investment held for 10 years remains 100% tax-exempt.
No Modifications to Compliance Tests: QOZBs must continue to meet the original criteria, including one of these safe harbors in each QOZB:
- 70% of the tangible property used within an OZ
- 50% of gross income from OZ-based activities
- 50% of employee hours or compensation within the zone
- 40% use of intangible property in the active conduct of business
- Exclusion of "sin businesses"
- Working capital safe harbor for new startups (up to 31 months)
No New Direct Grants or Credits for QOZBs: Unlike earlier legislative drafts floated in prior years, the current proposal does not offer additional grant programs, technical assistance, or startup capital enhancements for QOZBs.

Conclusion: Investors seeking to launch or scale operating businesses inside Opportunity Zones can continue to benefit from the existing framework and may see increased alignment with housing, mixed-use, and rural revitalization strategies.

LIHTC Enhancements and Potential for Stacked Incentives

The legislation also includes provisions that strengthen the Low-Income Housing Tax Credit (LIHTC), including:

Reducing the Private Activity Bond (PAB) test from 50% to 25%
Reinstating the 12.5% allocation increase to 9% LIHTCs
Providing a 30% basis boost for projects in rural and Native American communities

These enhancements can be layered with OZ incentives, particularly for mixed-use developments, public-private partnerships, and workforce housing strategies.

Clean Energy Tax Credit Rollbacks

In a notable shift, the legislation calls for the repeal or phased reduction of several clean energy tax credits introduced under the Inflation Reduction Act and proposes limiting the transferability of remaining credits.

Implication: Investors may reallocate capital away from clean energy tax arbitrage and back into real asset development and OZ-aligned projects offering more permanent structural tax advantages.

Provisions Excluded from the Current Draft

The current legislation does not include:

Historic Tax Credits (HTC)
New Markets Tax Credits (NMTC)

These exclusions may require separate legislative action to support broader urban revitalization and community lending initiatives.

Legislative Strategy and Timing

The Opportunity Zone extension is embedded within a broader Republican budget reconciliation effort, “One Big Beautiful Bill,” which provides a path to passage without bipartisan Senate support. The House aims to vote on the package before Memorial Day 2025, with adjustments likely as the legislation proceeds.

Action Item for Investors:
Prepare OZ pipelines now and review the strategy of several funds already positioned to catch the windfall of this capital flow, such as ATOMIQ or syndicate partners in our ecosystem, like Altura Capital.

Your qualified gains from 2025 and 2026 transactions may soon regain eligibility for long-term deferral and full tax-free exits. Let me know how I can help you plan your strategy with your advisors.

Summary: Comparative Scenario Table

Example assumes $1,000,000 in original capital gains invested and compounded annually at 8% over a 10-year hold period.

Conclusion

The proposed Opportunity Zone legislation represents a significant second chapter in one of the most impactful tax incentive programs of the 21st century. By extending deferral windows, enhancing rural incentives, reinforcing the 10-year tax-free growth rule, and realigning the framework with affordable housing initiatives, Congress has signaled a renewed commitment to capital formation in underserved markets.

Investors, fund managers, and advisors should move quickly to evaluate qualifying projects, form QOF structures, and position assets for eligibility under this anticipated legislative shift.

Yours in wealth and opportunity!

~Chris J Snook

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