The One Big Beautiful Bill (OBBB) introduces sweeping tax reforms that will have long-term implications for businesses, real estate investors, and individuals. Several provisions from the Tax Cuts and Jobs Act (TCJA) have been extended and made permanent, while new enhancements to Qualified Opportunity Zones (QOZs) and the creation of Qualified Rural Opportunity Funds (QROFs) open significant planning opportunities.

Major Tax Changes

• Permanent 100% Bonus Depreciation
  Bonus depreciation is back at 100% for qualified property acquired after January 19, 2025. The OBBB makes this provision permanent, allowing taxpayers to immediately expense the full cost of new property acquisitions or construction projects.
• Expanded Section 179 Limits
  The limits for Section 179 expensing have been expanded, giving businesses greater ability to deduct the cost of qualifying assets upfront rather than depreciating them over time.
• 20% QBI Deduction Made Permanent
  The popular Qualified Business Income (QBI) deduction for pass-through entities has been made permanent, offering long-term certainty for small business owners and investors.

Qualified Opportunity Zones (QOZs)

The Act permanently extends the Qualified Opportunity Zone (QOZ) incentive, with new rules that enhance flexibility and benefits:

• Rolling Deferral (effective 2027): Capital gains invested in Qualified Opportunity Funds (QOFs) must now be recognized five years after the investment, replacing the prior fixed deferral deadlines.
• Step-Up in Basis: A 10% basis step-up applies for investments held at least five years.
• 10-Year Exclusion: Investments held 10 years or longer qualify for exclusion of capital gains upon exit, including depreciation recapture.
• 30-Year Rule: After 30 years, a taxpayer’s basis steps up to fair market value, effectively resetting tax exposure on appreciation after that point.

Qualified Rural Opportunity Funds (QROFs)

The OBBB introduces and enhances Qualified Rural Opportunity Funds (QROFs) to target investment in rural communities:

• 30% Basis Step-Up: Investors benefit from a 30% step-up in basis (versus 10% for standard QOFs).
• Relaxed Improvement Requirement: The “substantial improvement” test for QOZ businesses is reduced from 100% to 50%, easing compliance burdens.
• Rural Definition: A rural area is any area outside a city or town with a population greater than 50,000, or contiguous/adjacent to such an area (likely including many suburbs and exurbs).

Transition Rules

• Deferred gains from the original OZ program (OZ 1.0) must be recognized in 2026.
• Investors cannot roll over prior deferred gains into the new program.
• The first eligible date for investment under the new rules is January 1, 2027.

Final Thoughts

With permanent 100% bonus depreciation, expanded Section 179 limits, and a permanent QBI deduction, businesses gain powerful incentives for investment and growth. Meanwhile, QOZs and QROFs provide long-term, flexible planning opportunities for taxpayers seeking to defer and reduce capital gains while directing investments into underserved areas.

Taxpayers and investors should begin planning now to maximize these benefits as the transition to the new rules approaches.