The House reconciliation act, also known as the One Big Beautiful Bill, creates a second round of Opportunity Zones that would begin in 2027 and run through 2033. The bill proposes a new definition of low-income community and puts greater emphasis on rural areas.
- Low income communities are defined in the bill as census tracts with a poverty rate of at least 20 percent or median family income that does not exceed 70 percent of area median income (compared to 80 percent in the first round). A low-income community could not include any census tract where the median family income is 125 percent or greater than the area median family income.
- One-third of newly designated Opportunity Zones would need to be comprised entirely of a rural area. This is true even if there are fewer than 33 percent of rural qualified opportunity zones. Investors in rural qualified opportunity funds would also receive special treatment: investments left in tracts for five years would get a 30 percent reduction in capital gains tax owed compared to ten percent in other zones. The bill also lowers the threshold for making a “substantial improvement” to existing structures in rural areas compared to other zones.
Brookings reports the estimated cost between 2025 and 2029 would be $13.6 billion, based on information from the Joint Tax Committee of Congress.
The Urban Institute recently wrote that more significant changes should be considered if opportunity zones are going to drive private capital to truly disinvested communities. Most investment goes into real estate and not into investments that create jobs or economic opportunity, the program’s stated purpose. Further, 93 percent of investment in the first round went to metropolitan areas and favored zones that had relatively high amounts of commercial investment already.
Economic Innovation Group (EIG) has released a paper noting that the real estate investment in opportunity zones has boosted the housing supply, especially in multifamily buildings. On the other hand, a recent NBER paper noted that this investment may be gravitating toward places where there is a strong demand from a student population. The authors also found that, “The structure of the OZ incentive particularly lends itself to developing real estate projects in growing areas.”
Opportunity Zones are having an impact, with more than $100 billion invested. Researchers and policymakers are still debating whether they are having the intended effect. We look forward to following both the new research and the new policy developments.
Sources:
The One, Big, Beautiful Bill section by section from the US House Committee on Ways & Means
What’s happening with Opportunity Zones in the reconciliation bill?
Opportunity Zones Need to Be Retooled to Achieve Impact
The Impact of Opportunity Zones on Housing Supply
The Targeting of Place-Based Policies: The New Markets Tax Credit Versus Opportunity Zones
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