As real estate development increases, so does demand for construction. Contractors should take note of Qualified Opportunity Zones (QOZs) in their markets, as recent legislative changes could lead to more building activity in these areas.

Originally introduced under the Tax Cuts and Jobs Act (TCJA), QOZs were designed to stimulate investment in economically distressed communities by offering tax incentives to investors using Qualified Opportunity Funds (QOFs). Now, the One Big Beautiful Bill Act (OBBBA) has significantly enhanced the program.

What’s New Under the OBBBA?

The OBBBA made the QOZ program permanent and introduced more flexible incentives for investors. Key updates include:

• Gain deferral up to five years for new QOF investments made on or after January 1, 2027.

• 10% gain reduction for investments held at least five years.

• No tax on post-acquisition gains for investments held 10+ years.

• No more expiration deadline—incentives continue past 2026.

These changes simplify access to benefits, replacing the original “invest by 2019” requirement with a holding-period-based structure.

What Qualifies as a QOF or QOZ Property?

To qualify, a QOF must hold at least 90% of its assets in QOZ property. This includes:

• Direct acquisition of tangible business property used in a QOZ.

• Equity interests in businesses that meet QOZ investment criteria.

The property must be:

• Acquired after 2017.

• Either new (original use) or substantially improved—meaning the basis of the property (excluding land) must be doubled within 30 months.

Even vacant properties unused for five years may qualify under the “original use” rule.

What This Means for Contractors

QOZs could create a pipeline of new construction work. However, tight deadlines and project risks may accompany these jobs, especially for substantial improvement projects.

Before accepting QOZ-related work, consider the following:

• Are the project timelines reasonable?

• Have you identified any potential construction delays or cost issues?

• Does the contract include protections for delays outside your control?

Looking Ahead

Most QOZ updates take effect after December 31, 2026, though IRS guidance could accelerate some provisions. Either way, the expanded tax benefits could increase QOZ development and demand for construction over the next few years.

And beyond QOZs, the OBBBA includes additional business-friendly provisions such as enhanced depreciation rules and a permanent qualified business income deduction.

Need help evaluating whether QOZ projects are right for your business? We’re here to guide you through the tax and financial considerations.