The Albany Gazette - The Permanent Return of Bonus Depreciation and the Reform of Opportunity Zones Mark a Turning Point for Tax Strategy

Opportunity Zones were first proposed in 2017 with the goal of bringing private investment into local infrastructure, companies, and housing, therefore reviving underperforming towns. A significant portion of the billions of dollars that poured into the designated areas were focused on high-value projects, such as student apartments, luxury homes, and developments that were already under way before the tax incentive. Because reporting was optional, irregular, and frequently ambiguous, officials lacked conclusive proof of the program's actual benefits to low-income neighborhoods. "The first round of Opportunity Zones showed us both the potential and the flaws of the program," Gee notes. "OZ 2.0 fixes many of those issues by making the program permanent and requiring transparency so we can finally measure real community outcomes."

Still, examples like the Erie Downtown Development Corporation in Pennsylvania or the Kresge Foundation's deployment of 22 million dollars into impact funds demonstrate that, with strong partnerships and accountability, Opportunity Zones can function as intended. Since then, Capital Square has delivered notable developments supported by its Opportunity Zone funds. In Raleigh, North Carolina, the Maeve apartment community was completed through Capital Square Opportunity Zone Fund VI and has been well received. In Charleston, South Carolina, The Nickel Hotel was developed through Capital Square Opportunity Zone Fund IV and has drawn strong attention in the city's historic district.

By implementing Opportunity Zones 2.0, which goes into effect on January 1, 2027, the OBBBA hopes to address such deficiencies. The sunset clause that made long-term planning challenging under the previous regulations has been removed, making the program permanent. Investors will have access to a rolling five-year deferral of capital gains, a uniform 10 percent basis step-up after five years, and complete exemption of appreciation after a ten-year hold. Importantly, OZ 2.0 introduces enhanced incentives for rural areas, granting a 30 percent step-up in basis and lowering the substantial improvement threshold to 50 percent. Every ten years, governors will have the authority to reclassify tracts, enabling the program to adapt to changing economic circumstances. Equally important, new reporting and transparency rules will make funds answerable for the kinds of enterprises they support, the quantity of housing units they build, and the employment they create.

While investors wait for the new rules to kick in, many will face what analysts are calling the "2026 dead zone," a period where existing Opportunity Zone benefits are winding down and the new benefits have yet to begin. Strategic planning will be essential during this time. As Gee notes, "A lot of people think Opportunity Zones are done, but the truth is they have just been upgraded. OZ 2.0 is one of the most powerful tools we have ever seen for turning capital gains into long-term wealth, and it is here to stay."

There are other provisions that are changing tax policy besides Opportunity Zones. Additionally, for assets placed in operation after January 19, 2025, the OBBBA permanently reinstated 100 percent bonus depreciation. Bonus depreciation was formerly scheduled to fade off, falling to 40% by 2025 and then completely ceasing to exist by the end of the decade. The entire cost of qualified property, including furniture, machinery, equipment, and other real estate renovations, can now be written off by investors and businesses in the year that the item is put into service. Combining cost segregation studies with bonus depreciation can result in large early deductions for real estate investors, enhancing cash flow and opening up reinvestment options.

A new incentive for qualified production property was also created by the legislation, providing a 100 percent deduction for manufacturing facilities located in the United States that were built within certain periods. This is intended to promote production reshoring, but it also gives investors a strong tool if they are prepared to combine aggressive tax planning with long-term development." Clients who use cost segregation properly can unlock six- or seven-figure deductions without selling a thing," Gee explains. "That is real liquidity and long-term flexibility."

Particularly fascinating is the junction of Opportunity Zones 2.0 and accelerated depreciation. Consider an investor who constructs or upgrades a manufacturing plant within a recently established rural Opportunity Zone. That project might benefit from the long-term tax-free growth potential of the OZ structure as well as immediate 100% write-offs under bonus depreciation regulations. One of the most alluring wealth-building frameworks in decades is the opportunity to combine permanent capital gains relief with upfront deductions.

However, the revisions also emphasize how important accountability is. Opponents of the original Opportunity Zone program contend that the advantages will continue to accrue disproportionately to investors rather than communities in the absence of thorough reporting. Although OZ 2.0 provides the necessary transparency, it is unclear if these protections will result in quantifiable local effects. It is evident that high-net-worth investors now have a more stable and adaptable framework to use their money in ways that balance long-term growth with tax efficiency.

The message is straightforward: tax planning cannot be reactive. "If you are not taking advantage of these strategies, you are giving away more money to the IRS than you should," Judson adds. "The goal is not just to save taxes today but to use those savings to create durable wealth for the future."

Investors can lower their immediate tax obligations, build more effective portfolios, and take part in initiatives that, when done right, also generate genuine community value by combining accelerated depreciation with the enlarged Opportunity Zones 2.0 program. These methods provide both financial benefit and the possibility of significant impact at a time of increased tax scrutiny and accountability demands.

Judson H. Gee, CEP
7045363423
[email protected]
Charlotte, NC

SOURCE: Judson H. Gee, CEP

View the original press release on ACCESS Newswire

(W.Williams--TAG)