One Big Beautiful Opportunity

Perhaps the apex of economic fireworks this summer came with the passage of the "One Big Beautiful Bill" (OBBB) —a key campaign promise from President Donald Trump. At the start of the season, there was some uncertainty expressed by media and political pundits whether the legislation would reach the Resolute Desk before summer’s end. However, on July 4th, President Trump officially signed the bill into law.

This landmark legislation builds on one of the signature achievements of Trump’s first term: the 2017 Tax Cuts and Jobs Act, which originally created the Opportunity Zone (OZ) program. The new bill makes the OZ program permanent, with a range of significant updates and modifications. While the whole OBBB legislation spans 887 pages and addresses numerous government revenue and spending provisions, our focus here is on the changes to the Opportunity Zone program.

Extension and Redesignation of the Opportunity Zone Program

The current investment period of Opportunity Zones 1.0 is set to expire on December 31, 2026. A new investment and gain deferral period (OZ 2.0) will begin on January 1, 2027, and importantly includes special incentives for rural revitalization.  OZ 2.0 establishes rolling 5-year capital gain deferral periods and rolling 10-year holding periods from the date of the investment into a qualified opportunity zone fund (QOF) with redesignation of OZs every 10-year anniversary of January 1, 2027.

Under the updated framework:

• The governors of each state must submit new census tracts for OZ 2.0 designation, but only up to 25% of their eligible low-income tracts.
• States must submit their tract nominations by July 2026 to the U.S Treasury Department, with new OZ designations expected to be announced shortly thereafter.

It’s important to note: this new program does not renew the OZ tracts designated under the existing OZ 1.0 program. The tax deferral benefits under the original OZ framework will expire on December 31, 2026 and such gains deferred under OZ 1.0 will largely become taxable.  No further OZ 1.0 investments can be made in the original zones after this date. However, existing OZ census tracts will remain in place for tracking and reporting purposes, particularly as it relates to the 10-year holding requirement for tax free capital gain treatment upon exit.

Promised Land has successfully completed all capital improvement requirements on the farms within its Fund I portfolio and has been closed for new investment since 2022, positioning us well for this OZ transition phase.

Tightened OZ Eligibility Criteria

The OZ 2.0 program narrows the definition of a "low-income community" to more narrowly target economically distressed areas. A census tract must now meet one of the following conditions:

• A poverty rate of at least 20%, or
• A median family income not exceeding 70% of the area median income (AMI).

Additionally, tracts where the median family income exceeds 125% of the state or metropolitan median are excluded from eligibility. These changes are intended to ensure that investment flows only to underserved regions.

Tax Incentives and Benefits

The OZ 2.0 is particularly attractive for investments in rural America, thanks to key tax benefits:

• Capital gains invested in a qualified opportunity zone fund (QOF) or QROF after December 31, 2026 may be deferred and recognized 5 years after the date of investment.
• Basis step-ups are enhanced:
  • Investments in the QOF receive a 10% basis increase after five years.
  • Investments in Qualified Rural Opportunity Funds (QROFs) receive triple the tax benefit with a 30% basis step-up after five years.
• The gain exclusion after 10-year hold remains in place, allowing investors in both QOFs and QROFs to exclude gains from OZ investments held for at least a decade.

Eased “Substantial Improvement” Rules for QROFs

Under the original OZ rules, tangible property had to be “substantially improved”—typically by doubling its tax basis—for investors to qualify for OZ tax benefits. The new bill maintains the threshold for QOFs but lowers this threshold to 50% only for QROF, significantly reducing the barrier to entry for rural development projects.

More Transparency & Reporting

OBBB introduces robust reporting requirements to improve oversight and public confidence in the program. Both QOFs and QROFs must now submit annual reports detailing:

• Asset composition,
• Types of investments made,
• Job creation metrics,
• Census tracts where investments occurred.

Failure to comply carries stiff penalties—up to $50,000 per year for larger funds—highlighting a renewed emphasis on transparency, impact measurement, and program integrity.

For more details and expert analysis on OZ 2.0, we encourage you to consult the following resources:

Economic Innovation Group: https://eig.org/opportunity-zones-2-0-where-things-stand/  

PWC: https://www.pwc.com/us/en/services/tax/library/enhanced-and-permanent-opportunity-zones-as-part-of-the-obba.html

Supportive OBBB Provisions

There were a few additional provisions in the OBBB that appear to be very supportive of Promised Land OZ’s farmland and agricultural sector strategy that we’d like to briefly highlight for our readers.

The OBBB includes a Special Depreciation Allowance for Qualified Production Property.  Think of this as the Build Baby Build provision.  This OBBB provision allows an additional first-year depreciation deduction equal to 100% of the adjusted basis of “qualified production property (QPP).” Under prior law, owners of nonresidential real property had to depreciate the cost of such property over a 39-year period. A “qualified production activity” is defined in the OBBBA as manufacturing, production (e.g. agricultural production and chemical production) or refining of a “qualified product” which is generally defined as tangible personal property.   Construction of QPP must begin between January 19, 2025, and January 1, 2029; and be placed in service before January 1, 2031.

There is also a OBBB provision that provides for a 25% interest exclusion for tax purposes on new loans by banks, insurance companies and savings associations to rural or agricultural real property.  The term ‘rural or agricultural real estate’ means (A) any real property which is substantially used for the production of one or more agricultural products, (B) any real property which is substantially used in the trade or business of fishing or seafood processing, and (C) any aquaculture facility.

In addition, a new provision in the OBBB brings a meaningful tax deferral opportunity to farmers selling farmland to other farmers.  Under Section 1062 of the bill, sellers of “qualified farmland property” to “qualified farmers” would be allowed to pay the capital gains tax from the sale in four equal annual installments. This is a significant shift from the current requirement to pay the full tax in the year of sale.  This farmland gain deferral provision requires that the farmland buyer be contractually obligated to actively farm the property for 10 years which dovetails with QROF holding period requirements.  

Promised Land’s Future

Promised Land is proud to have played a role in the rural revitalization made possible by the Opportunity Zone Program. We’ve proven our ability to execute farmland acquisitions and capital improvement projects under the current OZ framework. Promised Land OZ’s two prior funds would meet the new OZ 2.0 definition of a QROF.  It is our intention for PLOZ Fund III to qualify as a QROF. Looking ahead, we are updating our offering materials to align with the new OZ 2.0 program rules. We expect to begin capital raising efforts and deal sourcing well in advance of the January 1, 2027 launch date so we can “get the plow in the ground” once the new tracts have been designated.   Promised Land will conduct rigorous due diligence on rural properties to identify high-impact opportunities with attractive risk-adjusted returns for future investment.

If you’d like to stay informed about upcoming offerings and developments, we invite you to visit us at https://promisedland.fund.

From Farm to Future, Promised Land OZ is committed to being the leading rural development partner for Opportunity Zones located in American farming communities.