New Opportunity Zones 2025: The 10-Year Tax Break CRE Investors Can’t Afford to Miss

Hey, Retail Real Estate Rockstars!

Opportunity Zones 2025 (also known as "OZ 2.0") are now a permanent power tool in your portfolio plan if you own or invest in commercial real estate. On July 1, 2026, new zones will be certified, and on January 1, 2027, they will go into effect, each lasting a full decade.

Why this matters: With significant tax advantages, retail establishments, dilapidated shopping malls, and even disused strip centers can be converted into apartments, mixed-use buildings, or in-demand community assets. This is your cue if you've been sitting on a fantastic location in an area that is undergoing change.

What’s in Store for CRE Owners and Developers?

• Permanent OZ Program – No more sunset dates. Governors redesignate zones every 10 years, with the first refresh kicking in January 1, 2027 ¹.
• Stricter Eligibility, More Impact – Only census tracts with ≤70% median family income or ≥20% poverty rates qualify. Contiguous tract designations are gone, focusing capital where it’s needed most ².
• Rural Advantage – Rural-designated OZ tracts now get a 30% basis step-up (vs. 10% elsewhere) and have the “substantial improvement” threshold reduced from 100% to 50% of the acquisition price. All other OZ tracts still require the full 100% improvement ³.
• Simplified, Rolling Benefits – Post-2026 investments qualify for a five-year deferral, 10% basis step-up (30% rural), and zero tax on gains after a 10-year hold ⁴.
• New Zones – The first redesignation happens July 1, 2026; zones go live January 1, 2027. Governors will repeat the process every decade ¹.

Clarifying the Timing Rules

• OZ 2.0 benefits apply to capital gains invested in a Qualified Opportunity Fund (QOF) after Dec 31, 2026.
• To qualify for the new zones, your QOF investment must occur on or after January 1, 2027.
• Property acquisition timing matters: eligible OZ property must generally be acquired after the zone’s applicable start date (so, for new 2027 zones, purchases must be after Jan 1, 2027).
• You must invest eligible capital gains into a QOF within 180 days of realization.

Why This is Big for Retail-to-Mixed-Use Conversions

• Higher & Better Use: Replace obsolete retail with apartments, co-working, or service tenants.
• Financing Appeal: OZ tax incentives improve your capital stack.
• Demand Drivers: Many OZ tracts are in urban infill locations with housing shortages and strong rent growth.

Key Insights at a Glance

• Governors select new OZs every decade, starting July 2026 ¹.
• Rural projects enjoy triple the basis step-up of standard OZs and a 50% improvement requirement ³.
• Eligibility tightened to 70% AMI—raising redevelopment stakes ¹.
• The 2026 sunset is gone, giving long-term certainty ⁵.

A Few Powerful Data Points

• $100B invested since 2017 through OZs, driving housing + retail redevelopment ⁶.
• Between 2019 and 2024, OZs supported 313,000 new housing units ⁶.

What This Means for CRE Investors

• If you own retail, mixed-use, or development-ready land in an OZ:
• Plan multi-phase redevelopments without worrying about program expiration.
• Consider mixed-income housing above retail for added revenue.
• Tap into rural OZ super-incentives if you hold outside core metros.
• Align OZ with 1031 exchanges, LIHTC, municipal incentives for maximum ROI ⁷.

Commercial real estate is entering a golden decade for tax-incentivized redevelopment. Whether you’re eyeing a retail-to-apartment conversion, upgrading a strip center, or repositioning a mixed-use asset, OZ 2.0 can supercharge your returns. Call or DM me for more information.

Could your retail property’s highest and best use now be an apartment or mixed-use project that maximizes OZ 2.0’s permanent benefits?

#CommercialRealEstate #OpportunityZones2025 #OZ2 #MixedUseDevelopment #RetailToResidential