A 10% basis step-up applies if held for five years, eliminating the previously existing “deadline” by which such holding period must be completed. The additional 5% step-up for seven-year holdings is eliminated. 3. 10-Year Gain Exclusion Retained The FMV step-up election remains available for QOF investments held for 10-plus years. If the investment is not sold within 30 years, basis is automatically stepped up to FMV at that time. QUALIFIED RURAL OPPORTUNITY ZONES (QROZS) The OBBBA introduces Qualified Rural Opportunity Zones (QROZs)—a subset of QOZs targeting rural areas (generally, towns with less than 50,000 residents and not adjacent to urbanized areas). QROZs provide enhanced QROZ benefits, including: A 30% basis step-up after five years (versus 10% for standard QOZs); and Substantial improvement threshold reduced from 100% to 50% of adjusted basis (excluding land), easing compliance for real estate projects. NEW REPORTING REQUIREMENTS The OBBBA imposes expanded reporting obligations on QOFs: QOFs must disclose detailed information on assets, property, business operations, and impact metrics. Penalties up to $50,000 apply for noncompliance. The QOZ changes under the OBBBA go into effect on Jan. 1, 2027. As such, practitioners should work with their clients to ensure they are taking full advantage of the QOZ program and its new incentives, and that QOFs are abiding by the new reporting requirements. Hannah Fischer Frey is a partner at Baird Holm LLP, focusing on corporate transactions, federal and state tax planning issues, and tax-exempt matters. Fischer Frey has addressed complex partnership and corporate tax issues, including business reorganizations, private equity fund structuring, business succession planning, and tax planning in mergers and acquisitions. She has been closely involved in numerous federal and state tax examinations and audits. Carrie E. Schwab is an associate at the law firm, focusing on general corporate matters as well as tax law and employee compensation and benefits. She assists businesses of all sizes on a variety of matters, including entity formation, corporate governance, general tax strategy and planning, ERISA compliance and employee benefit programs, and equity compensation incentives. For more information, call (402) 344-0500 or email hfrey@bairdholm.com or cschwab@bairdholm.com. 13 nescpa.org
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