Help clients take advantage of new opportunity zone tax advantages

The federal opportunity zone program was designed to stimulate private investment in low-income communities and businesses by offering significant tax benefits to investors who reinvest capital gains into qualified opportunity funds. 

Real estate developers and investors have been the most active participants since the OZ program was introduced in 2017. However, the updated framework under the One Big Beautiful Bill Act has created new opportunities for the sports and entertainment industries in both rural areas and low-income urban areas. Stadiums, music venues and entertainment districts may see meaningful economic and tax benefits under the new rules, as long as developers comply with the OZ program's legal and tax requirements. If your clients — whether in sports and entertainment or simply looking to reinvest capital gains tax-efficiently — are considering OZ projects, here's how you can help them navigate the complexities.

For rural opportunity zones, the OBBBA introduces a supercharged benefit: a 30% basis step-up after five years and a relaxed "substantial improvement" test. The new rules require only a 50% increase in the tax basis of OZ properties, rather than 100% for non-rural OZ projects. This makes rural sports complexes, entertainment venues and destination resorts especially attractive for investment since they require large tracts of land and involve significant public-private partnerships. The OBBBA also reinstated the 100% bonus depreciation rules, which can further benefit OZ investors with annual tax deductions flowing from both OZ and non-OZ real estate.

For instance, a sports franchise or developer who has substantial capital gains from other investments can reinvest those gains into a QOF that funds construction or rehabilitation of a stadium or surrounding entertainment district. Significant bonus and regular depreciation can then flow to these investors while they are deferring taxes and potentially eliminating capital gains on future appreciation after a 10-year hold. Many major stadiums and entertainment venues are now located in OZ census tracts. More on that in a minute.

The OBBBA's rural enhancements could incentivize the creation of destination sports complexes, training centers and entertainment resorts outside major metropolitan areas. Developers could, for instance, use OZ capital to build a motorsport track, entertainment resort or music festival campus in a rural area, capturing both the enhanced 30% basis step-up and the community development narrative that often unlocks local incentives. The relaxed substantial improvement rule for rural projects also makes it easier to repurpose existing land or facilities into new entertainment hubs.

For urban zones

For urban projects, sports and entertainment development can be huge for community revitalization. Many stadiums and arenas sit within, or adjacent to, low-income areas in need of infrastructure improvements and commercial activity. Perhaps it's no surprise that more than half of National Football League stadiums are located in, or adjacent to, OZ census tracts as are nearly half of Major League Baseball stadiums.

Here is just a partial list of major entertainment studios located in OZ census tracts:

Film studio                                                                             Address

Compiled by HCVT LLP 2025

OZ investments can help finance the mixed-use neighborhoods that often accompany the aforementioned projects. Hotels, restaurants, retail and residential developments that might otherwise not have been built create year-round activity and permanent job opportunities. With the OZ program now permanent, long-term planning becomes more viable, allowing developers to design projects with both economic return and social impact in mind. For instance, the Las Vegas Raiders' new Allegiant Stadium is located in an OZ tract. The stadium sparked lots of public debate prior to construction. However, the economic impact for the nearby community has created $2.29 billion in visitor spending, contributed over $128 million in tax revenue (as of late 2023), and boosted property values in the area.

Opportunity zone caveats

Before clients invest in a QOF, make sure the developers and fund managers are adhering to the following:

• The QOF must hold at least 90% of its assets in qualified opportunity zone property, and the underlying operating business — known as a Qualified Opportunity Zone Business — must have at least 70% of its tangible assets located within the zone. Fund managers are responsible for meeting these tests on a semi-annual basis (see IRS Form 8996).  
• The QOZB must also derive most of its income from within the zone and cannot operate in certain prohibited industries such as casinos or golf courses.
• There are both original use and substantial improvement requirements. To qualify, property must either be newly placed in service within the zone or must be substantially improved (generally doubling the tax basis in buildings and other tangible property or a 50% improvement in the case of rural facilities) within a 30-month period following acquisition of the OZ property. This can present a challenge for fund managers that acquire newer facilities with billion-dollar values. However, older facilities that might be demolished or rebuilt in a new location can easily meet the "substantial improvement" test. 
• Beware of timing issues. Developers must also be aware that OZ deferral and exclusion benefits are contingent on how long the investment is held, making long-term planning and stable ownership structures essential. Under the OZ rules, if a client holds their investment for at least 10 years from the QOF funding date, they can exclude 100% of the post-investment appreciation when they sell or dispose of the investment. Also, the front-loaded depreciation benefits under the revised bonus depreciation rules provide OZ investors with significant overall tax benefits — generating a large tax deduction during the early years when the OZ gain has not yet been reportable.

What's next?

OZ 2.0 allows gains invested into an OZ fund after 2026 to be deferred for up to five years from the OZ funding date. Generally, calendar 2026 capital gains reported on a partnership, S corp or regarded trust can be reinvested into an OZ fund from Jan. 1, 2027 through Sept. 10, 2027 (180 days following the March 15, 2027, K-1 original due date). OZ 2.0 is expected to have a lower number of census tracts — in the 6,500 range as opposed to over 8,700 today — with a reasonable percentage designated as rural census tracts.

In addition to the initial tax deferral, an investment into OZ 2.0 provides a reduction in the future recognized gain from 10% (non-rural) to 30% (rural) provided the taxpayer holds the OZ fund for at least five years.

Taxpayers can invest in third-party OZ funds or in their own "captive" OZ fund that they control. The vast majority of states have adopted the federal OZ program rules; however, certain states — including California, Oregon, Arkansas, North Carolina, Massachusetts and New York — have not fully conformed.

Benefits for intangible assets and inventory

Professional athletes, entertainers and other taxpayers who create intellectual property (IP) can create significant long-term tax-free appreciation with the use of OZ investing.

OZ rules allow certain non-OZ assets to be held in a Qualified Opportunity Fund (QOF) structure – 10% at the QOF level and up to 30% % at the Qualified Opportunity Zone Business (QOZB) level. 

Unless the entities have their financial statements audited, the measure of whether the non-OZ assets exceed these percentage limits is based on the original tax basis (before depreciation/amortization) in the specified assets. Self-created assets generally have nominal tax basis, which allows fund managers to place more memorabilia and other non-OZ assets into the QOF and QOZB.

This can allow athletes, entertainers and others to tuck intangibles and other non-OZ assets into their OZ structure, provided that these non-OZ assets are under the 10% QOF or 30% QOZB thresholds at each six-month testing date—and they are held for at least 10 years from the date the QOF is funded with capital gain amounts. In these cases, the full appreciation in those intangible assets is completely tax-exempt at the federal level (as well as in most states).

Therefore, these athletes, entertainers and other creators of IP can sell signed memorabilia, artwork, book transcripts, songs, screenplays, etc. into their QOZB at relatively nominal costs (but using fair-market-value methodologies) and start the tax-free appreciation process for those assets:  

Source: HCVT, LLP 2025

Younger athletes and performers will have the most potential benefit under this strategy since these assets should have a lower fair market value when acquired by the QOF or QOZB, compared to a seasoned superstar. Note that the memorabilia and IP must generally be purchased (rather than contributed) by the QOF and QOZB to meet the OZ regulations. The additional cash within the OZ structure can be used to develop OZ real estate, OZ-located operating businesses, or invested into third-party OZ properties and also obtain tax-free gains after 10 years.

The general OZ legal structuring is illustrated below with the IP capacity available under "non-OZ assets."

Real-world example

Let's say a rookie basketball player created $1 million in capital gains in his stock portfolio and rolled those gains into a QOF within 180 days. This gives the rookie $100,000 (10%) of capacity to purchase sports memorabilia or IP at the QOF level. This could be their own properties or the properties of teammates or other athletes/entertainers.

At the QOZB level, the rookie can purchase more memorabilia and IP — up to 30% of QOZB assets (based on the original tax basis before depreciation and amortization). Assuming these assets are held for the requisite 10-year period from the QOF funding date, the athlete will receive tax-free federal treatment. However, if some or all of those assets are sold prior to the 10-year period, the gains will be taxable.

If you have clients with material gains who are interested in investing in sports, entertainment or other related industries, you can help them navigate the complexities of OZ investing — while making a significant impact on underserved communities.