Advisors with ultrahigh net worth clients may want to start preparing now for the next phase of the opportunity zone program. Beginning Jan. 1, 2027, the updated rules will create a new framework for deferring gains, while also giving investors a way to diversify.
The Department of the Treasury is expected to certify and designate census tracts as opportunity zones in the fourth quarter of 2026. The July 2025 tax law made several
The updated program will also change how gain deferrals work. Under the original framework, gains could be deferred until Dec. 31, 2026. Beginning in 2027, there will be a five-year rolling deferral period.
The tax benefits of opportunity zones remain a key draw, according to David Shapiro, a Philadelphia-based partner and head of the tax practice at Saul Ewing who has advised on opportunity zones since the program started. Those benefits include deferring gains, reducing the amount of gains subject to tax and — "the biggest long-term incentive" — avoiding taxes on eventual investment sales, he said.
"I do have clients that are getting ready," Shapiro said. "So they are preparing right now. They're offering materials, their documents, so that they can go out early in the new year and start raising funds from people who are looking at OZ 2.0."
The updated program features stricter rules for designating zones. One result will be less investment in Puerto Rico, he said, because the new rules eliminate the designation of most of the territory as an opportunity zone.
"When you talk to your clients and say, 'Hey we've got this great thing: It's going to save hundreds of thousands or millions of dollars in taxes today,'" though taxes will be due in the future, so the benefit is the time value — "they get very frustrated when the date comes that they're going to have this big amount of ordinary income or triggered capital gains," Shapiro said.
Advisors need "to be thinking and planning for the day when that comes because they're not going to be happy," and should have a solution for future income events because clients will "want to find a way to shield those future income events, too," he added.
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When opportunity zone investments make sense for clients
Opportunity zones are an investment choice to consider when clients experience or expect windfalls, such as from a sale of a business.
For "people with sudden money — they have a big transaction that's happened or coming up — this is something that they should look at as an option," said Rich Arzaga, the Colorado Springs, Colorado-based founder and CEO of The Real Estate Whisperer, a registered investment advisor. "It's not something that's a no-brainer. It's just another option they should look at, among whatever options they have based on whatever they're selling."
Diversification can be another benefit of deploying a large chunk of funds in opportunity zones.
"It allows us, for some of our families, to defer taxes and diversify client portfolios away from maybe equities or stuff like that into income-producing real estate," said John Pantekidis, general counsel and a managing partner at TwinFocus, a Boston-based registered investment advisor.
If a client doesn't have investment real estate, Pantekidis looks at investing 3%, 5%, 10% or whatever suits "the client's risk and return objectives."
Although the TwinFocus team likes their own qualified opportunity zone investments, partly because they control the risk and placement, they might have clients use third-party investments if the managers are good, depending on what clients are looking for, he said.
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'A universe of people can benefit' from opportunity zones
While opportunity zones have advantages, some clients might prefer other investments, such as
"I'm not selling these things. I'm just presenting them," Arzaga said. He presents clients with an overview of possibilities and additional details about those they express interest in. For clients who want to pursue opportunity zone investments, he makes referrals to opportunity zone funds.
One such sponsor is Glen Allen, Virginia-based Capital Square, a sponsor of tax-advantaged real estate investments, developer and housing community manager.
Louis Rogers, founder and co-CEO of Capital Square, particularly likes opportunity zones for the breadth of investors who can benefit.
The opportunity zone program is "the most impactful provision because people in real estate can use it because real estate, when it's sold, generates a capital gain but also business owners, property owners, stock traders, entrepreneurs who get stock options, people in the Bay Area that have startup companies where they get options and warrants and all that stuff that generates capital gain when they're exercised," he said. "A whole universe of people can benefit."
Another change in the revised program is additional reporting requirements, including annual disclosures and mandates for public transparency.
"We did it voluntarily, and now that reporting is required, we're happy about it," Rogers said. "We're creating lots of jobs and hundreds of millions of dollars of economic impact in neighborhoods, and we're proud of it."
