What's Happening?
The federal opportunity zone (OZ) program, initially designed to stimulate private investment in low-income communities, has been updated under the One Big Beautiful Bill Act to offer new opportunities for the sports and entertainment industries. This program provides significant tax benefits to investors who reinvest capital gains into qualified opportunity funds. The updated framework now includes provisions that could benefit stadiums, music venues, and entertainment districts, particularly in rural and low-income urban areas. The new rules introduce a 30% basis step-up after five years for rural opportunity zones and a relaxed 'substantial improvement' test, requiring only a 50% increase in the tax basis of OZ properties. This makes rural sports complexes
and entertainment venues especially attractive for investment. The act also reinstates the 100% bonus depreciation rules, offering further tax deductions for OZ investors.
Why It's Important?
The expansion of opportunity zone tax advantages to the sports and entertainment sectors could have significant economic and social impacts. By incentivizing investment in these industries, the program aims to revitalize underserved communities, create jobs, and stimulate local economies. The relaxed rules for rural areas could lead to the development of new sports complexes and entertainment resorts, potentially transforming these regions into economic hubs. In urban areas, the development of sports and entertainment facilities can drive infrastructure improvements and commercial activity, contributing to community revitalization. The program's permanence allows for long-term planning, enabling developers to focus on projects that offer both economic returns and social benefits.
What's Next?
The opportunity zone program is expected to continue evolving, with OZ 2.0 allowing gains invested into an OZ fund after 2026 to be deferred for up to five years. The number of census tracts is expected to decrease, with a focus on rural areas. Investors, including professional athletes and entertainers, can benefit from the program by investing in OZ funds, potentially achieving tax-free appreciation on intangible assets like intellectual property. As the program matures, it will be crucial for developers and fund managers to adhere to the legal and tax requirements to maximize benefits and ensure compliance.
