Carey Heyman is the Managing Principal of Industry at CliftonLarsonAllen Los Angeles - Century City, where he helps clients navigate every phase of the real estate investment life cycle. Opinions are the author’s own.
The launch of Opportunity Zones 1.0, created by the 2017 Tax Cuts and Jobs Act, sparked tremendous excitement with the promise of tax deferral, reduction and exclusion.
Yet, many investors and syndicators quickly discovered that enthusiasm alone wasn’t enough. Real-world challenges, especially around fund structure and mid-year and year-end compliance testing, often led to costly missteps.
The recently enacted One Big Beautiful Bill Act ushers in OZ 2.0 and brings clearer guidance, stronger governance and a renewed focus on impact.
Our biggest takeaway from OZ 1.0? Structure matters. Here’s what multifamily pros should know about the next iteration of the program.
Simplify to succeed
Early OZ funds were frequently built on complex, layered partnerships and tangled entity arrangements. Mixing qualified and non-qualified assets created confusion around basis adjustments, eligibility and exit mechanics, which resulted in compliance headaches and missed opportunities.
OZ 2.0 encourages a cleaner, more transparent approach. By using single-purpose entities and streamlining fund architecture, investors can boost transparency, simplify compliance and build greater confidence among stakeholders.
Intent drives outcomes
In OZ 1.0, some projects prioritized tax benefits over sound economics or community impact. This often led to underperforming assets and limited tax advantages.
OZ 2.0 shifts the focus to fundamentals: Projects must be economically viable and aligned with local development goals. Tax incentives should enhance, not replace, a solid business case. Investors who prioritize long-term value and community alignment will be best positioned for success.
Multifamily real estate: Cornerstone of OZ investing
Multifamily projects have consistently outperformed other asset classes in OZ 1.0, thanks to strong demand for quality housing and the ability to deliver tangible benefits to local communities. However, these projects weren’t immune to pitfalls like complex structures, rushed capital deployment and poor documentation.
OZ 2.0 offers multifamily investors and developers a fresh opportunity to lead with best practices. Simplified fund structures, such as single-purpose entities dedicated to multifamily development, can streamline compliance and enhance investor confidence.
Multifamily projects naturally align with OZ 2.0’s emphasis on economic fundamentals and community goals, addressing housing shortages and supporting workforce stability.
Capital deployment and documentation
Deploying capital in multifamily investments requires careful planning to meet the 90% asset test and substantial improvement requirements.
Developers should focus on shovel-ready projects and maintain disciplined construction timelines to avoid penalties. Proactive documentation is critical, especially in multifamily, where tracking expenditures and improvement milestones is complex but essential for audit-readiness.
New incentives for rural and underserved areas
OZ 2.0 introduces new incentives for rural and underserved communities. Multifamily projects can play a pivotal role in revitalizing these areas by focusing on affordable and workforce housing. This approach maximizes both financial returns and social impact, positioning portfolios for long-term success under the new OZ framework.
Navigating the transition to OZ 2.0
With OZ 1.0’s final deferral benefits expiring December 31, 2026, and OZ 2.0 zones taking effect January 1, 2027, investors face a “dead zone” where gains may lack a clear tax shelter. This period requires thoughtful timing and a clear understanding of evolving rules.
Rather than rushing, investors should weigh the pros and cons of realizing gains in 2026 versus waiting for OZ 2.0. Preparing a pipeline of projects that align with OZ 2.0’s rural incentives and impact goals is a smart strategy.
For those considering late-stage OZ 1.0 investments, caution is warranted — missteps during this transition could result in non-compliant assets once the new designation map is in place.
OZ 2.0 brings enhanced transparency, refined definitions, improved reporting standards and a chance to reset and move forward with confidence. Success will depend on careful planning, disciplined execution and a commitment to doing things right from the start. To prepare, housing pros should:
- Simplify fund structures for transparency and compliance.
- Align projects with economic fundamentals and community goals.
- Prioritize disciplined capital deployment and robust documentation.
- Leverage new incentives for rural and underserved areas.
- Plan proactively for the transition between OZ 1.0 and OZ 2.0.
By applying these lessons, real estate investors and developers can maximize both financial and social returns in the evolving Opportunity Zone landscape.
