Beyond the Exit: How Opportunity Zones Turn a Tax Bill Into a Long-Term Investment

There’s an old saying that nothing lasts longer than a temporary government program. Usually, that’s a warning. But every once in a while, a program works well enough that making it permanent is simply the right call. Opportunity Zones fall into this category, and business owners facing a large, one-time capital gain might want to pay attention.

What is an Opportunity Zone?

When a business sale closes, the gain is real, and the tax bill arrives quickly. An Opportunity Zone is a designated lower-income community where the government wants to encourage private investment, and it offers business owners a useful deal at exactly that moment. If you take the proceeds from your sale and reinvest them in a qualifying Opportunity Zone fund within 180 days, you can delay paying taxes on that gain, reduce what you owe over time, and potentially pay no taxes at all on the new investment's growth if you hold it for at least ten years.

The idea behind the program is simple. Rather than routing money through government agencies, it lets private investors decide where their capital can do the most good, whether that’s affordable housing, small businesses, commercial real estate, or infrastructure. No new government spending required. Capital that would have gone elsewhere gets redirected into communities that need it.

By most measures, it worked. An estimated $100 billion flowed into Opportunity Zone investments between 2018 and 2024, much of it from investors who had just realized a large gain and were looking for a smart place to put that capital to work.

What changed with the new legislation?

The program was originally set to expire at the end of 2026. New legislation has made it permanent and added a few updates that make it more practical for investors.

The most important changes:

The deferral is now rolling. Under the original program, all tax deferrals ended on a single fixed date: December 31, 2026. If your sale took longer than expected to close, that deadline could work against you. Under the updated rules, you get a five-year deferral from the date of your own investment, with no fixed end date. The program works on your timeline now.

Rural areas get a bigger benefit. Investors in rural Opportunity Zones now receive a 30% step-up in their cost basis at year five, compared to 10% for non-rural zones. This is a new addition designed to direct more capital toward rural communities.

The ten-year gain exclusion remains intact. If you hold your Opportunity Zone investment for at least ten years, you still pay no federal capital gains tax on the new investment’s growth. That remains the most powerful part of the program.

One thing worth noting: the tax deferral on the original gain is valuable, but it is not the main event. The real benefit is the tax-free growth on the new investment over time. For a business owner reinvesting the proceeds of a sale, that distinction matters: the goal isn’t just to delay a tax bill, it’s to compound the capital that would have gone to taxes into something that grows tax-free for a decade or more.

How Balentine thinks about Opportunity Zones

We were cautious about Opportunity Zones when the program launched in 2017. At the time, too many investment managers with too little experience were rushing to raise money and put it to work. The early results confirmed those concerns: early Opportunity Zone funds have more often underperformed than outperformed.

Our view has always been that no tax strategy can outrun a bad investment. The tax benefit is only as good as the underlying investment it is attached to. Business owners understand this intuitively: you didn’t build something valuable by chasing a tax structure. The same standard applies here.

As the program matures, we expect that to change. Experienced managers with real track records are now operating in this space, and we see genuine opportunity in specific areas. Workforce housing is one we find particularly compelling. It tends to occur naturally in Opportunity Zone communities, which means managers can focus on what they know rather than stretching into unfamiliar territory. A strong track record in building, leasing, and selling workforce housing is exactly the kind of operational experience we want to see before committing client capital.

The bottom line

Opportunity Zones are now a permanent part of the tax code, and the updates make them more practical and more attractive than the original program. For business owners with a significant gain from a sale and a long time horizon, they deserve serious consideration as part of a broader tax strategy.

But the same principle applies here that applies to every tax-aware tool: the investment has to stand on its own merits first. The tax benefit makes a good investment better. It cannot make a poor investment worth owning. You spent years building something worth protecting. The goal now is to make sure the capital you’ve unlocked works just as hard as you did.

At Balentine, we bring our deep knowledge of investments and tax planning to help each client optimize their tax strategy. If you’re interested in discussing your personal situation further, please don’t hesitate to reach out — clients can contact their relationship manager and all others are welcome to submit a “contact us” form, linked in the footer.  

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The opinions expressed are those of Balentine LLC (“Balentine”). The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. This content is not intended as an offer to sell, or a solicitation of any investment product or service. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Balentine is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. More information about Balentine’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.