Policy Update Series: One Big Beautiful Bill Act (OBBBA)

As part of our ongoing series on the One Big Beautiful Bill Act (OBBBA), this edition examines how the law’s reforms to Qualified Opportunity Zones (QOZs) and economic incentive zones may specifically affect municipalities in the South Suburbs of Chicago. While many changes take effect in future years, proactive municipal planning and engagement will be key to securing local benefits.

Update #3: Opportunity Zones & Incentive Zones

Here are the core reforms under OBBBA related to economic incentive zones:

Permanent QOZ Program with Decennial Redesignation:

• The QOZ program is now permanent. States will reselect zones every 10 years. The next designation cycle begins July 1, 2026, with new zones effective January 1, 2027.

Stricter Eligibility Criteria:

• For new designations, census tracts must meet tougher income/poverty tests. The median family income limit will drop (tracts must not exceed 70 % of state/metro median) and some “contiguous tract” exceptions are being removed.

Rural Incentive Enhancements:

• For investments in rural-designated zones, OBBBA enlarges incentives: e.g. 30% basis step-up after 5 years (versus 10%) and lower “substantial improvement” thresholds (50% of adjusted basis).

Revised Deferral / Tax Timing Rules:

• After December 31, 2026, deferred gains invested in QOZ funds will be recognized on a rolling ten-year schedule (rather than a fixed date).

New Oversight & Reporting Obligations:

• More detailed reporting will be required of QOZ funds and businesses: property types, investments, employment, census tract data, etc. Penalties may accompany noncompliance. 

What This Means for South Suburban Municipalities

Municipalities in the south suburban area (e.g. Cook County suburbs, parts of Will, Kankakee, etc.) should be aware of the following implications and opportunities:

Some Current QOZs May Lose Eligibility:

• Because of the tightened thresholds and elimination of certain exceptions, some census tracts currently designated as opportunity zones may not qualify under the new criteria. Municipalities should audit which of their OZ tracts are likely to remain eligible (or be at risk).

Opportunity for New or Re-Designation:

• When the 2027 cycle arrives, municipalities may have an opportunity to propose or advocate for new eligible tracts—especially those that are underserved, have high poverty, or are rural. Engaging with the state’s nomination process will be critical.

Greater Focus on Rural / Transitional Areas:

• The enhanced rural benefits may make zones farther from dense urban centers more attractive to investors. If your municipality has areas classified as “rural” under the law’s definitions (i.e. outside cities with population > 50,000 or urbanized adjacent areas), this could be an advantage.

Need to Align Local Infrastructure & Incentives:

• To make local projects “investment ready,” municipalities should examine their permitting, zoning, infrastructure, and local incentives (tax abatements, utility hookups, etc.). Projects that require long delays or local subsidies difficult to manage may deter investors from leveraging OZ benefits.

Data & Transparency Readiness:

• Because stricter reporting will be required of funds/investors, municipalities may be called upon to supply data (e.g., employment, property use, census tract attributes). Having good baseline data and internal capacity to respond will be important.

Timing Considerations / “Quiet Period” Risk:

• Many of the new benefits only take effect January 1, 2027. That creates a “dead zone” where new OZ investment may slow, because investors may wait for the enhanced regime. Municipalities should be wary of investment gaps in the interim.

What Municipal Leaders Should Do Now

Map & Evaluate Existing Zones:

• Using the latest demographic data, calculate which current OZ tracts are vulnerable under the new eligibility criteria.

Engage State & Regional Stakeholders:

• Participate in the state’s process for zone redesignation. Submit data and arguments for retaining or adding tracts.

Prepare Local Project Pipelines:

• Identify shovel-ready projects in eligible zones (or zones likely to be eligible) so investors can deploy quickly once designations are confirmed.

Strengthen Local Incentives & Infrastructure:

• Make sure your local policies (zoning, permitting, utility, transportation infrastructure) are aligned to attract private development within zones.

Build Data Infrastructure:

• Collect and maintain data (demographics, property conditions, employment, etc.) to facilitate reporting compliance and support investor proposals.

Monitor Federal & IRS Guidance:

• Stay alert for regulations clarifying definitions (e.g., what constitutes “rural”), reporting protocols, transitional rules, and how to treat investments made before the redesignation period.

In Summary

The OBBBA represents a major pivot in how Opportunity Zones will operate going forward—shifting from a fixed-expiration experiment to a more dynamic, decennial designation model with stricter eligibility but more certainty over time. For municipalities in the South Suburbs of Chicago, this means both risk (losing zone status) and opportunity (repositioning, enhanced rural incentives) depending on local conditions and proactive strategy.

We will continue to provide updates in this series, including when regulatory guidance is published, and will help municipalities interpret how to maximize these incentives for local benefit.

Stay Connected, Stay Informed

These tax law updates are just the beginning and guidance will continue to evolve at both the state and federal level. Follow John Kasperek Co., Inc. on LinkedIn to stay ahead of the curve with timely updates, insights, and resources tailored for Illinois governments, schools, and municipalities.