As most of you already know, the tax landscape changed dramatically when the One Big Beautiful Bill Act (OBBBA) was passed on July 4th, 2025. I’ve already covered several aspects of that legislation in previous articles. This installment is specifically for investors who want to know what's possible with an OBBBA tax strategy for 2026.
I’ve also included a section on investment strategy to help you with long-term planning. Key takeaways here:
- The capital gains exclusion for qualified small business stock has been increased from $10 million to $15 million per user, per issuer.
- Qualified Opportunity Zone investment opportunities, originally scheduled to expire in 2026, have been made permanent by the OBBBA.
- The permanent restoration of 100% bonus depreciation allows businesses to deduct the full cost of equipment, machinery, and other qualifying property.
The OBBBA opens new opportunities for investors but also creates additional complexity, and new tax rules can be confusing; these challenges affect virtually everyone with exposure to the market and resulting tax implications, from the angel investor betting on their next unicorn to parents trying to save for their children’s education.
Higher long-term capital gains exclusion rates make investing in start-ups more attractive.
Investing in startups has always been a risky proposition. Before the OBBBA, the Internal Revenue Service (IRS) mitigated some of that risk by allowing a long-term capital gains exclusion of up to $10 million on qualified small business stock (QSBS) held for at least five years. The new legislation increases the exclusion to $15 million per person, per issuer. It also adds a tiered exclusion structure:
- 50% gain exclusion after three years
- 75% gain exclusion after four years
- 100% gain exclusion after five years (unchanged from prior law)
What we say above is a graduated approach, and that helps investors with liquidity concerns. A strong OBBBA tax strategy in 2026 and onward would mean taking advantage of the longer holding periods to maximize tax benefits, at the very least.
The OBBBA also expands the definition of a "qualified small business." It raises the gross asset cap from $50 million to $75 million, indexed for inflation, which allows investors to target larger, more established companies.
Opportunity zones become a permanent investment strategy.
Qualified opportunity zones are economically distressed areas in the United States where investments may be eligible for preferential tax treatment.
QOZs were originally intended to be a temporary program scheduled to end in 2026. The OBBBA made them permanent and introduced significant modifications. Let's take a look at some of the most important modifications below.
Tax benefits expand to match investment opportunities in traditional opportunity zones.
The OBBBA establishes a new framework for opportunity zone investments made after December 31, 2026. Governors will designate new zones every ten years, starting July 1, 2026. The result is the creation of a rolling cycle of opportunity zone designations that provide ongoing investment opportunities.
For investments made in newly designated zones starting in 2027, the tax benefits include:
- Five-year capital gains deferral calculated on a rolling basis from the date of investment (replacing the prior December 31, 2026, fixed deferral date)
- 10% basis step-up on the original deferred gain after holding for five years
- Full gain exclusion on appreciation of the opportunity zone investment after a 10-year holding period
- 30-year cap on basis step-up for investments held longer than 30 years (the basis is frozen at fair market value on the 30th anniversary)
Note that the timing of the tax benefits creates an “investment dead zone” between late 2025 and early 2027. QOZs available for investment during that period may not be redesignated, and new zones won’t be designated until after July 1, 2026. The safe bet is to wait until the redesignation date before making an investment decision.
Rural opportunity zones get an incentive boost.
The OBBBA also introduces a powerful new category: Qualified Rural Opportunity Funds (QROFs). These funds invest exclusively in opportunity zones located in rural areas, defined as any city or town with a population under 50,000, excluding areas adjacent to larger cities. These rural zones offer significantly enhanced benefits:
- 30% basis step-up (compared to 10% for traditional OZs) after five years
- Reduced substantial improvement requirement: Only 50% improvement needed for existing properties, compared to 100% for traditional zones
- Mandate for rural focus: At least 33% of new QOZs must be in rural areas.
A 50% substantial improvement requirement took effect immediately on July 4th, 2025, when the OBBBA was signed, providing an instant benefit for properties in qualifying rural zones. This lower threshold makes rural real estate development more financially feasible and could drive significant investment to underserved communities.
Incentives abound for domestic R&D and construction.
The permanent restoration of 100% bonus depreciation allows businesses to deduct the full cost of equipment, machinery, and other qualifying property; this was one of several incentives intended to boost immediate domestic investment in production. Think of it as removing the spending cap from cost-conscious businesses in the manufacturing sector.
The immediate deduction of R&D expenses is likely to stimulate investment value in high-value sectors.
Several provisions in the OBBBA were initially added to the tax code when the Tax Cuts and Jobs Act of 2017 was passed, but many were scheduled to expire. One of these is the immediate deduction of R&D expenses that previously required five-year amortization. That should boost investments in the technology and pharmaceutical sectors.
The third major provision for investors is 100% expensing for qualifying structures associated with tangible production. That means building construction costs incurred between January 19, 2025, and January 1, 2029, could qualify for immediate expensing. The provision eliminates the previous requirement for a 39-year depreciation schedule.
Tax-advantaged retirement accounts for children are available until the end of 2028.
Investments in our future don’t always show up on the balance sheet. The OBBBA creates a new type of tax-advantaged retirement account specifically for children. They’re called “Trump Accounts,” and they allow contributions of up to $5,000 per year per child under the age of eighteen. Contributions are made with after-tax dollars, and growth is tax-deferred.
New Trump accounts opened between January 1, 2025, and December 31, 2028, will be seeded with $1,000 from the US Government. In addition to the $5,000 personal contribution limit, employers can contribute an additional $2,500. Investment options are restricted to mutual funds or exchange-traded funds that track the S&P 500 or other U.S. stock indices.
These accounts can provide a significant head start on retirement, starting from birth. Assuming a 7% average annual return, the $1,000 federal contribution, and a $5,000 annual contribution by the account holder, the beneficiary could receive $118,000 at age eighteen. The funds automatically roll into a traditional IRA, so the child can continue saving.
Strategic moves should be made now.
There’s a wealth of new investment opportunities in the OBBBA and no shortage of OBBBA tax strategies. Fine-tuning tax strategies to inform or match investment choices will be necessary if we want to keep on top of things through 2026.
To take full advantage of new provisions, schedule a discovery call today.
Talk soon,
Jeremy A. Johnson, CPA, CEPA®
Founder & CEO
The Novyx Group
