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The original Qualified Opportunity Zone Program, introduced in 2017 and reshaped by the One Big Beautiful Bill Act of 2025, was created to channel private capital into low-income communities. With Indiana’s open geography and need for diverse energy projects to drive growth, the Opportunity Zone Program with OBBBA’s revisions will be a powerful tool for Indiana’s diverse energy industries and the counsel who represent them for decades to come.
Program updates
Investors (including developers) may defer capital gains by reinvesting those gains in Qualified Opportunity Funds, which in turn invest in location-based qualified opportunity zones. This framework provides three primary tax benefits: deferred capital gains tax; reduced capital gains tax upon payment; and elimination of capital gains tax for long-term QOF investments.
These incentives assist clean energy projects to attract and procure private capital to projects. But prior to OBBBA the program’s expiration and fixed timeline limited long-term planning. OBBBA changed all that by making opportunity zone incentives a permanent part of the tax code. OBBBA’s changes are particularly significant for both traditional and clean energy projects, including natural gas, solar, wind, energy storage and the fast-growing and important nuclear energy projects where capital-intensive infrastructure and long-term planning are essential.
Under the OBBBA, the Opportunity Zone Program will see nuanced changes implemented on a rolling basis until Dec. 31, including:
Permanent extension: The Opportunity Zone Program is now a permanent part of the federal tax code without a sunset date. Every 10 years, states including Indiana will reexamine and propose new and retained QOZs, with the U.S. Treasury Department finally certifying those designations. To be clear, the initial designation occurs in Indiana and often begins at the local level.
Narrowed eligibility: A census tract now potentially qualifies for opportunity zone designation if its median family income does not exceed 70% of the state or metropolitan median, or if it has a poverty rate of at least 20% and a median family income not exceeding 125% of the relevant median.
Rolling gain deferral and stepped-up basis on payment: For QOF investments after Dec. 31, deferred gains are recognized five years after realization. The 10% basis step-up at five years is permanent, while the seven-year 5% step-up is eliminated. Investors benefit from a 10% capital gains tax reduction and the time value of money during the five-year deferral.
10-year holding period and 30-year gain window: For investments held 10-plus years, basis steps up to fair market value at the date of sale or if not sold within 30 years on the 30th anniversary of the investment. The owner/investor who holds the investment for longer than 30 years would appraise the property at such point with all gain up to that point excluded from income and tax.
New reporting requirements: QOFs and QOZ businesses must now file annual returns, disclosing asset values, investment locations, NAICS codes, employment data and more. For energy projects, this means detailed asset reporting, investment tracing and careful tracking of employment data.
Impact on clean energy projects
The permanence of the Opportunity Zone Program and focus on rural areas are advantageous for clean energy projects, as they often require long lead times and significant initial investment. This is particularly true given the expiration of existing tax credits applicable to clean energy projects in 2026 and 2027. All parties involved in clean energy projects should consider whether the Opportunity Zone Program may replace or augment current but expiring tax credits.
OBBBA’s introduction of qualified rural opportunity funds will drive capital into rural communities where utility-scale energy projects are often sited, land is more readily available and community needs are often greater. QROFs must invest at least 90% of their assets in QOZ property located entirely within rural areas, defined as areas outside cities or towns with more than 50,000 people and not adjacent to such areas. Investors in QROFs receive a 30% capital gains tax abatement after five years, compared with 10% for traditional QOFs, along with the traditional five-year deferral applicable to invested capital gain.
There are several ways energy projects can leverage the revised program and new QROF laws:
Leasehold site control: Energy projects often are developed on leased land and require long-term leases of 20-plus years to ensure project viability. Under the OBBBA, improvements to leased land, for example, installing solar panels or building transmission infrastructure, may qualify as “substantial improvement” at a reduced threshold of 50 percent of the adjusted basis for QOZ purposes. At the end of the investment period, leasehold interests and improvements may be sold or transferred, allowing investors to realize gains that may be excluded from income if the holding period requirements are met.
Ease in meeting “substantial improvement” test: Energy projects involve significant infrastructure, such as pipelines, processing facilities and power plants. The reduced substantial improvement requirement under QROFs makes it easier to qualify these investments, including through upgrades to existing facilities.
Long-term investment horizon avoidance of all project gain upon sale: The 30-year gain window aligns well with the typical lifespan of energy projects, allowing investors to maximize tax benefits over the life of the asset, particularly upon sale when all profit may avoid taxation. If the investor, developer or owner holds its investment for longer than 30 years, the applicable party may exclude the gain through 30 years by appraising the applicable property at that point.
Bringing nuclear projects to rural Indiana: New nuclear technologies, such as small modular reactors, may be deployed in rural areas, and QROFs can provide critical capital for these high-cost, long-lead-time projects.
Stakeholder next steps
Most OBBBA changes to the Opportunity Zone Program take effect for investments and property acquired after December 31, 2026, giving the various stakeholders time to adapt, plan, and execute. The new QOZ and QROF rules allow energy stakeholders and community leaders to align financial incentives with national, state, and local clean energy and economic development goals. Stakeholders who want to utilize the Opportunity Zone Program should consider:
• Identifying eligible sites that align with project location needs.
• Structuring investments to maximize tax benefits.
• Drafting lease agreements to ensure program compliance.
• Developing reporting systems to meet filing requirements and demonstrate investment impact.
• Advocating with policymakers for inclusion of areas with strong clean energy potential.
Indiana lawmakers are currently identifying and redesignating rural and traditional opportunity zones. Energy businesses should consult legal and financial advisers to leverage these zones and engage lawmakers to secure project inclusion.•
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McGimpsey is co-lead of the Dentons U.S. Region Energy practice and a partner in the Jasper office. Andrew Rankin is a partner and member of Dentons’ Real Estate and Public Finance practices and based in Indianapolis.
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