How Bonus Depreciation in OZ Investing Can Create a Powerful Investment Strategy 

The Opportunity Zone (OZ) program has long been a valuable tool for investors seeking tax advantages while supporting economic development in underserved areas. 

With the introduction of OZ 2.0, the program has become even more attractive by combining the deferral and exclusion benefits of OZ investments with the accelerated cost recovery of bonus depreciation. This powerful pairing offers investors a unique opportunity to maximize after-tax returns while deferring or potentially eliminating capital gains taxes.

Bonus depreciation allows investors to write off a significant portion of their investment. The 2017 Tax Cuts and Jobs Act  initially set bonus depreciation at 100%, which was later phased down, but the recent passage of the One Big Beautiful Bill has restored 100% bonus depreciation for eligible assets with OZ 2.0 starting in January 2027. 

In fact, bonus depreciation allows investors to take immediate deductions, reducing taxable income in the early years of the investment. This improves cash flow and provides more capital to reinvest.

If an investor has capital gains (e.g., from selling a business, real estate, or stocks) and defers them through an OZ investment, they can also use bonus depreciation to reduce unrelated income under OZ 2.0. This is particularly valuable for high-net-worth individuals looking to minimize their current tax burden. 

Furthermore, OZ 2.0 encourages captive QOFs, where investors create their own funds to invest in Qualified Opportunity Zone Businesses (QOZBs). This structure allows for greater control over tax planning, making it easier to align bonus depreciation with an investor’s specific financial situation.

If you’re considering an OZ investment, consult with a tax advisor to ensure you structure your investment to maximize these benefits. The right strategy could save you thousands, or potentially even millions, in taxes over time.

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Whether you’re a seasoned investor or new to Opportunity Zones, understanding how to leverage OZ tax benefits and bonus depreciation can significantly enhance your financial outcomes.

Contact us to learn more about how you can leverage current OZ tax benefits with our active offerings and how to stay ahead of the curve with OZ 2.0.

Past performance of Pinnacle Partners OZ Funds is not indicative of future results. There can be no assurance that the fund’s objectives will be achieved or that cash distributions will, in fact, be made or, if made, whether those distributions will be made when or in the amount anticipated or that certain tax benefits will be available to investors. An investment in the fund is illiquid, speculative, and will involve significant risks. It is only offered to suitable and qualified investors. Full details about the fund and its associated risks can be found in the fund offering documents. 

Nothing in this blog post should be construed as tax advice.  Please confer with your tax adviser to determine if an investment in an OZ fund is right for you.