Does your business sell to customers across state lines or employ remote workers in multiple states? You may have more tax exposure than you realize. In this audio blog, Maria Gordon, Tax Manager at CK, breaks down the concept of state Nexus, the legal connection that can trigger sales, income, and payroll tax obligations in states beyond your own. Learn the four key factors that create Nexus, how apportionment determines your tax liability across states, and practical steps you can take to stay ahead of multi-state tax compliance before it becomes a costly surprise.

Transcript:

Hello, my name is Maria Gordon. I am a tax manager at Cray Kaiser and I have been with the firm for nine years. I would like to talk today about state Nexus for multi-state companies. If your business has customers throughout the U.S. or remote employees working in various states, you may have wondered about the implications of multi-state taxation or maybe you’ve even worried that you might owe tax in states and not realize it. With each state having its own guidelines, accurately determining your business’ state exposure is quite a complex undertaking. Businesses need an advisor with an in-depth knowledge of the tax laws of every state and the various complexities in determining Nexus for both sales tax and income tax.

So let’s start on this. To determine whether your business has exposure in a state, we must consider Nexus. Nexus is just a legal level of connection with a state that gives that state the authority to tax your business, whether it be sales tax or income tax. So in determining if Nexus exists, we look to four general areas. The first of these would be the amount of revenues that you have in a state, and once certain thresholds are reached, your business could be liable for sales tax, income tax, or franchise taxes. And the second one being whether your business has property in a state or holds inventory stock within that state. These things automatically give you physical presence in the state and could subject you to taxes. The third of these is whether you have employees, sales reps, or other remote employees working in a state. And finally, the fourth item, for some states, simply being registered to do business in the state will result in Nexus.

Now, with the ever-expanding remote workforce, this impacts many companies. Even a single employee in a state gives your business a tax presence, and you could be subject to sales tax, payroll tax, and income tax. To add more difficulty to this, state taxes can depend on where the employee lives and where the employee works, which are not always the same state. Some states do have agreements with one another to simplify payroll tax reporting of remote workers, but then again many states do not. If you do determine that your business has Nexus in a state, it doesn’t necessarily mean you will pay tax on 100% of your income to that state. Instead of just subjecting all of your income, each state uses apportionment to determine its portion of the pie, as you will. Apportionment is a formula based on the amount of sales, property, and payroll in the state. Of course, each state has their own formula for apportionment with varying weight on each of these three factors, but the sales factor is generally the most important. Speaking of the sales factor, how do I identify where revenues occur? With a business that sells widgets and ships them around the U.S., it’s quite simple. Each sale is attributed to the state that the widget was shipped to. But what if your business provides intangibles such as computer software or if your business provides services? Each state uses either a market-based approach or a cost-of-performance approach. Under market-based sourcing, revenues are sourced to the state where the benefit of the intangible or service is received. And under cost-of-performance, revenues are sourced to the state where the work is performed. So these differences are quite important between the states and a business needs to understand how they’re going to source their revenues.

If all of this feels daunting, don’t worry. It is possible to stay on top of Nexus requirements and protect your business from unexpected tax bills. Some things to consider. If it has been a while since you’ve considered your company’s footprint across the states, Cray Kaiser can help with providing a Nexus study. This will show you where the company has Nexus and open up the discussion on how to move forward. And secondly, be proactive by annually checking levels of revenues and which states those are from. Also, inform your advisor whenever you’ve added an employee in a new state. These simple steps can help to protect your company from surprises. And Cray Kaiser, as always, is here to help you, especially as you wade the deep waters of multi-state taxation. If you’re feeling unsure about your business’s exposure across the states, please feel free to contact us. You can reach us on craykaiser.com. And we look forward to hearing from you.

Governor JB Pritzker and the Illinois Department of Revenue (IDOR) are offering temporary tax relief for individuals and businesses affected by the severe storms that swept across parts of Illinois between May and August 2026. If your ability to file and pay taxes was disrupted, you may qualify for a waiver of penalties and interest.

Here’s what you need to know.

Who Qualifies

Relief applies to areas included in Governor Pritzker’s Disaster Proclamation for Summer 2026 Storms. Currently, that includes the following counties, along with the dates of severe weather tied to each:

County	Dates of Severe Weather
Alexander	July 9-11
Champaign	August 9-11, August 13-16
Cook	July 27, August 9-11
DuPage	July 27, August 9-11
Ford	August 13-16
Fulton	August 13-16
Kane	July 2-4
LaSalle	August 9-11
Lake	July 27
McLean	August 13-16
Marshall	May 16, June 10-11, June 19-29
Pulaski	July 9-11
Tazewell	August 13-16
Vermilion	July 27, August 13-16
Will	July 27, August 9-11

Any additional counties added to the disaster proclamation will also qualify, so it’s worth checking back if your county isn’t on the list yet.

What Relief is Available

If severe weather prevented you from filing or paying on time, you can request a waiver of penalties and interest on:

• Income tax
• Withholding tax
• Sales tax
• Specialty and excise taxes

How to Request Relief

To request a waiver, submit a brief explanation of why the storms affected your ability to file or pay. Be sure to include:

• Full name
• Account number (last four digits if you’re using your SSN)
• Mailing address
• Estimated date you’ll be able to file or pay

You can send your requests in one of two ways:

Email: RE****************@******is.gov

Mail: Use the address listed on your return and write “Severe Storms – Summer 2026” in red ink at the top.

Already Been Billed for Penalties?

If IDOR has already assessed penalties against you, you still have options. Email RE****************@******is.gov with your name, business name, account number(s), and the affected filing periods, and they’ll work with you from there.

A Few Things to Keep in Mind

• Property damage: If your property was damaged, reach out to your county supervisor of assessments to ask about a reassessment.
• Motor Fuel Use Tax (IFTA): This relief does not extend to IFTA. If you have questions about IFTA specifically, email RE******@******is.gov instead.

For the most current details, visit the Illinois Department of Revenue here.

How Cray Kaiser Can Help

Storm recovery brings enough to think about without worrying whether your taxes were filed and paid on time. If you were impacted and aren’t sure whether you qualify or need help putting together your request, the team at CK is here to help you sort through it. 

Each year, millions of people have their identities stolen in different ways, including theft of their tax information. Taxpayer identity theft is becoming more prevalent, but there are simple steps you can take to protect yourself.

What is Taxpayer Identity Theft?

Taxpayer identity theft happens when someone steals your personal information, like your social security number and uses it to file a fake tax return in your name so they can claim your refund. This is often done early in the filing season before you have even started your return. Most people are unaware until they try to file a return and discover that IRS has already received a return under their name and their return is either rejected or the IRS asks for additional information to sort out the mix-up.

How to prevent identity theft?

While it is impossible to eliminate identity theft, there are ways to minimize the risks. Some steps for you to consider:

• Do not carry your social security number card with you; keep it in a secure spot at home, like a locked drawer or safe.
• Don’t give out your full social security number. Most financial institutions will only ask for the last four digits to confirm who you are.
• Keep any financial information secure, including at your office or workplace, not just at home.
• Check your credit report once a year for unusual activity. Consider “freezing” your credit (which blocks anyone from opening new accounts in your name) and only unfreezing it when you actually need it, for example, when applying for a loan.
• Shred any documents containing personal or financial information before throwing them away.
• Send sensitive documents through secure methods, encrypted email, password-protected files, or a secure online portal. Most banks and financial companies offer secure portals to communicate and process documents.
• Do not answer phone calls, texts, social media messages or emails from numbers or people you do not recognize.
• Use a phrase (a short sentence rather than a single word) for your passwords and enable two-factor authentication for your devices and for all your online accounts.
• Be cautious of using public Wi-Fi networks and use a Virtual Private Network (VPN) on your computers and phones.

If you believe you’re a victim of identity theft

• If you receive an IRS notice about possible fraudulent activity, follow the instructions and use the contact information shown on the notice right away.
• If you haven’t received an IRS letter or notice but think someone may have filed a tax return in your name, file an IRS Identity Theft Affidavit (Form 14039) to report it.
• If you are worried your personal information was exposed (even if no fraud has happened yet), you can request an IRS Identity Protection PIN (IP PIN). This is a six-digit number that is used to identify you when you file a return so a thief can’t file a return without it. You can apply for an IP PIN for free through your IRS Individual Online Account. If you cannot get an IP PIN online, you can request one by mail using IRS Form 15227. Finally, never share your IP PIN with anyone other than your trusted tax advisor.

If you need assistance with a tax-related identity theft issue, an IRS identity theft notice, or an IP PIN issue, call the IRS identity theft hotline.

• If your identity is stolen, outside of taxpayer identity theft, here’s what to do:
  • Report it to the Federal Trade Commission at IdentityTheft.gov or call the FTC Identity Theft Hotline.
  • Contact the three major credit bureaus (Equifax, Experian, and TransUnion) to place a fraud alert on your credit file.
  • If your Social Security number is misused, report it to the Social Security Administration.

Be vigilant! Requesting an IP PIN ahead of time is one of the best ways to prevent a fraudulent return from being filed. Remember, the IRS and state government will never contact you by email, telephone, text message, or social media to ask for personal, financial, or IP PIN information. Also, the IRS and state governments will not accept payments using gift cards.

We hope this information is helpful. If you’d like to discuss this information or feel you have been a victim of identity theft and would like our assistance in working with the IRS, please contact us at (630) 953-4900.

Governor J.B. Pritzker recently signed a new state budget bill into law for the state of Illinois. There are numerous changes that could impact you and your business. Some of the most notable changes include limiting the Net Operating Loss (NOL) deduction, a change in the entity level tax election (PTET), disallowance of the federal Qualified Small Business Stock gain exclusion, and a reduced sales tax holiday for roughly a week in August 2026.

What Is a Net Operating Loss (NOL) and How Is the Limit Changing?

If your business loses money in one year, you can normally use that loss to reduce your taxes in future years. Illinois limits how much of that loss you can use each year and is changing that limit.  

What’s changing:

• For tax years ending after December 31, 2024 and before December 31, 2027, corporate NOL carryforward deductions remain capped at $500,000 per year.
• For later tax years, the cap phases into a percentage-of-income limitation, with the deduction limited to the greater of the applicable percentage or $500,000. The percentage-of-income limitation increases year after year starting at 15% for tax years on or after December 31, 2027 and before December 31, 2028 and increases to 80% for tax years ending on or after December 31, 2031.

Bottom line: Corporations with large prior-year losses will continue to face restrictions on how quickly they can use those losses to offset current taxes, though the cap gradually loosens over time.

Pass-Through Entity Tax Election (PTET): New Options for Partnerships

PTET lets partnerships pay Illinois state tax at the business level instead of passing that tax burden on to individual partners. This helps partners get around the federal limits on deducting state taxes personally. Illinois is now giving partnerships two ways to calculate this tax. For tax years ending on or after December 31, 2026, partnerships making the Illinois entity-level tax election may choose between two annual tax-base methods: the full distributive share method or the Illinois-sourced income method. The elected method is irrevocable for that taxable year. Current guidance applies this new method to partnerships and does not clearly extend to S corporations:

1. Full distributive share method – This method allows the partnership to compute and pay tax on the full distributive share of net income allocable to each partner who is an Illinois resident. The apportioned income will be used to determine tax due from nonresident partners.
2. Illinois-sourced income method – This method allows the partnership to compute and pay tax only on each partner’s share of income derived from Illinois.

Bottom line: Partnerships with a mix of resident and nonresident partners should evaluate both methods before making the election, since the right choice can meaningfully change the amount of taxes paid.

Qualified Small Business Stock (QSBS): Illinois Is Removing a Tax Break

Under Federal tax law (Section 1202) certain gains on the sale of qualified small business stock can be excluded from taxable income. Illinois is joining California and decoupling from this code section.

What’s changing:

• Starting with tax years ending on or after December 31, 2026, Illinois requires you to add back any QSBS gain exclusion you claimed federally when calculating your Illinois taxable income.

Illinois Sales Tax Holiday Returns for Back-to-School Shopping

To end with some good news, for the first time since 2022, Illinois is providing a reduced sales tax rate in August for back-to-school season for certain tangible goods. The Illinois sales tax holiday runs from August 7, 2026, through August 16, 2026, applies to eligible clothing items under $125 and school supplies. Taxes on those items will be 1.25% instead of the general rate. City and local taxes will still apply.

What Should Your Business Do Next?

These changes affect different businesses in different ways depending on your entity type, income and whether you’re carrying forward prior losses. If you have questions about how any of these changes apply to your or your business, please contact the trusted advisors at CK. You can call us at (630) 953-4900 or fill out this form.

Beginning August 1, 2026, local sales tax rates in some Illinois counties will increase by 0.25%. Retailers and servicepersons making taxable sales in Cook, DuPage, Kane, Lake, McHenry, or Will counties must increase their local sales tax rate by 0.25%. The increase is to the Northern Illinois Transit Authority (NITA) portion of sales tax collected in these counties.

How Will I Know My Updated Rate?

The new rate will appear on your Illinois sales/use tax Form ST-1 when your business electronically files on MyTax Illinois. You may also find your updated rate using the MyTax Illinois Tax Rate Finder. Select “August 2026” rates to look up the exact rate for your business address.

What to Do Before August 1, 2026

To stay compliant and avoid under-collecting sales tax, businesses in the affected counties should complete these steps before the effective date:

• Verify your new tax rate using the MyTax Illinois Tax Rate Finder
• Update your systems to reflect the new rate where applicable

How to Report Sales Made Before August 1, 2026

If a sale was made prior to August 1, 2026, and was properly taxed at the prior (lower) rate, report it on Line 8a of Form ST-1 or ST-2. Note – line 8a may only be used for sales properly subject to a different rate.

Need Help Preparing for This Change?

Getting ahead of this update now ensures your business collects the correct sales tax from day one. The new tax will be in effect August 1, regardless of whether your business makes the change in your system. Cray Kaiser is here to help if you have any questions about how this change affects your business or need assistance updating your systems.

Illinois businesses, take note. Effective July 1, 2026, dozens of taxing jurisdictions across the state will impose new local sales taxes or update their existing rates on general merchandise sales. Whether you operate a storefront, sell remotely, or facilitate marketplace transactions, now is the time to review your obligations and update your systems.

What’s Changing?

The following local sales taxes will be affected by the July 1, 2026, changes:

• Business District Sales Tax
• County Public Safety Tax
• Home Rule Municipal Sales Tax
• Metro-East Mass Transit District (MED) Sales Tax – new addition for 2026
• Non-Home Rule Municipal Sales Tax

Also note: The Illinois Department of Revenue (IDOR) will issue a separate bulletin covering changes to the Municipal and County Grocery Occupation Tax, effective July 1, 2026. Food items previously grouped under the general exemption language are addressed separately in this cycle.

What’s Being Taxed?

Locally imposed sales taxes apply to the same items of general merchandise reported on Line 4a of Forms ST-1 and ST-2 that are subject to State sales tax.

Locally imposed sales taxes do not apply to:

• Sales of drugs and medical appliances reported on Line 5a of Forms ST-1 and ST-2; or
• Items requiring a title or registration by an agency of the Illinois State government and reported on dealer-filed transaction returns.

What Steps Should I Take Before July 1, 2026?

• Update Your Systems

Make sure any cash registers and computer programs are updated to reflect the new tax rates beginning July 1, 2026. If a software vendor manages these processes, contact them immediately to begin implementing the changes.

• Verify New Rates

Use the MyTax Illinois Tax Rate Finder here to verify your new combined sales tax rate (State and local sales taxes). Be sure to select rates for July 2026.

• Understand Your Reporting Obligations

If a prior sale was subject to a sales tax rate different from the current rate, report this on Line 8a of Forms ST-1 and ST-2. Note: Line 8a is used only for sales subject to a different tax rate; no other use is permitted.

What About Business District Sales Taxes?

Your business address determines whether business district sales tax applies to your sales. Remote retailers and marketplace facilitators who meet the $100,000 tax remittance threshold should pay extra attention to those taxes. Refer to the MyTax Illinois Tax Rate Finder for a full list of business district addresses and applicable rates.

Don’t Get Caught Off Guard

Avoid headaches and prepare now for this sales tax rate update. If you have questions or need assistance navigating these changes, Cray Kaiser is here to help. Contact your trusted advisors at (630) 953-4900 to ensure you’re ready for the July 1, 2026, rollout.

A recent federal court decision, Kwong v. United States, may create an opportunity for certain taxpayers to recover penalties and interest assessed during the COVID‑19 relief period. The law in this area continues to develop. The IRS is appealing the decision, so nothing has been settled yet. However, this ruling highlights potential refund and abatement opportunities related to IRS deadlines that were postponed under pandemic‑era disaster relief provisions.  Affected taxpayers should review and act immediately to file a protective claim and secure any refunds if the IRS appeals fail.

What Happened?

During COVID‑19, the IRS gave everyone extra time to file federal taxes and make payments. The Kwong case ruled that the IRS may not have applied those extended deadlines correctly when it came to certain penalties and interest assessments. If that’s correct, some of those changes shouldn’t have been assessed in the first place. As a result, some taxpayers who paid penalties or interest during the pandemic period or continue to have outstanding assessed amounts may be eligible to claim relief.

Who Might This Apply To?

If you (or your business) were charged any of the following between  2020 and 2023:

• Late filing penalties
• Late payment penalties
• Estimated tax penalties and related interest

These penalties apply not only to individuals, but would also apply to businesses, trusts and estates. Please note that the failure-to-file penalty for partnerships and S-Corporations can be significant as the IRS charges these penalties per month per partner with a maximum of 12 months. During the period above, the amount ranged from $205 to $220 per month, per partner. That’s not a trivial amount.

What’s the Catch?

A few things to keep in mind:

• Action may be time‑sensitive. July 10, 2026, is expected to be a key date for preserving refund claims in many cases.
• Refunds are not automatic. Eligible taxpayers must take affirmative steps to request relief.
• Early action is critical. In some situations, deadlines may apply sooner depending on specific facts.

How We Can Help

We are actively monitoring developments related to this case and can assist with:

• Evaluating whether you may be eligible
• Filing protective claims to preserve your rights
• Preparing refund claims or requests for penalty abatement

Next Steps

If any of this sounds like it may apply to you, we encourage you to contact the trusted advisors at CK to discuss your specific situation. You can call us at (630) 953-4900 or fill out this form.

As the ink dries on the One Big Beautiful Bill Act (OBBBA), many taxpayers are wondering: What does this mean for me, my business and my bottom line?

 While much of the discussion focuses on federal tax changes, state tax laws are also affected. State legislators must decide whether to align to the new federal rules. It’s unknown how quickly state legislators will respond to the changes. Because of this, taxpayers could see difference in how their income, deductions and credits are treated from state to state.

Here’s a breakdown of the key areas where OBBBA could impact state taxes and what you should watch for.

State and Local Tax (SALT) Deduction

The state tax deduction (SALT) cap, originally limited to $10,000 under the Tax Cuts and Jobs Act of 2017 (TCJA), has been increased under OBBBA to $40,000 for joint filers and $20,000 for certain individuals.

In response to the old cap, 36 states enacted a Pass-Through Entity Tax (PTET), where flow through entities were allowed to pay state tax on behalf of owners and deduct them as business expenses.

Now that the SALT limit has increased, some business owners may want to reconsider PTET elections. Additionally, some state PTET provisions are set to expire at the end of 2025, and it’s unclear which states will extend the PTET.

What this means for you: If you currently use or are considering a PTET election, it’s a good time to re-evaluate your strategy with your tax advisor.

Bonus Depreciation

Under TCJA, bonus depreciation, which allows businesses to deduct the full cost of qualifying assets, has been phasing out from 100% down to 40% in 2025, and ultimately to zero in 2027. The OBBBA reverses this trend by reinstating 100% bonus depreciation for assets acquired after January19, 2025.

However, many states do not allow this deduction. Businesses will need to continue to track state differences in depreciation rules to avoid surprises when filing state returns.

What this means for you: Be aware that even though you may get the full deduction at the federal level, your state may not conform.

Business Interest Expense Limitations

Beginning in 2025, the limitation on business interest expense will be expanded to apply to EBITDA (earnings before interest, taxes, depreciation and amortization).

Because each state chooses whether to follow the federal rule (Section 163(j)), conformity varies widely. This means your allowable interest deductions may differ by state.

What this means for you: Businesses with multi-state operations should carefully review where and how these new limitations apply.

Research & Experimentation (R&E) Costs

The OBBBA reinstitutes immediate expensing of R&E costs. It also allows for accelerated deductions for costs that were capitalized between 2022-2024.

Since each state handles R&E costs differently, you’ll need to identify which states plan to conform to the new rules beginning in 2025.

What this means for you: If your business invests in research or development, this change could offer significant tax savings, but only if your state follows the new federal approach.

Why State Conformity Matters

Each state decides whether to adopt federal tax changes, ignore them or modify them. This  can be overwhelming for business owners, especially those operating in multiple states.

Analyzing these differences can be complex and time-consuming, but it’s crucial to ensure accurate tax filings and avoid penalties.

Get Expert Help from Cray Kaiser

Navigating federal and state tax changes under the One Big Beautiful Bil Act doesn’t have to be overwhelming. The team at Cray Kaiser can help you analyze the effect on your business. Although we usually start looking at year-end tax planning in Q4, now is the time to talk with your advisor about the impact of the bill on your state taxes. Contact Cray Kaiser and learn how these changes may impact your bottom line.

The One Big Beautiful Bill Act was signed into law on July 4^th.  The law significantly expands the Qualified Small Business Stock (QSBS) exclusion under Internal Revenue Code 1202  for stock acquired after July 4, 2025. 

Below is a concise summary of the changes:

Reduced Acquired Holding Period

Stock acquired before July 4, 2025

• Must be held at least five years to qualify for the gain exclusion.

Stock acquired on/after July 4, 2025

Tiered gain exclusion based on holding period:

• More than 3 years: 50% of capital gain exclusion; remaining gain is taxed at 28% plus 3.8% Medicare surtax. 
• More than 4 years: 75% of gain exclusion; as long as the stock remaining gain taxed at 28% plus 3.8% Medicare surtax. 
• More than 5 years: 100% gain exclusion  

Increased Exclusion Cap

Stock acquired before July 4, 2025

• Exclude the greater of $10 million ($5 million for married taxpayers filing separately) or 10 times the taxpayer’s basis in the QSBS.

Stock acquired on/after July 4, 2025

• Exclude the greater of $15 million ($7.5 million for married taxpayers filing separately) or 10 times the taxpayer’s basis in the QSBS. 
• Inflation adjustment begins in 2027.

Higher Gross Asset Limit for Issuers

Stock acquired before July 4, 2025

• QSBS benefits apply only if the issuing C Corporations had $50 million or less in gross assets at the time of stock issuance.

Stock acquired on/after July 4, 2025

• The issuer gross asset cap at the time of stock issuance increases to $75 million at time of issuance to qualify for QSBS. 

State Tax Conformity

Federal QSBS benefits don’t always apply at the state level. Cray Kaiser can provide guidance on state conformity regarding QSBS.

How Cray Kaiser Can Help

QSBS planning is time-sensitive and documentation-heavy.  There are qualifications that must be met to qualify for this gain exclusion. Have QSBS questions? Contact Cray Kaiser today. We will help you navigate through these hurdles. 

The Qualified Opportunity Zone (QOZ) program was originally introduced as part of the Tax Cuts and Jobs Act (TCJA) of 2017 to encourage long-term investments in economically distressed communities. The One Big Beautiful Bill Act (OBBBA), is bringing major updates to this tax incentive program, giving investors and developers new benefits and rules.

Here’s a breakdown of what’s new, why it matters and how you can prepare for what’s next.

What Is a Qualified Opportunity Zone (QOZ)?

A Qualified Opportunity Zone is a designated economically distressed area in the U.S. The goal is to encourage private investments in these zones by offering tax breaks to investors to stimulate growth and development in these areas.

Under the original rules, investors could benefit from:

• Deferring capital gains taxes by reinvesting in a QOZ.
• Reducing the amount of tax owed on thosegains if the investment was held long enough:
  • 10% reduction after 5 years.
  • 15% reduction after 7 years.
• Eliminating taxes entirely on new gains from the QOZ investment if held for 10+ years.

However, these benefits were set to expire on December 31, 2026, which limited long term planning.

What Did OBBBA Change?

The One Big Beautiful Bill Act gives the Opportunity Zone program new life by removing the expiration date and introducing a set of enhancements designed to focus investment in the areas that need it most.

Here are the key updates:

The Program is Permanently Extended

The QOZ program is no longer set to expire in 2026. Instead, it’s been extended indefinitely, providing long-term stability for investors and developers.

New Zones Every 10 Years

• Starting July 1, 2026, state governors will propose new QOZs.
• These newly designated zones will remain in effect for 10 years, starting January 1^st  of the following year.

Stricter Eligibility Requirements for Zone Designation

To better target areas in need:

• A tract’s median family income must now be 70% or less of the state or metropolitan average, down from 80%.

Updated Tax Incentive

There are a few important adjustments to how tax breaks work:

• The 10% basis step-up after a 5-year holding period is now permanent.
• The 15% basis step-up for a 7-year hold has been eliminated.
• A new 30-year deferral cap applies to all QOZ investments.

New Opportunities for Rural Investors

For the first time, there’s a special focus on rural America through the creation of Qualified Rural Opportunity Funds. These funds come with extra perks, including:

• A 30% basis step-up after 5 years.
• Reduced improvement requirements (only 50% rather than 100%) for property improvements.

Why the Slowdown Before 2027?

Unfortunately, these exciting changes do not take effect until January 1, 2027. This means all investments prior to then will fall under the old QOZ rules. Under the old rules gains are only deferred until 2026, at which point you must report and pay tax on them. A one-year deferral isn’t much of an incentive for investing prior to 2027. Because of this lag in policy, experts anticipate a slowdown in QOZ funds as investors wait for the new rules and longer deferral periods to kick in.

What’s Next for Investors?

The Opportunity Zone program has entered a new era. With enhanced benefits, a focus on rural areas, and long-term stability, investors may find fresh reasons to explore these communities and investments. But until the new rules take effect, investors should consider holding off on QOZ opportunities until they can take full advantage of the new benefits starting in 2027.

If you’re wondering how these changes could affect your investment strategy, our tax experts can help you evaluate your options and prepare for the new Opportunity Zone landscape. Contact us to learn how to make the most of these upcoming opportunities.