Opportunity Zones 2.0: What the New Federal Law Means for Investors in Puerto Rico

Here's what you need to know — and how PR PROZ  is preparing for both sides of the deadline.

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Opportunity Zones Are Now Permanent — But Not Static
The OZ program is no longer sunsetting in 2026. It’s permanent. That means funds, developers, and investors can finally build long-range models without the looming fear of expiration. But permanence doesn’t mean sameness.

Under the new law, the structure of OZ benefits changes significantly after 2026:

• Gains invested before December 31, 2026 still follow the original model: fixed deferral timelines (Until 12/31/2026), basis step-ups (already expired), and a full capital gains exclusion after 10 years.
• Gains invested after January 1, 2027 shift to a rolling deferral structure — with a 5-year deferral period and step-ups of 10% for QOFs and 30% for QROFs (Qualified Rural Opportunity Funds).

For Puerto Rico-based investors, this changes the map — literally and strategically.

Redesignation of OZ Tracts: Puerto Rico’s Big Shake-Up
Perhaps the most disruptive change is the decennial redesignation of OZ tracts. Starting July 1, 2026:

• Governors will be allowed to redesignate only 25% of eligible low-income census tracts as OZs.
• Tracts must meet stricter eligibility thresholds (70% or less of area median income, rather than 80%).
• The contiguous tract exception — which allowed wealthier census tracts to qualify — has been removed.

In Puerto Rico, this could mean that much of the island loses OZ status beginning in 2027. Only tracts with the clearest poverty and underinvestment signals will be retained. For investors, that creates urgency to invest now in areas that likely won’t qualify after 12/31/2026.

Why Pre-2027 Still Matters
Investing before the end of 2026 secures three key benefits under the “old” OZ framework:

• Full island access: Puerto Rico's near-total OZ designation still applies until the new mapping process goes into effect. You can invest virtually anywhere on the island and still qualify.  A number of existing census tracts will not be eligible for new investment after 2026.
• Full 10-year exclusion: Holding your investment through 2036 under the current regime means you can eliminate capital gains on appreciation and depreciation recapture.
• Legacy rules apply: You lock in known reporting requirements, established structuring models, and mature fund mechanics. In short: fewer surprises.

Monllor Capital’s PROZ II fund is structured to take advantage of this final window, while also positioning for post-2026.

Puerto Rico’s Advantage: Temporary, but Powerful
Why is Puerto Rico still relevant? Because until the new map is drawn, it’s still wide open. Here’s why now is the most powerful moment in the past 5 years:

1. Full coverage through 2026: Any investment made in PR before the cutoff qualifies without tract analysis.
2. Built-in QROF potential: Many inland PR tracts meet the rural criteria, making 30% basis step-ups realistic post-2026.
3. Tax stacking: Combine federal OZ benefits with PR’s Act 60 — including generous tax credits and reduced income tax rates — and you’re stacking tax advantages in ways that aren’t possible anywhere else in the U.S.

How the Rules Shift in 2027: OZ 2.0
Beginning in 2027, the following structural changes take effect:

• Rolling Deferral: Instead of a hard cutoff in 2026, investors will now get a 5-year rolling window from the date of their gain realization. This adds flexibility but reduces planning incentives.
• Automatic Step-Ups: All investments will qualify for a 10% basis increase after 5 years. If the fund qualifies as a QROF (i.e., 90% of assets in designated rural tracts), that step-up increases to 30%. We expect PR to designate a significant number of Rural census tracts as Opportunity Zones.
• Rural Sweet Spot: QROFs offer lower improvement requirements (50% instead of 100%), a higher step-up, and flexible exit planning. For Puerto Rico, this could drive a wave of capital toward overlooked inland and agricultural tracts.

The most strategic investors will invest in both regimes: locking in gains under the current model while preparing for a more selective, rural-focused OZ environment post-2026.

New Reporting Rules: Get Compliant or Get Penalized
Starting in 2027, OZ funds will be subject to extensive annual reporting requirements, including:

• Asset and investment location details
• Job creation and economic impact
• Annual community benefit disclosures
• Verification of census tract eligibility

Funds that fail to comply will face penalties ranging from $10,000 to $100,000 per filing, depending on asset size. Monllor Capital has already built out internal systems for document storage, reporting prep, and compliance integration with tax counsel. Investors entering PROZ II will be insulated from much of the upcoming complexity.

What to Do Now

1. Invest in 2025–2026 if you can. You get the full original OZ benefits in Puerto Rico — in any tract. Don’t waste this window.
2. Get serious about compliance. If your fund or sponsor isn’t ready for 2027 reporting rules, you’re taking real risk.
3. Work with teams already structured for both regimes. Monllor Capital’s PROZ II fund is designed to bridge this transition. We’re executing projects under the current rules while preparing new assets to meet the next decade’s thresholds.

Conclusion: This Is the Moment for OZ Investors in Puerto Rico
OZs are no longer a “trial program.” They’re permanent federal law — and the rules just got tighter, smarter, and more targeted. Puerto Rico remains the most concentrated OZ environment in the country for the next 18 months. After that, the playing field shrinks dramatically.

The time to deploy is now — before tract redesignation and before the simplified post-2026 structure takes over. But planning for the new OZ regime is just as important.
At Monllor Capital Partners, we’re not choosing between the two. We’re executing both — building value now while mapping the next decade of capital-efficient, tax-smart investments across the island.

If you’ve got gains on the horizon, Puerto Rico just became your most strategic zip code.

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