December 31, 2021 marked the end of the 10% basis step-up benefit for investments in Qualified Opportunity Funds (QOFs), which invest in Qualified Opportunity Zones, or QOZs. Yet according to a report issued by Novogradac, $28.4 billion in equity was raised by QOFs in Q1 2022, a 16.3% increase over the $24.4 billion reported at the end of 2021, when the step-up benefit expired. Furthermore, the first-quarter 2022 equity raise far outpaced the $16.3 billion raised during the same period in 2021.

The Novogradac report indicated that the majority of the QOZ capital raised is dedicated to residential and/or commercial real estate business. The company noted that investments directed toward renewables experienced a large jump in early 2022, from $676.7 million to $1.32 billion. Novogradac indicated that the reason for the increase was because of QOFs that included renewables as one of many investment targets.

Novogradac went on to state that the total QOF equity raised is likely much higher – potentially three to four times higher—as the Novogradac report comes from information voluntarily provided by QOFs, or from other public sources such as press releases or Securities and Exchange Commission filings.

The interesting aspect is that the step-up benefits have expired, yet QOFs continue to raise funds on a steady basis. While step-up incentives are gone for now, if the Opportunity Zones Transparency, Extension and Improvement Act (H.R. 7467, S. 4065) passes, they could return. If the bill is passed as currently written, it would allow QOF investments made by December 31, 2022 to qualify for a 15% basis step-up, and those made by December 31, 2023 to qualify for a 10% basis step-up.