Real estate developers, investors, and community leaders now know which communities will qualify for the next generation of the federal Opportunity Zone program.
The U.S. Department of the Treasury and IRS announced last week that 6,576 census tracts across all 50 states, U.S. territories, and the District of Columbia have been designated as Qualified Opportunity Zones (QOZs). The new designations will take effect January 1, 2027, and remain in place for 10 years.
The announcement marks an important milestone for the Opportunity Zone program after Congress made the tax incentive permanent last year and established a recurring process for redesignating zones every 10 years. The newly designated census tracts will also be the first to operate under revised rules that provide enhanced incentives for investment in rural communities.
New Opportunity Zones take shape
Earlier this year, Treasury and the IRS identified 25,332 census tracts eligible for nomination as Opportunity Zones, including 8,334 rural tracts. Governors and the mayor of the District of Columbia began submitting nominations on July 1. By the end of the statutory nomination period, 6,576 eligible census tracts had been nominated, and Treasury and the IRS have now designated all of them as QOZs. You can find the full list and map of tracts on the Treasury’s website here.
Of the newly designated Opportunity Zones, 2,594 are rural census tracts. That represents more than 39% of the new designations and could be particularly significant for investors because the permanent Opportunity Zone framework provides additional tax benefits for investments in rural communities.
The new framework also imposes stricter eligibility requirements than those used for the original Opportunity Zone designations. Among other changes, the threshold based on a census tract's median family income was lowered from 80% to 70% of the applicable area median family income.
What the new designations mean for investors
The Opportunity Zone program was created in 2017 to encourage private investment in low-income communities through federal tax incentives tied to long-term investment. Treasury reports that the program has generated more than $110 billion in private-sector investment since its creation.
Beginning with investments under the new framework, investors generally will be able to defer capital gains invested in a Qualified Opportunity Fund until the earlier of the sale of the investment or the fifth anniversary of the investment. Investors who hold a Qualified Opportunity Fund investment for five years receive a 10% basis step-up, while investments in qualified rural opportunity funds receive a 30% basis step-up.
The new framework also makes it easier for some rural projects to satisfy the program's substantial improvement requirement. While the existing rules generally require capital improvements that double a property's basis within 30 months, the new framework reduces that threshold to 50% for tangible property in qualified rural Opportunity Zones.
What's next for developers and investors
With the designation process now complete, developers and investors can begin evaluating where the next generation of Opportunity Zone investment may take place. Treasury’s full list and map of designated Opportunity Zones give real estate decision-makers an opportunity to identify properties and communities that may qualify for investment beginning January 1.
For developers, investors, businesses, and local leaders, the designations provide greater certainty about which communities will have access to the program over the next decade. The significant number of rural designations, coupled with enhanced rural tax incentives and reduced substantial-improvement requirements, could also make projects in smaller markets and lower-density communities more attractive under the new framework.
Real estate leaders and investors should consider reviewing the newly designated census tracts now and evaluating potential projects, property acquisitions, and investment strategies ahead of the January 1, 2027, effective date.
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