Applicable start date. The date a designated zone's status begins under the 2025 law: January 1 following certification. For the first round, that is January 1, 2027. Property must be acquired after the zone's applicable start date to qualify. A 2018 zone that is not redesignated has none.
Alternate Framework. A reported Treasury process, around September 28, 2026, that added 128 tracts to the 2027 eligible list. It is reported only by secondary sources and treated as provisional.
Census tract. A small statistical area defined by the Census Bureau. The 2018 zones use 2010 tracts and the 2027 zones use 2020 tracts, so the two maps do not align exactly.
Certification. Treasury's acceptance of a state's nominations, due by November 27, 2026, or December 28, 2026 if extended. It is the step that turns a nomination into a designation.
Deferral. Postponing tax on a capital gain by investing it in a fund within 180 days. Under the original rules, deferral ends December 31, 2026. Under the 2025 law, it ends at sale or five years after investment.
Designated zone (QOZ). A census tract certified as a Qualified Opportunity Zone for a designation period. The first period under the 2025 law runs January 1, 2027 to December 31, 2036.
Eligible tract. A tract that meets the low-income test and may be nominated. For 2027 there are 25,332, listed in Rev. Proc. 2026-14.
Entirely rural zone. A zone made up entirely of rural area: outside any city or town above 50,000 people and its adjacent urbanized area. It qualifies for the 50% substantial-improvement threshold and, for Qualified Rural Opportunity Funds, the 30% step-up.
Excluded ("sin") businesses. Golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and gambling facilities, and stores whose principal business is selling alcohol for off-premises consumption. These cannot be qualified businesses.
Inclusion event. An event that ends deferral and makes the deferred gain taxable, such as selling the fund interest or certain distributions. Lenders should check that remedies and refinancing provisions do not trigger one.
Low-income community test (2027). Median family income at or below 70% of the area median, or a poverty rate of at least 20% with median family income at or below 125% of the area median. Contiguous tracts no longer qualify.
Nomination. A governor's selection of eligible tracts, up to 25% of the state's eligible total. The window closed on October 28, 2026.
OZ 1.0 / OZ 2.0. Shorthand for the original program (gains invested through December 31, 2026) and the permanent program created by the 2025 law (investments after that date).
Qualified Opportunity Fund (QOF). An investment vehicle that holds at least 90% of its assets in qualified Opportunity Zone property, tested semiannually.
Qualified Opportunity Zone Business (QOZB). An operating business owned by a fund. At least 70% of its tangible property must be qualified, at least 50% of its gross income must come from active conduct in the zone, at least 40% of its intangibles must be used there, and less than 5% of its assets may be nonqualified financial property.
Qualified Opportunity Zone business property (QOZBP). Tangible property acquired by purchase (after December 31, 2017 under the original program, or after the zone's applicable start date under the 2025 law), used in the zone, and either originally used by the business or substantially improved.
Qualified Rural Opportunity Fund (QROF). A fund holding at least 90% of its assets in property in entirely rural zones. For amounts invested after December 31, 2026, it earns a 30% basis step-up after five years.
Reporting (§6039K, §6039L, §6726). Statutory annual reporting by funds, statements from businesses to funds, and penalties for failure, added by the 2025 law. Proposed regulations were published September 11, 2026.
Step-up. An increase in the basis of the fund investment, which reduces the deferred gain that is taxed: 10% after five years, or 30% for a Qualified Rural Opportunity Fund, under the 2025 law.
Substantial improvement. For existing buildings, additions to basis within 30 months must exceed the building's adjusted basis, excluding land. In entirely rural zones the threshold is 50% of basis.
10-year exclusion. For investments held at least 10 years, the investor may take fair market value as basis on sale, so appreciation is not taxed. Under the 2025 law, basis is frozen at fair market value on the 30th anniversary.
Transition rules (Notice 2026-40). Guidance on moving from the original program to the new one. It includes the rule that property acquired after December 31, 2026 in a 2018-only tract generally does not qualify, unless covered by a working-capital plan adopted and funded by that date or it is ordinary-course replacement property.
Triple-net lease limitation. Merely entering into a triple-net lease is not the active conduct of a business, so a single-tenant net-lease structure generally cannot be a qualified business.
Working-capital safe harbor. A written plan, normally up to 31 months, under which cash held for developing a business counts as qualified while it is spent according to schedule.
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- Author
- Robert Mitchell
- Updated
- October 26, 2026