Estate and Succession Planning
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From Sunset to Reset: The Future of Opportunity Zones, Effective January 1, 2027
Published: March 17, 2026
The Qualified Opportunity Zone (QOZ) program was originally established under the Tax Cuts and Jobs Act (TCJA) during the first Trump administration to encourage private investment in economically distressed communities. Through Qualified Opportunity Funds (QOFs), investors were able to reinvest capital gains into designated census tracts and receive certain tax deferral and tax benefit opportunities.
The original Opportunity Zone program was scheduled to sunset at the end of 2026. However, the One Big Beautiful Bill Act (OB3) has created a permanent successor program—often referred to as “Opportunity Zone 2.0”—set to begin January 1, 2027.
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Designation of New Opportunity Zones
Under the new program, each state’s governor will nominate new Opportunity Zones based on updated eligibility criteria. Generally, qualifying census tracts must meet income or poverty thresholds, including:
- Median income of 70% or less of the statewide or area median, or
- A poverty rate of at least 20% with median income not exceeding 125% of area median income.
Beginning July 1, 2026, governors will have a 90-day window to designate up to 25% of the state’s eligible census tracts as Opportunity Zones. The U.S. Department of the Treasury (Treasury) may approve an additional 30-day extension. Treasury will then have until December 31, 2026 to finalize the designations. This designation process will repeat every ten years, allowing new communities to qualify over time.
New Incentives for Rural Investment
OB3 also introduces enhanced incentives aimed at encouraging investment in rural communities through a new category called Qualified Rural Opportunity Funds (QROFs).
To qualify, the fund must invest in a business located entirely within a rural area, defined generally as:
- A city or town with a population of 50,000 or fewer, or
- Areas surrounding rural communities.
These incentives are intended to channel more private capital into smaller and underserved communities that historically have seen less Opportunity Zone investment.
Updated Data May Reshape Eligible Areas
The original Opportunity Zone designations relied on 2010 Census data. While OB3 does not specify which data set will be used going forward, some expect the government to rely on the 2024 American Community Survey rather than the full 2020 Census.
Population shifts following the COVID-19 pandemic could impact which areas qualify. States experiencing growth—such as Florida—may see meaningful changes in which census tracts are designated as Opportunity Zones and which qualify as rural.
Key Changes to Opportunity Zone Benefits
While Opportunity Zone 2.0 maintains the core structure of the original program, OB3 introduces several important updates:
- Rolling five-year deferral period: Capital gains invested in a Qualified Opportunity Fund are deferred for five years from the date of investment, rather than until a fixed future deadline. Investors may also receive a 10% basis step-up after the five-year holding period.
- Enhanced rural incentives: Investments made through Qualified Rural Opportunity Funds may qualify for a 30% basis step-up after five years, significantly greater than the 10% available for traditional Opportunity Zone investments.
- 30-year investment cap: Investments can now be held for up to 30 years, at which point the investment basis is stepped up to its fair market value. Any additional appreciation after that point may be subject to tax.
