Do investors directly invest in a designated OZ census tract?

Investors who have capital gains invest in a Qualified Opportunity Fund (QOF). The QOF invests into a business or property in one of the designated Opportunity Zones (OZ) census tract.

What type of community and economic development projects or businesses can receive a Qualified Opportunity Fund investment?

Any project or business—real estate development, operating businesses, equipment, or other eligible assets—located in an Opportunity Zone and meeting QOF requirements (e.g., 90% asset test) can receive investment. “Sin businesses” are excluded from receiving QOF investments.

What are the key tax benefits for investors investing in a QOF that invests in a property or business in a designated Opportunity Zone?

The three key tax benefits for investors who invest in a QOF that invest into a designated OZ census tract are: tax deferral, tax exclusion, and step-up in basis.

Where can I get additional information about Opportunity Zones?

The U.S. Department of Housing and Urban Development (HUD) website has information pertaining to OZs including the official map of designated OZ census tracts located at www.hud.gov/opportunity-zones.

Where can I find the regulations that govern the Opportunity Zones tax incentive program?

Regulations are maintained by the U.S. Department of the Treasury and the IRS, under Internal Revenue Code Section 1400Z and associated IRS guidance located at www.irs.gov/credits-deductions/businesses/opportunity-zones.

What is OZ 1.0 and what is OZ 2.0?

OZ 1.0 refers to the original Opportunity Zones program created under the Tax Cuts and Jobs Act of 2017. It is a temporary program with sunset dates. OZ 2.0 refers to the permanent version enacted via the One Big Beautiful Bill Act signed into law on July 4, 2025. It institutes rolling designations every ten years, stricter eligibility for Governor nominated census tracts, and new rural investment incentives starting 2027.

Is there a short video that explains how Opportunity Zones work?

HUD and the IRS have created short videos on how Opportunity Zones work. The HUD OZ video is located at www.hud.gov/opportunity-zones/how-do-opportunity-zones-work. The IRS video is located at on their OZ website and on YouTube using this link IRS OZ Video.

Where is the official list of designated Opportunity Zones 1.0 census tracts?

The IRS website hosts the official list of designated Opportunity Zones 1.0 census tracts located at www.irs.gov/irb/2018-28_IRB#NOT-2018-48.

Where is the official map of designated Opportunity Zones 1.0 census tracts?

The official maps of designated Opportunity Zones 1.0 census tracts are located on the HUD OZ website and with a link from the IRS OZ website to this map at www.hud.gov/opportunity-zones.

Who nominates, who certifies, who designates Opportunity Zones census tracts?

Governors nominate low-income census tracts; nominations are certified by the U.S. Secretary of the Treasury through the IRS, and the official list of designated OZ census tracts are then designated by the IRS.

What are the requirements for OZ 2.0 nomination?

Under OZ 2.0, governors will nominate eligible tracts every ten years (beginning July 2026) that meet stricter income and eligibility criteria than in OZ 1.0; Treasury will certify and designate the nominations that are expected before the end of 2026.

Is there a public engagement process Governor’s must follow for their nomination of OZ census tracts?

The federal OZ 1.0 and OZ 2.0 law does not impose a uniform public engagement process. Public engagement requirements vary by state.

Where can I find information about who in my state leads OZs and/or what the OZ 2.0 designation nomination process will look like?

HUD’s OZ website has a drop-down link to each state and the state department that is responsible for leading OZs. This may change from time to time, so it is best to check with the Governor’s office of your state for the most up-to-date information. The HUD OZ website drop-down link is on the OZ homepage below the official OZ map at www.hud.gov/opportunity-zones.

When do the OZ 1.0 census tracts expire?

OZ 1.0 designations expire December 31, 2028.

When does the OZ 2.0 census tract become effective?

OZ 2.0 tracts become effective January 1, 2027.

When do the OZ 2.0 census tracts expire?

OZ 2.0 designations expire ten years after they become effective (i.e., December 31, 2036, for first 10-year designations and then on December 31, 2046, for the second 10-year designations).

What is a “Low-Income Community” as it relates to Opportunity Zones 2.0?

The term “Low-Income Community” is used to define the eligible census tracts that Governor’s may select from to nominate their OZ 2.0 census tracts. The OZ 2.0 thresholds are tighter than under the OZ 1.0 eligibility definition. For OZ 2.0, Governors will nominate up to 25% of eligible census tracts from pool of “Low-Income Community” (LIC) census tracts.

• A minimum of 25 tracts must be nominated.
• A minimum 70% MFI threshold (statewide or metro area depending on population) or poverty rate of at least 20% and MFI that does not exceed 125% of MFI (statewide or metro depending on population).

What dataset will be used by Governors to nominate their OZ 2.0 census tracts?

The dataset will be determined by the U.S. Department of the Treasury. The OZ 2.0 legislation states that they will use the most recent 5 year period for which data is available. At this time, it is unknown what specific data set will be used.

Is there a map with the OZ 2.0 census tracts that may be nominated by Governors for certification and designation?

Not yet. Treasury will likely post the list of eligible census tracts once the data set to determine the eligibility criteria based on the “Low-Income Community” definition from The OBBBA is determined followed by a mapping tool to visualize eligible tracts. Some private sector industry organizations have begun to publish maps based on existing data, but we caution to use those maps until the final data set is selected by the IRS.

Can someone use the OZ 1.0 census tract in 2027 and 2028 if a census tract was not nominated in OZ 2.0 since the map doesn’t expire until December 31, 2025?

Yes. OZ 1.0 benefits apply to designated tracts through December 31, 2028, even if not carried forward into OZ 2.0. So, there is a window under certain circumstances when an investor may invest in a QOF that invests in an OZ 1.0 designated census tract that was not designated as an OZ 2.0 census tract and use the OZ 2.0 benefits.

How does the “Rural Areas” definition apply to Qualified Rural Opportunity Fund (QROF) investments in designated Opportunity Zones that are in “Rural Areas”?

A QROF must hold at least 90% of its assets in a QOF property which is a QOZ Business (QOZB) property all of which was in an OZ comprised entirely of a “rural area;” or is a QOZ Stock (QOZS) or QOZ Partnership Interest (QOZPI) all of which all of the tangible property owned or leased is QOZB property and substantially all the use of which is in an OZ comprise entirely of a “rural area.” The OBBBA uses a specific definition of a “Rural Area.” It is defined as “Any area other than –

1. A city or town that has a population of greater than 50,000 inhabitants, and
2. Any urbanized area contiguous and adjacent to a city or town (described in 1).

Can the designated Opportunity Zones census tracts change after designation?

Unlikely but possible. Once certified, designations remain in effect for their ten-year term, but an act of Congress could change census tract designations. This occurred in OZ 1.0 when an additional four designated OZ 1.0 census tracts in Puerto Rico were added after designation.

What are the tax benefits for investors investing in a Qualified Opportunity Fund (QOF) in OZ 1.0?

Deferral of eligible capital gain until December 31, 2026; basis stepup (10% after five years; additional 5% if held seven years tied to defined dates); and exclusion of appreciation if held at least ten years.

What are the tax benefits for investors investing in a Qualified Opportunity Fund (QOF) in OZ 2.0?

A rolling five-year deferral tied to investment date; basis step-up of 10% at five years (or 30% if using a QROF that invests in a rural area OZ); and exclusion of new gains if held 10 years or longer. If held beyond 30 years, full stepped-up basis at the 30th anniversary.

For the OZ 1.0 deferral of the original capital gains that are due on December 31, 2026, how much is due?

The full amount of the deferred original capital gains is due unless eligible for step-up, e.g., if held for five years, only 90% is included, etc.

When do the tax benefits for OZ 1.0 expire?

After December 31, 2026, the OZ 1.0 deferral and step-up benefits cease for new investments, though the 10-year exclusion may still apply to longer-held investments. After 2028, the OZ 1.0 designated census tracts themselves expire.

When do the tax benefits for OZ 2.0 start?

For investments made after December 31, 2026. New thresholds and rules apply beginning 2027.

Is there a comparison chart to compare the OZ 1.0 program versus the OZ 2.0 program?

HUD has created a comparison chart of the OZ 1.0 versus the OZ 2.0 program for reference.

For OZ 2.0, what are the tax benefits for Qualified Rural Opportunity Funds (QROF) that invest in a “Rual Area”?

QROFs receive a 30% basis step-up at five years and a reduced substantial improvement threshold of 50%, compared to 100% elsewhere. Note that the 50% substantial improvement threshold went into effect on July 4, 2025, when The OBBBA was signed into law. Additional guidance is forthcoming from Treasury.

Are any of the new OZ 2.0 rural tax benefits in effect now?

Yes. The reduced substantial improvement requirement to 50% for QROF investments in a “rural area” designated OZ was effective immediately upon the signing of the One Big Beautiful Bill on July 4, 2025.

Has Treasury issued any guidance and/or identified which OZ 1.0 census tracts are rural areas?

Yes. On September 30, 2025, the US Department of the Treasury released Notice 2025-50, Substantial Improvement of Property in Rural Areas. This notice provides information about the purpose, background, scope, meaning of “Rural Areas” along with the listing of OZ 1.0 census tracts identified as “Rural Areas”.

For OZ 1.0 what do investors that invest in a Qualified Opportunity Fund have to report?

Investors must file IRS Form 8949. It is the IRS form used to report capital gains (and losses) from the sale or exchange of capital assets. This is the starting point for the QOF tax benefits. An investor files IRS Form 8949 in the tax year they realize the original gain and elect to defer it by investing in a QOF. After that if they continue holding the QOF interest and no additional reportable transactions occur, they don’t re-report that same deferred gain on IRS Form 8949 each year. Please consult a tax specialist and visit the IRS OZ website for further guidance.

For OZ 1.0 what does a QOF have to report to the IRS?

A QOF must report annually IRS Form 8996 certifying the status as a QOF. A QOF also must report annually Form 8997 for their initial and annual statement of QOF investments, including investor holdings and contributions, value of equity interests, basis of qualifying investments, transfers in/out, and any events triggering recognition or termination of deferral of the gain. Please consult a tax specialist and visit the IRS OZ website for further guidance.

What do Qualified Opportunity Funds that invest in designated Opportunity have to report about their investments in designated Opportunity Zones?

All Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone Businesses (QOZBs) must comply with enhanced annual reporting, starting with tax years beginning after December 31, 2026. With The OBBBA a QOF used IRS Form 8996 to certify and report basic financial and compliance information. With The OBBBA, this form substantially expanded to include investment-level details, project description details, community impact data, geographic and demographic reporting, and fund performance and flow of capital. Cited information includes:

Investment-Level Detail

• Name and EIN of each QOZB
• Census tract(s) where each investment is located
• Dollar value of investment in each QOZB
• Amount invested in real estate vs. operating businesses

Project Description

• NAICS code of the business
• Business description and type (e.g., real estate development, startup, manufacturing)
• Whether the QOZB is majority-owned or controlled by the QOF

Community Impact Data (New Section): To assess whether OZ investments are truly benefiting communities, QOFs must report on:

• Number of full-time jobs created or retained at each project location
• Average wages and benefits provided to employees
• Number and type of housing units constructed or preserved
• Whether housing units are affordable, market-rate, or mixed-income
• Whether any units received public subsidies (e.g., LIHTC, HOME)

Geographic and Demographic Reporting

• Reporting at the census tract level
• Identifying target population benefits, such as local hiring
• Whether the project displaced or preserved existing community members (if known)

Fund Performance and Flow of Capital

• Total capital raised by the QOF annually
• Capital deployed vs. cash on hand
• Asset values and basis adjustments
• Holding period status for investments (e.g., 5, 7, 10+ years)

Are there any compliance certifications or penalties for non-compliance with the new reporting requirements?

QOF must certify compliance with 90% asset test; substantial improvement test (or original use); non-sin business rules; and proper structuring of QOZBs. The penalties for non-compliance include increased financial penalties for failure to file or incomplete data. There is a potential for disqualification of a QOF status if reporting is persistently deficient. The IRS may impose per-project penalties, not just fund-level.

Under The OBBBA will Treasury be required to provide any reports from the enhanced reporting requirements of QOFs?

Treasury will be required to provide annual reports beginning in 2027 and enhanced reports due in Year 6 and Year 11 (2037) with a focus on transparency, program accountability, and economic outcomes.

What will the Treasury be required to report on annually?

The annual Treasury report content will include:

• Number of Qualified Opportunity Funds (QOFs)
• Total assets held by QOFs
• Investment amounts by NAICS code
• OZ census tracts receiving investment
• Approximate full-time equivalent employees in OZ businesses
• Number of residential units created
• Investment dollar amounts by tract

What will the Treasury be required to report on years 6 and 11?

Treasury will be required to create a comparative economic analysis for designated OZ census tracts versus non-eligible designated OZ census tracts. Each report must provide a comparative assessment of economic indicators, comparing:

• (A) The 5-year period before July 4, 2026 (the date of enactment);
• (B) The most recent 5-year period before the report’s submission;
• (C) A matched set of low-income communities not designated as Opportunity Zones, used as a control group.

The comparison must be statistically robust and include metrics at the census tract level wherever feasible.

What economic and social indicators will Treasury be using for their report for years 6 and 11?

The OBBBA requires Treasury to use the following indicators across the three groups listed above.

• Poverty rate
• Employment rate / Job creation
• Median household income
• Gross receipts of businesses
• Number of operating businesses
• Number and value of real estate developments
• Population change
• Educational attainment (optional)
• Housing cost burden
• Racial/ethnic demographic shifts

Does HUD offer preference points for competitive grant applications that focus on designated Opportunity Zones and/or collaborating with Qualified Opportunity Funds?

HUD has and may include preference points or priority consideration for competitive grant applications with activities in designated Opportunity Zones. HUD’s Notice of Funding Opportunity (NOFO) provides information if OZ preference or priority consideration is available to applicants. HUD competitive grants that are open and have closed are located on Grants.gov.

If HUD offers OZ preference points on a competitive grant is there a certification form and where is it located?

Yes, if HUD offers OZ preference points on a competitive grant and the applicant elects to use this benefit, they must fill in form HUD 2996 (5/2025) “Certification for Opportunity Zones Preference Points” with a form expiration date of February 28, 2027. The form can be located at www.hud.gov/sites/dfiles/OCHCO/documents/2996.pdf.

Do other federal agencies offer preference points or priority consideration for competitive grant applications that focus on designated Opportunity Zones and/or collaborating with Qualified Opportunity Funds?

Some federal agencies may offer preference points or priority consideration in their competitive grant programs for projects in Opportunity Zones; availability varies by agency, grant, and program.

Are there any HUD programs that include alignments to, benefits for, or considerations for investments or activities in designated Opportunity Zones or working in collaboration with a Qualified Opportunity Fund?

Yes. For example, Section 108, HOME, and HTF programs can be paired strategically with Opportunity Zone investments to fill financing gaps. HUD provides a Community Leaders Toolkit and resources for transacting within OZs. HUD will continue to create alignments and publish these alignments on the HUD website.

Opportunity Zones are a U.S. Department of the Treasury tax incentive program, what is HUDs role and why is HUD involved?

HUD plays a significant role within the federal government for the OZ program. When OZ 1.0 launched and the White House Executive Order was issued to create the White House Opportunity and Revitalization Council (WHORC), a federal interagency council, HUD became the lead federal agency for the WHORC. HUD was instrumental in leading the WHORC as the HUD Secretary was the Chair and the WHORC Executive Director was a HUD employee (now HUD Secretary Scott Turner). HUD’s role was focused on coordination, leading, and collecting data. HUD continues to take a leading role to support OZs with its mission alignment, field presence, and staff expertise. HUD has and will continue to provide technical assistance, align housing programs and needs, align and support community and economic development, promote positive outcomes, and coordinate with federal, state, and local government, national and local stakeholders, and OZ industry experts.

Does HUD have a website with Opportunity Zones information?

Yes. HUD maintains a dedicated Opportunity Zones website with maps, toolkits, best practices, and mailing list sign-up located at www.hud.gov/opportunity-zones.

Which department at HUD leads HUD’s activities for Opportunity Zones?

HUD’s Office of Field Policy and Management (FPM) lead’s coordination, local and national engagements, cross-departmental and interagency coordination, and collection of OZ related information.

Does HUD have a mailing list or listserv to get additional information about HUD’s work on Opportunity Zones?

Yes. HUD’s Opportunity Zones website includes signup for a mailing list located at www.hud.gov/subscribe/signup?listname=Opportunity%20Zones&list=OPPORTUNITY-ZONES-L.

Who can I contact at HUD for more information about Opportunity Zones?

Contact details are available on HUD’s OZ website.

Does HUD have any tools or resources for Opportunity Zones?

Yes. HUD offers OZ toolkits (for community leaders, developers), best practices reports, webinars (e.g., HOME and HTF in OZs), and other materials related to community and economic development within OZs and continues to add to its existing resources. Resources are located on both the HUD.gov and HUDExchange.gov websites.

Has HUD done any research on the impact of the Opportunity Zones tax incentive program on communities?

HUD’s Office of Policy Development and Research (PD&R) has both authored reports assessing OZ investment impacts and published third party reports regarding OZs. HUD continues monitoring OZ data, research, reports, and outcomes to support Treasury and our stakeholders.

Will HUD be involved with the US Department of the Treasury OZ 2.0 Annual Report and 6th and 11th year impact reports?

HUD is expected to coordinate with Treasury on evaluation, though formal involvement in statutory reports is determined by law.

Is the White House Opportunity and Revitalization Council that originated with an Executive Order still functioning?

The original Council has concluded its mandate at the end of 2020, but HUD continues federal interagency coordination on OZ.

Will there be another Executive Order to create a similar Council like the former White House Opportunity and Revitalization Council?

No new Executive Order has been issued at this time.

In the absence of a new White House Executive Order, how are federal agencies coordinating and collaborating around Opportunity Zones?

Federal agencies coordinate via informal structures, inter-agency task forces, and through HUD’s role in promoting alignment across programs. HUD is exploring ways to codify its leading role with OZs with other federal agencies but most importantly coordination is focused on supporting those interested in community and economic development in OZs and how to better align each agencies grants and programs to OZs.

Do states that have capital gains taxes offer similar tax incentives for investors investing in Qualified Opportunity Funds that invest in Opportunity Zones?

Some states with capital gains taxes may adopt complementary state-level Opportunity Zone incentives; availability varies by state. HUD encourages all states to review their grants and programs to align to OZs.

Do state governments offer additional benefits for their designated Opportunity Zones?

Some states offer OZ bonus tax credits, grants, or regulatory incentives for projects within OZs; availability varies by state. HUD encourages all states to review their grants and programs to align to OZs.

Do local government entities (counties, boroughs, cities, or towns) offer additional benefits for their designated Opportunity Zones?

Yes. Many local jurisdictions provide expedited permitting, density bonuses, or matching funds for OZ projects. Availability varies by local jurisdiction. HUD encourages all local jurisdictions to review their grants and programs to align to OZs.

Has the Opportunity Zones tax incentive made an impact on the housing supply?

Yes: It has stimulated housing development, particularly multifamily and mixed-use projects. From Q3 2019 to Q3 2024, OZ investments generated an estimated 313,000 housing units as cited in research by the Economic Innovations Group that used HUD data.

What types of housing have been built with Qualified Opportunity Funds?

Market-rate apartments, mixed-use developments; some projects include workforce housing units, affordable units, housing for the homeless, and many include broader community amenities. Housing has also included manufactured housing and traditional housing construction. Housing investments and developments have included single-family and multi-family housing. Projects include new construction, adaptive reuse, and rehabilitation.

What types of housing businesses have been funded with Qualified Opportunity Funds?

QOFs have invested into housing businesses such as manufactured housing construction businesses or other housing development businesses that create housing in designated OZs and other communities.

How does the Low Income Housing Tax Credit (LIHTC) program align with or work in designated Opportunity Zones and/or with Qualified Opportunity Funds (QOFs)?

LIHTC can be layered with OZ financing to support affordable housing development; OZ investments can fill financing gaps in LIHTC projects.

How does the New Markets Tax Credit (NMTC) program align with or work in designated Opportunity Zones and/or with Qualified Opportunity Funds?

NMTC can be combined with OZ investments to finance community facilities or commercial developments in distressed areas, leveraging multiple tax incentives.

How do HUD’s housing grants and programs work in designated Opportunity Zones and/or with Qualified Opportunity Funds?

HUD programs like HOME and HTF can partner with OZ capital to support affordable housing transactions by filling funding gaps. HUD’s Federal Housing Administration (FHA) offers various financing vehicles like FHA-insured loans for single-family, multi-family, and health care facilities. FHA offers additional incentives specific to investments in QOF that vary over time.

What is the definition for a “Qualified Rural Opportunity Fund” or QROF?

The OBBBA created a new OZ industry definition know as the “Qualified Rural Opportunity Fund” (QROF). A QROF must hold at least 90% of its assets in qualified opportunity zone property which:

• Is a QOZ Business (QOZB) property all of use of which was in an OZ comprised entirely of a “rural area”; or
• Is a QOZ Stock (QOZS) or QOZ Partnership Interest (QOZPI) all of which all the tangible property owned or leased is QOZB property and substantially all the use of which is in an OZ comprised entirely of a “rural area.”

What is the definition of a “Low-Income Community” census tract?’

For OZ 2.0 a “Low-Income Community” (LIC) census tracts is a census tract with a minimum 70% MFI threshold (statewide or metro area depending on population) or poverty rate of at least 20% and MFI that does not exceed 125% of MFI (statewide or metro depending on population).

What is the definition for a “Rural Area”?

The OBBBA defines a “Rural Area” as “Any area other than –

1. A city or town that has a population of greater than 50,000 inhabitants, and
2. Any urbanized area contiguous and adjacent to a city or town (described in 1).

What is the definition of the “Substantial Improvement Test?”

A requirement that a QOF reinvests in improvements equaling at least 100% of the property’s basis within 30 months. For rural areas (QROFs), this threshold is reduced to 50% (effective July 4, 2025).

What is the definition of “Step-up in Basis”?

A basis increase that reduces taxable gain: under OZ 1.0, up to 10 or 15% (defined dates); under OZ 2.0, 10% or 30% basis step-up at five years depending on fund type. 10% for non “QROF” and 30% for QROF.