New Guidance for OZ 2.0

The Opportunity Zone Tax Incentives Program (OZ Program) is now permanent with the passage of the One Big Beautiful Bill Act (OBBB). Along with this permanency, the OBBB introduced additional changes to the OZ Program, including:

• A new rolling 5-year deferral period for qualified gains invested into a Qualified Opportunity Fund (QOF) after 12/31/2026. Deferred gains under the current OZ Program are recognized at the end of the 2026 tax year.
• A 10 percent “step up”, offsetting deferred gains, for eligible investments (acquired after 12/31/2026) held for at least 5 years.
• A new OZ map (yet to be released), effective for investments after 12/31/2026, replacing the existing OZ map (although for the tax years 2027-28, both OZ maps will remain in effect).
• Upgraded incentives for investing into so-called “rural opportunity zones.”
• New compliance and reporting regimes.

There are many questions concerning how these new OZ Program rules interact with the existing OZ Program (enacted in 2017). The government just released guidance announcing its intent “to issue proposed regulations regarding” the OZ Program as amended by the OBBB.

Eligible Gain Realized Before 12/31/2026 Timely Invested On or After 1/1/2027

Taxpayers generally have 180 days from a sale with an unrelated party to reinvest eligible gain into a QOF (with special rules for gains reported on a Schedule K-1 from a partnership or S corporation). Some taxpayers will have an eligible gain from the 2026 tax year that can be timely invested in 2027 (for example, if stock is sold in August of 2026, the 180-day reinvestment period would run into 2027). It was unclear whether gains from a 2026 event that are invested into a QOF in 2027 would fall under the new or old OZ Program.

This new guidance confirms that taxpayers with eligible gain recognized on or before 12/31/26 can make use of the new OZ Program if they timely invest after 12/31/26 (meaning the applicable 180-day reinvestment period runs into 2027). These taxpayers can use the rolling 5-year deferral period and the 10 percent step-up.

Qualified Opportunity Zone Businesses and Property

One major point of uncertainty concerns whether property acquired after 12/31/2026 for use in an old Opportunity Zone (OZ) continues to be qualified property. This new guidance provides several important updates.

First, certain entities (called Qualified Opportunity Zone Businesses, or QOZB) can make use of a “working capital safe harbor plan” (WCSH plan), allowing the entity to raise and deploy capital over a specified period of time (penalties can apply if a WCSH plan is defective or not in effect).

Under this new guidance, if an entity acquires property after December 31, 2026, for use in a previously designated QOZ, then that property may satisfy the OZ acquisition requirements if:

(i)the WCSH plan was adopted on or before December 31, 2026, (ii) the relevant property acquisitions are made in a manner substantially consistent with that plan, (iii) the QOZB has received at least ten percent of the total estimated working capital assets designated in writing pursuant to the plan by December 31, 2026, and (iv) the QOZB expends at least five percent of the total estimated working capital assets by December 31, 2026.

Similarly, advisors were unclear on the treatment of property acquired by a QOZB in a previously designated OZ area.

The new guidance clarifies that tangible property acquired after December 31, 2026, by a QOF or QOZB for use in the ordinary course of its trade or business in a previously designated OZ to replace or modernize existing tangible business property can be treated as qualified property (provided all other requirements are met).

And, because at least 50 percent of a QOZB’s gross income must be derived from the active conduct of a trade or business in an OZ, and a substantial portion of its intangible property must be used in the active conduct of a trade or business in an OZ, it was unclear what happens if the OZ map changes.

The government states a QOZB that has begun to engage in the active conduct of a trade or business within a previously designated QOZ on or before the expiration of its QOZ designation period (December 31, 2027, or December 31, 2028, as applicable), or that reasonably anticipates to begin doing so in accordance with a WCSH plan, may continue to rely upon the previously designed OZ.

Transitioning to OZ 2.0

The new guidance provides helpful directions both for investors with existing OZ investments as well as investors with eligible gains considering a possible investment into a QOF. The forthcoming regulations will hopefully provide further clarity on the interactions between OZ 1.0 and 2.0. Our tax consulting team can help you understand changes to the Opportunity Zone program.