Qualified Opportunity Zones

Qualified Opportunity Zones

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Quick Takeaways

The Qualified Opportunity Zone (QOZ) program was created in 2017 to encourage economic growth in low income communities, as identified by the US Census Bureau.
In July 2025 the program was reauthorized and made permanent, with some changes. The “QOZ 2.0” program will be effective January 1, 2027.
Qualified Opportunity Zones offer tax benefits, including the exclusion of capital tax gains when investments are made through an Opportunity Fund.
The original QOZ program is set to fully sunset on December 31, 2047.

The Qualified Opportunity Zone (“QOZ”) program was created by the 2017 Tax Cuts and Jobs Act to encourage economic growth in underserved communities through tax incentives for investors who utilize “Opportunity Funds” to invest in the zones. Along with tax benefits, it presents opportunities for real estate investment and development in those communities. U.S states and territories, including Washington, D.C., nominated areas to be designated as QOZs in 2018, and the IRS and Treasury finalized the designations that year. In July 2025, the program was reauthorized and made permanent with updated rules. The original iteration of the program will sunset on December 31, 2047, while the 2.0 program will go into effect on January 1, 2027.

The Original QOZ Program (Passed in 2017 and Sunsetting on December 31, 2027)

There are multiple tax benefits available to investors who invest in a QOZ, provided all requirements are met. First, capital gains reinvested within 180 days into a QOZ can be deferred until as late as 2026, for up to nine years. In addition, if the new investment is held for at least five years, the taxable gain is reduced by 10%; if held for seven years, the reduction increases to 15%. In addition, gains accrued on investments in a QOZ are free of capital gains tax if they are held for at least ten years. These investments must be processed through an “Opportunity Fund,” which is a partnership or a corporation organized for the purpose of investing in QOZ property; these funds are self-certified, and must hold at least 90% of their assets in a QOZ property (which includes stock, partnership interests, and/or tangible property used in a trade or business in a QOZ, such as real estate).

QOZ “2.0” Program (Passed in 2025 and Effective January 1, 2027)

The reauthorized and permanent program introduces several changes from the original version. Beginning July 1, 2026, states may nominate census tracts for designation as zones under the new program. To qualify, a tract must have an area median income at or below 70% of the state or metropolitan average, or a poverty rate of at least 20%, and a median family income no greater than 125% of the area median. Governors will be able to redesignate zones every ten years, and a minimum of 25% must be rural. Investors who invest their capital gains into a Qualified Opportunity fund are eligible for a 10% basis step-up after a 5-year holding period, but the higher basis step up of 15% after 7 years in the original program is eliminated. A rolling 30-year deferral cap applies to investments. As in the original program, tax on new gains from QOZ investments are eliminated if they’re held for 10 years. Reporting requirements for QOZs under the 2.0 program are also higher, and there are significant penalties for noncompliance.

A major change is the creation of Qualified Rural Opportunity Zones and Funds. A rural zone is defined as any area other than a city or town that has 50,000 or more in population and any urbanized area contiguous or adjacent to such a city or town. A Qualified Rural Opportunity Fund must hold at least 90% of its assets in QOZ property located substantially within a QOZ composed entirely of rural areas, or in QOZ stock or partnership interests in a QOZ business whose tangible property is substantially all located in a QOZ that is entirely rural. The benefits for investing in a rural QOZ are higher as well—while non-rural zones must meet a 100% substantial improvement test, rural zones only have a 50% substantial improvement test.

Qualified Opportunity Zone 2.0 Update

See References for more information.

Featured

Qualified Opportunity Zones Toolkit

A resource for Associations to use as they work with state and local Economic Development Organizations, Opportunity Funds, and their membership.

Background: Qualified Opportunity Zones

As part of the Tax Cuts and Jobs Act, the Qualified Opportunity Zone (“QOZ”) program encourages economic growth in underserved communities.

Commercial & Investment Real Estate

NAR's collection of real estate topics and information regarding commercial and investment properties.

Advocacy

What is the fundamental issue?

The Qualified Opportunity Zones (“QOZ”) program was enacted in the 2017 Tax Cuts and Jobs Act to encourage economic growth in underserved communities through tax incentives for investors. By offering tax benefits to investors, the program presents opportunities for real estate investment and development in those communities. U.S. states and territories, including Washington, DC, nominated areas (by census tract) to be designated as QOZs in 2018, and the IRS and Treasury Department finalized the designations that year. This temporary program is set to expire on December 31, 2047.

There are several potential tax benefits to investors who invest in a QOZ, if all requirements are met:

First, capital gains reinvested (within 180 days of the sale of a capital asset to a nonrelated person) into a QOZ are tax-deferred as long as they are held in the program, through 2026.
If the new investment is held for at least five years, the tax ultimately paid on the reinvested gains is reduced by 10%; if held for at least seven years, that reduction is increased to 15%.
In addition, gains accrued on the new investment in a QOZ are free of future capital gains tax if they are held for at least ten years.

Investments in O Funds may be gains rolled over from the previous sale of a capital asset (within 180 days) and/or non-capital gains funds, but only reinvested capital gains are eligible for the tax benefits. If both gains and non-gains funds are invested, they are treated as separate investments and will receive different tax treatment.

To qualify for the tax benefits, investments into a QOZ must be made through an “Opportunity Fund” (O Fund), which may be a partnership or corporation organized for the purpose of investing in QOZ property. The requirements for an O Fund are:

Must hold at least 90% of assets in QOZ property (which can be stock, partnership interests, and/or tangible property used in a trade or business within a QOZ, such as real estate);
Must certify with the Treasury and IRS, via a self-certification filed with federal tax returns (Form 8996).

Finally, the “QOZ business property” that an O Fund invests in must be “substantially all” in a QOZ, which under the regulations is met if 70% or more of the property is in a QOZ. The statute also requires that after an O Fund acquires QOZ business property that it be either "original use" (new) or “substantially improved,” which means investing at least as much on the improvement as was paid for the used asset. "Original use" commences with depreciation, so an unfinished asset purchase by an O Fund in a QOZ can qualify for original use as long as it has not been depreciated yet. In addition, vacant/abandoned property can be considered original use if it has been in that state for at least five years. The regulations state that the basis of the land a business sits on does not need to be included for the substantial improvement requirement, thus reducing the required investment amounts.

I am a real estate professional. What does this mean for my business?

The QOZ program presents multiple opportunities for real estate professionals. On the front end, it provides a way for investors to redeploy investments in capital assets without paying the tax on any gains immediately, which may encourage them to sell real estate assets they might otherwise hold on to in order to delay taxes. On the back end, the Opportunity Funds created to invest in the zones will be looking for business property in which to invest, which in many cases will include real property and/or involve development opportunities for real estate.

NAR Policy

NAR supports tax policies that provide the deferral and/or the exclusion of capital gains taxes on investments that are sold if the proceeds are reinvested into low-income or economically disadvantaged communities or neighborhoods that have been officially designated as eligible to receive such tax-incentivized funds.

Legislative/Regulatory Status/Outlook

The Treasury released the first set of proposed rulespdf for QOZs in October 2018, which outlined several administrative aspects of the program. An IRS public hearing was held in February 2019 focusing on feedback from stakeholders and industry groups on those first proposed rules. A second round of proposed rulespdf was released on April 17, 2019, which provided more in-depth details on the program and clarity on its administration.

Final rules for the program were released at the end of 2019, and they provided some much-needed certainty for many investors who were waiting for them. In October 2019 the IRS announced it had drafted a form to collect information on Opportunity Funds, to help track whether investors in O Funds are complying with the law.

On April 7, 2022, the Opportunity Zones Transparency, Extension and Improvement Act was introduced in both the House of Representatives and the Senate (H.R. 4065/S. 4065). This legislation, which enjoyed bipartisan support, would have restored the reporting requirements from the original Investing in Opportunity Act, which had to be dropped for parliamentary reasons during the debate of the Tax Cuts and Jobs Act of 2017.

Additionally, the proposed legislation would have:

extended the incentive from Dec. 31, 2026, to Dec. 31, 2028,
removed the OZ designation from certain higher-income census tracts,
modified the definition of QOF to allow for feeder funds, and
established a State and Community Dynamism Fund.

This legislation was reintroduced in the House on September 27, 2023 (H.R. 5761).

NAR Committees:

Commercial Federal Policy Committee

Federal Taxation Committee

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.

From NAR

Qualified Opportunity Zone 2.0 Update (National Association of REALTORS®, May 15, 2026)

Qualified Opportunity Zones Toolkit (National Association of REALTORS®, Oct. 2019)

A resource for Associations to use as they work with state and local Economic Development Organizations, Opportunity Funds, and their membership to plan and implement development in QOZs.

Qualified Opportunity Zones Issue Summarypdf (National Association of REALTORS®)

Get information about the policy side of Qualified Opportunity Zones with NAR’s Federal Issues Tracker. The Issues Tracker includes background information about QOZs, NAR’s policy, oppositional arguments, and the Legislative/Regulatory Status Outlook. Includes links to any current legislation and the legislative contacts from NAR’s Advocacy Team.

Qualified Opportunity Zones Investor's Timeline Infographic (National Association of REALTORS®)

Basics

Opportunity Zones Frequently Asked Questions (Internal Revenue Service, Oct. 23, 2023)

These FAQs (and answers) help to explain opportunity zones and give links to the IRS notices and resources for opportunity zones.

Map of Opportunity Zones (Department of Housing and Urban Development, 2022)

An interactive map from the US Department of Housing and Urban Development (HUD) that allows you to search for QOZs. The map also links to more information about each state or territory’s opportunity zone strategy.

Final Regulations Issued Implementing Opportunity Zones Tax Incentive (Journal of Taxation of Investments, 2020) E

“This article summarizes a number of important clarifications and changes made to prior guidance by the final Treasury Regulations issued under IRC Section 1400Z-2 implementing the federal Opportunity Zone program. The article discusses provisions of the Final Regulations impacting investors, Qualified Opportunity Funds, Qualified Opportunity Zone Businesses, and Qualified Opportunity Zone Business Property, as well as the effective date and applicability of the Final Regulations.”

Qualified Opportunity Zones Background (National Association of REALTORS®, Fall 2018)

General questions, and links to additional resources, including a list of designated QOZs, a map of QOZs, and proposed rules by the Treasury.

Webinar: Capitalizing on Opportunity Zones and Section 199A (National Association of REALTORS® - login required)

NAR representatives discuss how these two new developments will affect the commercial real estate industry.

Real Estate & Passthrough Corner: Real Estate Finance Post-Tax Reform: New Markets Tax Credit, Rehabilitation Tax Credit and Qualified Opportunity Zones — (Journal of Passthrough Entities, May/Jun. 2018) E

Offers a great flow-chart about how to set up Qualified Opportunity Funds and how those invest in Qualified Opportunity Zones.

Considerations

Investing in Qualified Opportunity Zones in Puerto Rico (Tax Advisor, May 1, 2023) E

“Investors might not be aware of the powerful tax-saving opportunities of combining the QOZ benefits of investments in Puerto Rico — with most of the island designated as QOZs — with those more recently offered under Puerto Rico laws also intended to encourage economic growth in the Commonwealth of Puerto Rico, most prominently, the Puerto Rico Incentives Code of 2019, Act 60-2019 (Act 60). This article summarizes the federal tax benefits from QOZ investments under Sec. 1400Z-2 of the Internal Revenue Code, as well as the economic development and opportunity zones provisions under Act 60.2.”

The Impact of Qualified Opportunity Zones on Existing Single-Family House Prices (Cityscape: A Journal of Policy Development and Research, 2022) E

“Established by the Tax Cuts and Jobs Act of 2017, Qualified Opportunity Zones are a new place-based community development program…Recognizing the policy's potential in driving increased investor interest in single-family home rentals, the authors of this study explore the impact of the program on existing single-family house prices and find that the community development program has led to excess home price appreciation totaling 6.8 percent from 2018 to 2020.”

Qualified Opportunity Zone Boundaries Unaffected by 2020 Decennial Census Changespdf (Internal Revenue Service, Oct. 2021)

This announcement from the IRS clarifies that the Opportunity Zones established in 2018 and 2019 are not subject to the changes in Census tracts from the 2020 Census results.

Opportunity Zones: A Place-Based Incentive for Investment in Low-Income Communities (Cityscape: Journal of Policy Development and Research, 2020) E

“The Tax Cuts and Jobs Act of 2017 included several major revisions of the U.S. tax code. Although the press thoroughly covered changes to marginal tax rates, deduction rules, and corporate rates, at least one section only received its share of attention more recently. This section, 1400Z,2 created a new place-based tax incentive intended to spur economic development and job creation in distressed communities designated as “Opportunity Zones.” Although Opportunity Zones (OZs) are the latest place-based tax incentive, they also represent a sweeping expansion of the approach— both in terms of the potential tax benefits being provided and the huge scale of the geography now covered for reduced income taxes for investors.”

Be An Opportunity Zone Leader (REALTOR® Magazine, Oct. 30, 2019)

“Whether you’re interested in participating yourself or helping clients learn more about these investment opportunities drawn from every eligible census tract in the U.S., the National Association of REALTORS® is providing support to local REALTOR® associations to help members take advantage of the new program. REALTORS® have been connecting with community stakeholders to help identify development priorities that fall within opportunity zones in or around where they live and work.”

Ensuring Opportunity Zones Work for All (REALTOR® Magazine, May 15, 2019)

“Chris Coes, vice president of land use and development for Smart Growth America, spoke at the Housing Opportunity Committee on May 15 during the REALTORS® Legislative Meetings & Trade Expo in Washington, D.C. Coes discussed opportunity zones and presented risks of community displacement. It's important, he said, that real estate professionals consider vulnerable populations and businesses to ensure they, too, benefit from growth and redevelopment.”

IRS Issues Guidance Relating to Deferral of Gains for Investments in a Qualified Opportunity Fund (Internal Revenue Service, Apr. 17, 2019)

“The proposed regulations allow the deferral of all or part of a gain that is invested into a Qualified Opportunity Fund (QO Fund) that would otherwise be includible in income. The gain is deferred until the investment is sold or exchanged or Dec. 31, 2026, whichever is earlier. If the investment is held for at least 10 years, investors may be able to permanently exclude gain from the sale or exchange of an investment in a QO Fund.”

Get Up to Speed on O-Zones (REALTOR® Magazine, Feb. 27, 2019)

"A new tax incentive for investors could be a boon for sellers and struggling communities. But will affordability take a hit?"

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Qualified Opportunity Zones

Quick Takeaways

The Original QOZ Program (Passed in 2017 and Sunsetting on December 31, 2027)

QOZ “2.0” Program (Passed in 2025 and Effective January 1, 2027)

Featured

Qualified Opportunity Zones Toolkit

Background: Qualified Opportunity Zones

Commercial & Investment Real Estate

Advocacy

What is the fundamental issue?

I am a real estate professional. What does this mean for my business?

NAR Policy

Legislative/Regulatory Status/Outlook

NAR Committees:

Current Legislation/Regulation

In-Depth

Legislative Contact(s):

Regulatory Contact(s):

References

From NAR

Basics

Considerations