Opportunity Zone glossary

The window, generally beginning on the date a gain is realized, within which the gain must be invested in a qualified opportunity fund to be deferred.

Source: 26 U.S.C. § 1400Z-2(a)(1)(A)

The QOZB requirement that a substantial portion of the business’s intangible property be used in the active conduct of its business in the zone; the regulations set “substantial portion” at 40%.

Source: 26 U.S.C. § 1397C(b)(4); Treas. Reg. § 1.1400Z2(d)-1

The QOZB requirement that at least 50% of the business’s total gross income be derived from the active conduct of a trade or business in the zone. The regulations provide safe harbors based on hours, services, tangible property and management.

Source: 26 U.S.C. § 1397C(b)(2); Treas. Reg. § 1.1400Z2(d)-1

The QOZB requirement that substantially all of the business’s owned or leased tangible property be qualified opportunity zone business property; the regulations set “substantially all” at 70% for this test.

Source: 26 U.S.C. § 1400Z-2(d)(3)(A)(i); Treas. Reg. § 1.1400Z2(d)-1

The requirement that a qualified opportunity fund hold at least 90% of its assets in qualified opportunity zone property, determined by averaging the percentages on the last day of the first six-month period of the fund’s taxable year and the last day of the taxable year. A fund that fails owes a monthly penalty unless the failure is due to reasonable cause.

Source: 26 U.S.C. § 1400Z-2(d)(1), (f)

An increase in the basis of a qualified opportunity fund investment that reduces the deferred gain taxed. Under OZ 2.0 it is 10% after five years, or 30% for an investment in a qualified rural opportunity fund.

Source: 26 U.S.C. § 1400Z-2(b)(2)(B), as amended

The ten-year term of an Opportunity Zone designation, beginning January 1 after the designation. The first OZ 2.0 round runs January 1, 2027 through December 31, 2036; most original zones expire December 31, 2028.

Source: 26 U.S.C. § 1400Z-1(e); Rev. Proc. 2026-14

Capital gain from a sale or exchange with an unrelated person that a taxpayer may defer by investing it in a qualified opportunity fund within 180 days.

Source: 26 U.S.C. § 1400Z-2(a)

Businesses that cannot be QOZBs: private or commercial golf courses, country clubs, massage parlors, hot tub or suntan facilities, racetracks or other gambling facilities, and stores whose principal business is selling alcoholic beverages for consumption off premises.

Source: 26 U.S.C. §§ 1400Z-2(d)(3)(A)(iii), 144(c)(6)(B)

The IRS form a qualified opportunity fund uses to self-certify and to report its annual 90% asset test. OZ 2.0 expands the information funds must report; proposed regulations published September 11, 2026 would revise the related rules.

Source: IRS Form 8996; 26 U.S.C. § 6039K; REG-116506-25

The IRS form investors file each year to report their qualified opportunity fund investments and deferred gains.

Source: IRS Form 8997

Under OZ 2.0, for amounts invested after December 31, 2026, deferred gain is included in income at the earlier of a sale of the investment or five years after the investment date. Under the original program, deferred gain is recognized on December 31, 2026.

Source: 26 U.S.C. § 1400Z-2(b), as amended; IRS Notice 2026-40

A transaction, such as certain transfers of a fund interest or distributions, that causes some or all of an investor’s deferred gain to be included in income before the scheduled inclusion date.

Source: Treas. Reg. § 1.1400Z2(b)-1

For OZ 2.0 designations, a census tract whose median family income is at or below 70% of the statewide or metropolitan median, or whose poverty rate is at least 20% with median family income at or below 125% of that median. Contiguous non-low-income tracts are no longer eligible.

Source: 26 U.S.C. § 1400Z-1(c)(1), as amended

Debt, stock, partnership interests, options, futures and similar financial property. A QOZB must keep NQFP below 5% of the average of the aggregate unadjusted bases of its property; reasonable working capital, including cash held under the working-capital safe harbor, is excluded.

Source: 26 U.S.C. § 1397C(b)(8), (e)

A low-income census tract designated as a qualified opportunity zone under 26 U.S.C. § 1400Z-1. Investing eligible capital gains in property or businesses in a zone, through a qualified opportunity fund, can defer and reduce tax on those gains and exclude appreciation on the investment.

Source: 26 U.S.C. §§ 1400Z-1, 1400Z-2

The condition that tangible property’s first use in the zone begins with the fund or QOZB. Property that is not original use must be substantially improved to qualify.

Source: 26 U.S.C. § 1400Z-2(d)(2)(D)(i)(II)

The Opportunity Zone program as amended by Public Law 119-21 (signed July 4, 2025), § 70421. It removed the program’s end date, created ten-year designation rounds starting with zones effective January 1, 2027, changed investor benefits for amounts invested after December 31, 2026, added rural incentives and introduced expanded reporting with penalties.

Source: Pub. L. 119-21 § 70421

Expanded annual returns for qualified opportunity funds (asset values on each testing date and, for each QOZB held, its tracts, property, residential units and employees) and statements QOZBs must furnish to their funds, with penalties of $500 a day, up to $10,000 per return or $50,000 for funds with more than $10 million in gross assets.

Source: 26 U.S.C. §§ 6039K, 6039L, 6726

A corporation or partnership organized to invest in qualified opportunity zone property that holds at least 90% of its assets in such property, measured on two testing dates each year. A fund self-certifies, currently on IRS Form 8996.

Source: 26 U.S.C. § 1400Z-2(d)(1)

A trade or business owned by a qualified opportunity fund through stock or a partnership interest in which substantially all (at least 70%) of the tangible property owned or leased is qualified opportunity zone business property, at least 50% of gross income comes from the active conduct of business in the zone, a substantial portion (at least 40%) of intangible property is used in that business, less than 5% of property is nonqualified financial property, and the business is not an excluded business.

Source: 26 U.S.C. §§ 1400Z-2(d)(3), 1397C; Treas. Reg. § 1.1400Z2(d)-1

Tangible property used in a trade or business that was acquired by purchase after the applicable date, whose original use in the zone begins with the fund or business or which is substantially improved, and substantially all of whose use during substantially all of the holding period is in a qualified opportunity zone.

Source: 26 U.S.C. § 1400Z-2(d)(2)(D)

The assets that count toward a fund’s 90% test: qualified opportunity zone stock, qualified opportunity zone partnership interests (interests in a QOZB) and qualified opportunity zone business property held directly.

Source: 26 U.S.C. § 1400Z-2(d)(2)

A qualified opportunity fund that holds at least 90% of its assets in qualified opportunity zone property in zones made up entirely of rural area. Investors in a QROF receive a 30% basis step-up after five years under OZ 2.0.

Source: 26 U.S.C. § 1400Z-2(b)(2)(C), as amended

For property that is not original use, the requirement that, during any 30-month period after acquisition, additions to basis exceed the property’s adjusted basis at the start of that period. For property in a zone made up entirely of rural area, the threshold is 50% of adjusted basis, effective July 4, 2025.

Source: 26 U.S.C. § 1400Z-2(d)(2)(D); IRS Notice 2025-50

For an investment held at least ten years, the investor’s election to treat its basis as its fair market value when sold, eliminating tax on the investment’s appreciation. Under OZ 2.0 the fair-market-value basis is limited to the value 30 years after the investment date.

Source: 26 U.S.C. § 1400Z-2(c), as amended

A regulatory rule that treats cash held by a QOZB as reasonable working capital if it is designated in writing for the development of a business in the zone, spent under a written schedule within 31 months, and used substantially consistently with the plan. Start-ups can use more than one plan, up to 62 months in total.

Source: Treas. Reg. § 1.1400Z2(d)-1