An Opportunity Zone is a designated low-income census tract in which capital gains invested through a Qualified Opportunity Fund receive deferral and, if held long enough, partial or full exclusion from federal tax under IRC §1400Z-2.
In plain terms
Sell an appreciated asset, invest the gain — not the whole sale proceeds, just the profit — into a fund that in turn puts that money into property or a business inside a mapped zone, and the tax on the original gain is pushed into the future. Hold the investment long enough and a share of the new investment’s own growth escapes federal tax entirely. The program was built in 2017 to steer capital into places that don’t otherwise attract it; since 2025 it has also become a permanent fixture of the tax code rather than a one-time, sunsetting provision.
How it works
The 2017 Tax Cuts and Jobs Act created the framework, and the One Big Beautiful Bill Act, signed July 4, 2025, made it permanent while replacing the original one-time map and deadline with a rolling structure. Under the new regime described in IRS Notice 2026-40, zone designations now run in fixed ten-year cycles: tracts designated in 2026 take effect January 1, 2027 and run through the end of 2036. The original 2018 map doesn’t get a matching renewal — those zones lapse December 31, 2028 (December 31, 2027 for Puerto Rico’s blanket designation), so the two maps briefly overlap before the old one disappears.
A Qualified Opportunity Fund must hold at least 90% of its assets in qualifying opportunity zone property, tested semiannually. For gains invested on or after January 1, 2027, deferral now runs a fixed five years from the date of investment, rather than the original program’s single hard deadline. Holding the investment five years earns a basis step-up — 10% of the deferred gain under the standard rules, 30% if the vehicle is a Qualified Rural Opportunity Fund investing only in rural zones. Hold it to the ten-year mark and the fund’s own appreciation is excluded from tax, though a basis reset at the thirty-year anniversary now caps how long that exclusion can keep growing.
The numbers
- Permanent as of: July 4, 2025, under the One Big Beautiful Bill Act — no further sunset date.
- New zone cycle: 10 years; zones designated in 2026 run January 1, 2027 through December 31, 2036 — IRS Notice 2026-40.
- Legacy zones expire: December 31, 2028 (December 31, 2027 for Puerto Rico).
- Deferral period (investments made on or after January 1, 2027): 5 years from the date of investment.
- Basis step-up after 5 years: 10% standard, 30% for a Qualified Rural Opportunity Fund.
- Minimum qualifying-asset holding: at least 90% of a fund’s assets, tested semiannually.
What people get wrong
That the program simply “expired” at the end of 2026 and that’s the end of the story. It didn’t expire — it was made permanent — but what restarted in 2027 is a materially different deal: a shorter five-year deferral instead of the original program’s single cliff date, a lower standard step-up, a brand-new rolling map, and a thirty-year ceiling on how long the full exclusion can accrue. Treating Opportunity Zones 2.0 as a continuation of the 2017 program, rather than a reset with new terms attached to new zones, is the mistake that trips up investors still working from the original rules.
Related
Read more: Real Estate as an Investment: How the Wealthy Actually Use Property · Taxes: How Wealth Is Structured and Preserved
See also: 1031 exchange · Cost segregation · Depreciation recapture