Tax Facts
7816 / What are the new “opportunity zones” created by the 2017 Tax Act?
Updated: February 21, 2018 at 04:38 PM
The 2017 tax reform legislation created a new program to govern the taxation of capital gains stemming from investments in qualified opportunity zones (see Q ). Qualified opportunity zones are low income communities that are formally designated as opportunity zones for investment purposes. Opportunity zones are to be designated by the states themselves during a “determination period,” which was the 90-day period beginning on the date of enactment of the 2017 tax reform legislation (a 30-day extension period is specifically permitted).1 The opportunity zone program was initially temporary, but was made permanent under the 2025 OBBB.
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Planning Point: Note that the OBBB essentially sunsets the current OZs after 2026 (instead of after 2028, as in the TCJA). State governors must designate new OZs every ten years. Some zones that are currently eligible will likely not be eligible when states designate new OZs in 2027 (meaning that the tax breaks associated with the existing OZs may no longer exist beginning in 2027). The effective date for new OZ designations will begin July 1, 2026 (and every ten years thereafter). Once certified by the Treasury secretary, each OZ will remain a QOZ for ten years beginning January 1 of the following year.
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The number of opportunity zones cannot exceed 25 percent of the number of low-income communities in the state (although if the number of low income communities in the state is less than 100, a total of 25 may be designated as opportunity zones).2
Low income community has the same definition as under the rules governing the new markets tax credit (IRC Section 45D), meaning that the poverty rate for the community is at least 20 percent or (1) if the community is not located within a metropolitan area, the median family income for the community does not exceed 70 perecent (80 percent prior to July 4, 2025) of statewide median family income or (2) if the community is located within a metropolitan area, the median family income for the community does not exceed 70 percent of the greater of (a) statewide median family income or (b) the metropolitan area median family income. Communities are determined based upon census tracts.3
Designation as a qualified opportunity zone remains in effect for a ten-year period.4
___________________________________________________________________
Planning Point: Note that the OBBB essentially sunsets the current OZs after 2026 (instead of after 2028, as in the TCJA). State governors must designate new OZs every ten years. Some zones that are currently eligible will likely not be eligible when states designate new OZs in 2027 (meaning that the tax breaks associated with the existing OZs may no longer exist beginning in 2027). The effective date for new OZ designations will begin July 1, 2026 (and every ten years thereafter). Once certified by the Treasury secretary, each OZ will remain a QOZ for ten years beginning January 1 of the following year.
_____________________________________________________________________________
The number of opportunity zones cannot exceed 25 percent of the number of low-income communities in the state (although if the number of low income communities in the state is less than 100, a total of 25 may be designated as opportunity zones).2
Low income community has the same definition as under the rules governing the new markets tax credit (IRC Section 45D), meaning that the poverty rate for the community is at least 20 percent or (1) if the community is not located within a metropolitan area, the median family income for the community does not exceed 70 perecent (80 percent prior to July 4, 2025) of statewide median family income or (2) if the community is located within a metropolitan area, the median family income for the community does not exceed 70 percent of the greater of (a) statewide median family income or (b) the metropolitan area median family income. Communities are determined based upon census tracts.3
Designation as a qualified opportunity zone remains in effect for a ten-year period.4
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