Opportunity Zone Glossary

If you hold a QOF investment for at least 10 years, you can elect to step its basis up to fair market value when you sell, so the appreciation on the OZ investment is tax-free. For investments made after December 31, 2026, the basis used is capped at fair market value at the 30-year mark.

Also called: 10-year exclusion, tax-free appreciation

A QOZB can hold cash for up to 31 months if it has a written plan, schedule and use for that cash in the zone, without failing the business tests. A start-up can stack more than one 31-month period, up to 62 months, if later infusions are part of the original plan.

Also called: Working capital safe harbor

At least 50% of a QOZB's gross income must come from the active conduct of a business inside an Opportunity Zone.

At least 70% of the tangible property a QOZB owns or leases must be qualified opportunity zone business property.

A QOF must hold at least 90% of its assets in qualified opportunity zone property, measured on testing dates each year. Falling short triggers a monthly penalty unless the fund has reasonable cause.

Also called: 90-percent investment standard

You generally have 180 days from the date you realize a capital gain to invest it in a QOF and elect deferral. Some gains, such as gains passed through from partnerships, can have a different start date.

Also called: 180-day investment window

An increase in the tax basis of your QOF investment that permanently excludes part of the deferred gain from tax. Under OZ 2.0 (investments on or after January 1, 2027), holding five years adds 10% of the deferred gain to basis, or 30% for a qualified rural opportunity fund; the OZ 1.0 step-ups (10% at five years, 15% at seven) required investing by 2021 and 2019 and are now closed.

Also called: Step-up in basis

The profit from selling an asset, such as stock, real estate or a business, for more than its tax basis. Reinvesting the gain, not the full sale proceeds, is what qualifies for OZ benefits.

The Community Development Financial Institutions Fund, a U.S. Treasury office that publishes the official lists and maps of Opportunity Zone census tracts.

Also called: Community Development Financial Institutions Fund

A small statistical area drawn by the U.S. Census Bureau, usually home to a few thousand people. Opportunity Zones are set tract by tract.

Also called: Tract

The step where Treasury formally certifies a governor's nominated tracts as Qualified Opportunity Zones. Under OZ 2.0, a nominated tract is not an Opportunity Zone until it is certified, and certified zones take effect January 1, 2027.

The fixed date when deferred gain from OZ 1.0 investments must be recognized, unless you sold your QOF interest earlier. All investments made on or before December 31, 2026 share this date.

Also called: OZ 1.0 deferral deadline

Postponing tax on a capital gain by investing it in a QOF within the 180-day window. Under OZ 2.0, the deferred gain is recognized when you sell or five years after you invest, whichever comes first.

Also called: Tax deferral

A capital gain, short- or long-term, that can be invested in a QOF and deferred. It must be a gain you would otherwise owe federal income tax on, and it can't come from a sale to a related person.

Also called: Qualifying gain

The 2025 law made Opportunity Zones permanent, so the program no longer ends after 2026; new zone maps are set every 10 years. The 2018 zones stay in effect through December 31, 2028, and Treasury regulations keep the 10-year exclusion election for OZ 1.0 investments for dispositions through December 31, 2047.

Also called: OZ expiration, OZ extension

The IRS form a fund files each year to certify itself as a QOF and report whether it met the 90% asset test.

Also called: Qualified Opportunity Fund form

The IRS form an investor files each year to report QOF investments held and the deferred gain still outstanding.

Also called: Initial and Annual Statement of QOF Investments

Something that ends all or part of your deferral early, such as selling or gifting your QOF interest or receiving certain cash distributions. The deferred gain becomes taxable in that year.

A gain a QOF realizes when it sells an asset before investors exit. Treasury regulations give a QOF 12 months to reinvest the proceeds and still count them toward the 90% asset test, but the gain itself may still be taxable.

The census-tract test a tract must pass to be eligible for nomination, based on poverty rate and median family income. OZ 2.0 tightens it: income must be at or below 70% of the area median (down from 80%), tracts with income above 125% of the median can't qualify through the poverty route, and the contiguous-tract option is gone.

Also called: LIC

Each governor's choice of which eligible tracts to put forward as Opportunity Zones. States can nominate no more than 25% of their eligible tracts, and Treasury then certifies them.

A low-income census tract nominated by a state and certified by Treasury, where investing capital gains through a QOF earns federal tax benefits.

Also called: QOZ, Qualified Opportunity Zone, OZ

Property is original use if no one has previously used it in the zone in a way that allowed depreciation, for example new construction. Property that isn't original use generally has to be substantially improved to qualify.

The original Opportunity Zone rules from the 2017 Tax Cuts and Jobs Act, covering QOF investments made on or before December 31, 2026, with the 2018 zone map and a fixed December 31, 2026 recognition date.

Also called: Original OZ program

The permanent version of the program created by the One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025), for QOF investments made on or after January 1, 2027. It brings rolling five-year deferral, a 10% basis step-up (30% for rural funds), new zone maps every 10 years and tighter eligibility.

Also called: OZ 2027 rules

A Qualified Opportunity Fund: a corporation or partnership set up to invest in Opportunity Zone property that self-certifies on Form 8996 and meets the 90% asset test. Investing a gain in a QOF is the only way to get OZ tax benefits.

Also called: Qualified Opportunity Fund, Opportunity Zone fund

A QOF is the fund investors put their gains into; a QOZB is an operating business or property company the fund invests in. Many deals use both tiers, because the QOZB's looser rules, like the 70% tangible property test and the working capital safe harbor, are easier to meet.

Also called: Two-tier structure

Tangible property used in a trade or business in a zone, bought from an unrelated party after the zone rules allow, whose original use starts with the business or that is substantially improved, and that is used mostly in the zone.

Also called: QOZBP

What a QOF can count toward its 90% test: stock or partnership interests in a QOZB, or qualified opportunity zone business property the fund holds directly.

Also called: Qualified opportunity zone property

A Qualified Opportunity Zone Business: a company in a zone that passes the 70% tangible property, 50% gross income and 40% intangibles tests, holds less than 5% nonqualified financial property, and isn't a sin business.

Also called: Qualified Opportunity Zone Business

A Qualified Rural Opportunity Fund: a QOF that holds at least 90% of its assets in QOZ property in rural zones. Its OZ 2.0 investors get the 30% step-up; a fund that mixes rural and non-rural deals gets only 10%.

Also called: Qualified Rural Opportunity Fund, rural QOF

Two OZ 2.0 benefits for rural deals: a 30% basis step-up after five years for investors in a qualified rural opportunity fund (instead of 10%), and a substantial improvement threshold cut to 50% of basis for property in rural zones.

Also called: 30% rural step-up

An Opportunity Zone made up entirely of a rural area, meaning outside any city or town of more than 50,000 people and any urbanized area next to one.

Also called: Rural QOZ

The Internal Revenue Code section that holds the core Opportunity Zone tax rules: deferral, basis step-ups, the 10-year rule and QOF requirements. Section 1400Z-1 covers how zones are nominated and certified.

Also called: IRC 1400Z-2

Businesses a QOZB can't be, including a private or commercial golf course, country club, massage parlor, hot tub or suntan facility, racetrack or other gambling facility, or a store whose main business is selling alcohol for off-premises consumption.

Also called: Excluded business

For used property to qualify, the QOF or QOZB must, within 30 months of buying it, spend more on improvements than the property's adjusted basis, roughly doubling it. Land doesn't have to be improved, and OZ 2.0 lowers the threshold to 50% of basis for rural zones.

Also called: Substantial improvement test