How States Choose OZ 2.0 Tracts: The 25% Cap, Nomination Process, and What Investors Should Watch

The single biggest non-tax variable in Opportunity Zone 2.0 is which census tracts each state actually nominates. The OBBB statute defines who is eligible to be designated, but each state’s governor decides — within a binding cap — which eligible tracts to actually put forward. Treasury then certifies them and the new map takes effect January 1, 2027. This guide explains the nomination process, the eligibility criteria under Revenue Procedure 2026-14, the 25% cap, and what investors should be watching as governors make their selections.

The basic timeline

The OZ 2.0 designation process operates on a 10-year cycle. The first cycle works like this:

• April 6, 2026. Treasury and IRS published Revenue Procedure 2026-14, providing the official framework for tract eligibility under OZ 2.0.
• July 1, 2026. The 90-day governor nomination window opens. Each state has until September 30, 2026 to submit its nominations to Treasury.
• October 1 to December 31, 2026. Treasury reviews and certifies the nominations.
• January 1, 2027. New OZ 2.0 designations become effective and replace the 2018 OZ 1.0 map for purposes of new QOF investments.
• Through 2028. OZ 1.0 designations continue to apply to existing QOF investments. There is a two-year overlap period (2027 and 2028) during which both maps are simultaneously in effect — the OZ 1.0 map for legacy positions and the OZ 2.0 map for new investments.

The cycle then repeats every 10 years. Each subsequent OZ 2.0 designation cycle uses updated American Community Survey data and follows the same nomination process.

Who is eligible for designation

The eligibility universe is defined at the census tract level. A tract is eligible for OZ 2.0 designation if it meets one of two criteria:

1. The low-income community standard. The tract’s poverty rate is at least 20%.

2. The median family income standard. The tract’s median family income is less than 70% of the relevant reference. For metropolitan tracts, the reference is the median family income of the metropolitan area. For non-metropolitan tracts, the reference is the median family income of the state.

The 70% threshold is a tightening from OZ 1.0, where the threshold was 80%. Under OZ 2.0, tracts that qualify under the poverty-rate pathway are also disqualified if their median family income exceeds 125% of the relevant reference — a new cap that wasn’t in OZ 1.0.

Two other significant changes from OZ 1.0:

• The “contiguous tract” option is eliminated. Under OZ 1.0, states could nominate up to 5% of their non-low-income census tracts as long as they were adjacent to a qualifying low-income tract. OZ 2.0 removes this option entirely. All nominated tracts must independently meet the eligibility criteria.
• Puerto Rico’s blanket designation is repealed. Under OZ 1.0, all of Puerto Rico’s census tracts were treated as automatically designated by virtue of a separate provision. OZ 2.0 requires Puerto Rico to go through the same eligibility and nomination process as every other jurisdiction.

The American Community Survey 2020-2024 5-Year Estimates, released by the Census Bureau on January 29, 2026, are the data source Treasury is using to determine eligibility. The Economic Innovation Group estimates that approximately 25,332 census tracts nationally are eligible under the OZ 2.0 criteria, of which 8,334 are entirely rural (located outside Metropolitan Statistical Areas).

The 25% cap

This is the binding constraint that determines how many tracts each state can actually nominate. Each state can nominate no more than 25% of its eligible low-income census tracts.

For example: if a state has 1,000 eligible tracts, the governor can nominate up to 250 of them. The state submits its list to Treasury, which certifies the nominations and adds the designated tracts to the OZ 2.0 map.

Two carve-outs from the 25% cap:

• The 25-tract minimum. Every state is guaranteed at least 25 designations, regardless of its eligible tract count. This benefits small-population states.
• The Vermont and Wyoming problem. EIG’s analysis suggests two states — Vermont and Wyoming — have fewer than 25 census tracts that meet the tightened OZ 2.0 criteria. Treasury is expected to issue specific guidance addressing the minimum-floor mechanic for these states.

Based on EIG’s estimates, the total number of OZ 2.0 designations across all 50 states and the District of Columbia will be approximately 6,293, down from 7,826 OZ 1.0 designations — a roughly 20% reduction. Including U.S. territories, the total is expected to be roughly 6,544 nationally, down from 8,764 under OZ 1.0.

The state-level nomination process

The OBBB statute gives governors the authority to nominate tracts, but it leaves the actual selection process to each state. In practice, governors are setting up state-specific procedures involving:

• A lead agency or office (often the state economic development department, finance department, or housing authority).
• A public input process — comment windows, online maps, application forms for cities, counties, and economic development organizations.
• An internal evaluation framework — typically combining quantitative eligibility data with qualitative inputs on community investment potential, alignment with state economic priorities, and local readiness.

Several states have already published public nomination tools. Delaware launched a public interactive map and online nomination form on April 15, 2026, becoming one of the first states with a fully transparent OZ 2.0 selection process. Oregon opened its formal application window for cities, counties, ports, tribal governments, and economic development organizations on April 13, 2026, with the window closing May 22, 2026.

Other states are operating less transparently — relying on internal staff evaluations and selective outreach to local officials. The variation across states is significant. Some are running open public processes with multiple comment periods. Others are running closed processes with limited public visibility until the nomination is filed.

The current status of each state’s process — open, planning, not yet started, or filed — is tracked on the Opportunity Zone Invest state tracker.

The eligibility data and the OZScore

EIG, Novogradac, and several other organizations have published tract-level eligibility datasets. The official Treasury list of eligible tracts is the authoritative source, but the public datasets are equivalent in content.

For investors, the question isn’t just which tracts are eligible — it’s which tracts will actually be nominated. Most governors are weighing several factors:

• Existing economic distress. Tracts with high poverty rates and low median family incomes — the core target population of the program.
• Investment potential. Tracts with credible paths to private investment, often near growing population centers, transit, employment, or existing development clusters.
• State priorities. Tracts aligned with state strategic plans for housing, workforce, manufacturing, or regional development.
• Political considerations. Distribution across legislative districts, balance between urban and rural counties, alignment with local elected officials.

The Opportunity Zone Invest OZScore attempts to capture this in a single composite — demographic momentum, property fundamentals, and projected tax benefit magnitude — to help investors prioritize their attention. Tracts with high OZScores are the ones most likely to attract capital if designated, and (in turn) more likely to be selected by governors as visible success cases for the program.

How the OZ 2.0 map will differ from OZ 1.0

Several structural shifts are baked into the OZ 2.0 selection process:

1. Fewer total tracts. ~6,293 designations across 50 states + DC under OZ 2.0, versus 7,826 under OZ 1.0. The 25% cap, combined with tighter eligibility criteria, means roughly 20% fewer tracts will be designated.

2. Rural share will increase. OZ 2.0’s 30% basis step-up for rural QOFs gives governors a strong incentive to nominate rural tracts. EIG and Novogradac both expect the rural share of the OZ 2.0 map to be materially higher than the 23% rural share of the OZ 1.0 map.

3. Some popular OZ 1.0 tracts will lose designation. Tracts that qualified under OZ 1.0’s looser MFI rule (80% of reference) but don’t meet the OZ 2.0 70% rule won’t be eligible. Tracts that gentrified between 2018 and 2026 may also drop off. Conservative estimates suggest 30-40% of OZ 1.0 tracts will not be on the OZ 2.0 map.

4. New tracts will appear. Tracts that didn’t qualify in 2018 but now meet the 70% MFI or 20% poverty rate criteria under updated 2020-2024 ACS data will be added to the eligible pool. Some of these will be nominated and designated under OZ 2.0.

5. State counts will rebalance. Three states — Louisiana, Mississippi, and New Mexico — are expected to nominate more OZs in 2026 than they did in 2018, reflecting growing economic distress. Most other states will see modest declines. Minnesota’s nominee count is expected to drop by 43% due to the tightened MFI criteria.

What investors should watch

For investors evaluating where to deploy OZ 2.0 capital in 2027 and beyond, the next six months are the most important window of the program. Three things matter most:

1. Watch which tracts each state actually nominates. A tract that’s eligible isn’t designated until the governor submits it and Treasury certifies it. Until the nomination is filed (between July and September 2026) and certified (by December 2026), the map is provisional.

2. Pay attention to which OZ 1.0 tracts are likely to lose designation. If a QOF is targeting deals in a 2018 OZ tract that won’t be on the OZ 2.0 map, that QOF’s 2027+ deal flow is constrained. Existing OZ 1.0 deals in that tract are grandfathered, but new capital can’t go in.

3. Track rural designations especially carefully. With the 30% rural basis step-up, the after-tax math on rural QOZ deals is materially better than non-rural deals. Identifying which rural tracts will actually be designated — and which will have investable real estate or operating business opportunities — is a high-leverage information advantage.

What this means for sponsors

For QOF sponsors raising 2027 capital, the OZ 2.0 designation process creates both opportunities and risks. The opportunities: a chance to position toward newly designated tracts that didn’t qualify under OZ 1.0, and a chance to build dedicated rural QOFs that capture the 30% bonus. The risks: deals already in development in tracts that lose designation can’t take new capital in 2027 (though existing OZ 1.0 capital remains grandfathered).

Sponsors who maintain close relationships with state economic development agencies, who can shape state-level nomination decisions in their target markets, and who can re-allocate capital toward rural opportunities have a meaningful first-mover advantage in the OZ 2.0 vintage.

What didn’t change

Several elements of the designation process are preserved from OZ 1.0:

• Governors retain the authority to nominate (no shift to municipal or county nomination).
• Treasury retains certification authority (with no discretionary review of which tracts to certify, as long as the nominations meet the eligibility criteria).
• The Internal Revenue Code section governing the program is still § 1400Z-1 (zone designation) and § 1400Z-2 (investor incentives).
• The 90-day nomination window is the same length as the original 2018 window.

Sources

Treasury and IRS, Revenue Procedure 2026-14 (April 2026); One Big Beautiful Bill Act, Public Law 119-21 (July 4, 2025); 26 U.S.C. § 1400Z-1 (as amended); Economic Innovation Group, OZs 2.0 Alert: Data Expected to Determine Eligibility Now Available (February 2, 2026); Economic Innovation Group, Opportunity Zones 2.0: A Guide for Governors and Mayors (November 24, 2025); U.S. Census Bureau, American Community Survey 2020-2024 5-Year Estimates (January 29, 2026); Novogradac, About Opportunity Zones.

Frequently asked questions

When will the OZ 2.0 map be final? The nomination window closes September 30, 2026. Treasury is expected to certify all nominations by the end of December 2026, with the final OZ 2.0 map effective January 1, 2027.

Will the OZ 2.0 map be redrawn every 10 years? Yes. The OZ 2.0 statute creates a 10-year designation cycle. Each cycle starts with updated census data and a fresh nomination window. The first redesignation under OZ 2.0 will occur around 2037.

Can a tract that loses OZ 1.0 designation still receive new investment under OZ 2.0? No. New QOF investments made on or after January 1, 2027 must be in property located in an OZ 2.0-designated tract. A tract that was designated under OZ 1.0 but not redesignated under OZ 2.0 is not a QOZ for new investment purposes, although existing OZ 1.0 deals in that tract remain qualified.

Can the public weigh in on which tracts get nominated? Each state runs its own process. Some states (Delaware, Oregon, several others) are running fully public processes with comment periods and online application tools. Other states are running closed processes with limited public input. The state tracker tracks each state’s process.

What happens if a governor doesn’t submit nominations on time? Under the OZ 1.0 designation cycle, governors that failed to nominate within the 90-day window could request a 30-day extension. The OZ 2.0 statute carries forward this extension option. A state that doesn’t nominate at all forfeits its OZ designations for the cycle, though Treasury has historically worked with states to ensure full participation.

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Nothing in this guide is tax, legal, or investment advice. The OZ 2.0 designation process is ongoing and subject to additional Treasury and IRS guidance. Consult a qualified CPA and investment advisor before making any decision.