OZ 1.0 vs OZ 2.0: Complete Comparison (Tables + Explanation)

Until mid-2025, the Opportunity Zone program was headed for sunset. The original deferral deadline was December 31, 2026, the zone map hadn’t been updated since 2018, and several of the original tax benefits had already expired. A lot of investors treated OZs as a closing window.

That changed on July 4, 2025 when the One Big Beautiful Bill Act (OBBB, Public Law 119-21) was signed into law. OBBB made Opportunity Zones a permanent part of the Internal Revenue Code and rewrote the tax benefits for any investment made on or after January 1, 2027. The industry now refers to the pre-OBBB rules as OZ 1.0 and the post-OBBB rules as OZ 2.0.

This guide explains what actually changed, what didn’t, and what investors with capital gains to deploy should understand about the transition.

Quick answer: the 2027 rules

The One Big Beautiful Bill Act (P.L. 119-21, §70421) changed the Opportunity Zone rules for qualified opportunity fund investments made on or after January 1, 2027:

• Permanent program. Opportunity Zones no longer end after 2026, and new zone maps are set every 10 years.
• Rolling five-year deferral. The invested gain is recognized on the earlier of selling the investment or five years after the investment date, not on a fixed calendar date.
• Basis step-up after five years. 10% of the deferred gain, or 30% for a qualified rural opportunity fund (QROF).
• 10-year rule, with a 30-year cap. Hold at least 10 years and the appreciation is excluded; if you haven’t sold by year 30, basis is set at fair market value on the 30-year date. See the 10-year rule explained.
• New zones from January 1, 2027. Stricter income test (70% of area median family income instead of 80%), no contiguous-tract option, and states can nominate up to 25% of their eligible tracts for Treasury to certify.
• Unchanged: the 180-day window to invest a gain, annual Form 8997 filing, and December 31, 2026 as the date deferred gains from earlier investments are recognized.

Sources: P.L. 119-21 §70421; IRS, Opportunity Zones. Step-by-step: how to invest in an Opportunity Zone.

At a glance — the 3 changes that matter most

Detailed comparison — every dimension that changed

Translating the comparison into what you’d actually do:

• If you have a capital gain right now and a 6-month window: OZ 1.0 still applies through Dec 31, 2026. You’ll pay your deferred tax on Dec 31, 2026 either way — but you keep the 10-year exclusion on appreciation. Use our Opportunity Zone calculator to model your specific scenario.
• If you’ll have a gain in 2027: Wait. Invest under OZ 2.0 and you get the full 5-year deferral on your gain, plus access to the 30% rural step-up if you choose a QROF.
• If you’re already in an OZ 1.0 QOF: Your existing investment is grandfathered under OZ 1.0 rules. Your deferred capital gain still becomes taxable on Dec 31, 2026 — that doesn’t change. But you keep the 10-year tax-free exclusion on appreciation.
• If your gain might be rollable into a rural QROF: The 30% Y5 step-up is the headline benefit of OZ 2.0. See the Rural QROF guide for what counts as rural.

The big picture

The core idea of Opportunity Zones — invest unrealized capital gains into a Qualified Opportunity Fund within 180 days, hold for a period of years, and receive federal tax benefits — is intact. OBBB didn’t repeal the program. It extended it, tightened some rules, added new incentives, and reset the zone map.

Three changes matter most:

1. The program is now permanent, not sunsetting in 2026.
2. The tax benefits have been restructured around a rolling 5-year deferral instead of a fixed calendar date.
3. A new set of census tract zones takes effect January 1, 2027, replacing the 2018 map.

Investments made before the transition date (December 31, 2026) still operate under the OZ 1.0 rules. Investments made on or after January 1, 2027 operate under OZ 2.0.

OZ 1.0: a refresher on the original rules

Before we get to what changed, here’s what OZ 1.0 actually offered. Investors who sold a capital asset and realized a gain could defer that gain by rolling it into a Qualified Opportunity Fund (QOF) within 180 days of the sale. In exchange, they received three potential tax benefits:

• Deferral. Tax on the original capital gain was deferred until the earlier of the date the investment was sold or December 31, 2026.
• Reduction. Holding the QOF investment for five years earned a 10 percent basis step-up on the deferred gain. Holding for seven years earned an additional 5 percent, for a total of 15 percent. Because the program was passed in late 2017 with a fixed 2026 deferral date, the seven-year step-up benefit effectively required an investment by the end of 2019, and the five-year step-up required an investment by the end of 2021. Both step-up windows have since closed.
• Elimination. Holding the QOF investment for 10 years or more meant that 100 percent of the appreciation on the QOF investment itself was excluded from capital gains tax. This was the big prize — a fully tax-free ride on any growth in the QOF investment after 10 years.

The QOF had to invest its capital in Qualified Opportunity Zone Business Property (QOZBP) or in Qualified Opportunity Zone Businesses (QOZBs). QOFs that didn’t keep at least 90 percent of their assets in qualifying property faced IRS penalties.

QOZBs themselves had a stack of rules: at least 70 percent of tangible property had to be QOZBP, at least 50 percent of revenue had to come from active business inside the QOZ, at least 40 percent of intangible property had to be used in the active business, non-qualified financial property was capped at 5 percent of average assets, and a list of “sin” businesses (gambling, massage parlors, liquor stores, country clubs) was prohibited.

The original QOZ zones were made in 2018. Each state’s governor selected eligible low-income census tracts, and Treasury certified them. The 2018 map identified 8,764 tracts across all 50 states, the District of Columbia, Puerto Rico, and five U.S. territories.

OZ 2.0: what OBBB actually changed

OBBB made four structural changes to the tax benefits and one big change to the nomination process.

1. Permanence

The program no longer sunsets on December 31, 2026. Opportunity Zones are now a permanent part of the tax code. This is the most important change because it removes the artificial end-date pressure that had been collapsing the value of the program as 2026 approached.

2. Rolling 5-year deferral

Under OZ 1.0, the deferral of the invested capital gain ended on a fixed date — December 31, 2026 — regardless of when you made the investment. If you invested in 2022, you got four years of deferral. If you invested in 2024, you got two years. If you invested in early 2026, you got a few months.

Under OZ 2.0, the deferral is rolling. You defer the gain for five years from the investment date, no matter when you invest. A QOF investment made on January 15, 2027 defers the original gain until January 15, 2032. The clock is tied to your investment, not to the calendar.

This materially improves the time value of the deferral for investors who realize gains later in the program’s life.

3. Restructured basis step-up, with a rural bonus

OZ 1.0 offered a 10 percent basis step-up after five years and a 15 percent step-up after seven years. Both of those windows closed years ago because of the fixed 2026 deferral date.

OZ 2.0 resets the basis step-up around the rolling 5-year window:

• Standard QOF investment: 10 percent basis step-up on the deferred gain after holding the QOF investment for five years.
• Qualified rural QOF investment: 30 percent basis step-up after five years — three times the standard benefit, designed to pull more capital into rural communities.

The rural bonus is a new incentive specifically added by OBBB. Treasury is expected to issue guidance on what qualifies as a “qualified rural QOF” (QOFs that invest substantially all their assets in QOZs comprised entirely of a rural area, meaning outside cities of more than 50,000 people and the urbanized areas next to them; see Notice 2025-50).

4. 30-year cap on the 10-year exclusion

The 10-year tax-free appreciation benefit was the centerpiece of OZ 1.0, but it had limits. Under the original rules, the election did not apply to dispositions after December 31, 2047 (Treas. Reg. §1.1400Z2(c)-1(c)), and investors had to actually sell the QOF interest to realize the step-up to fair market value.

OZ 2.0 changes the first. The limit is now tied to each investment rather than a fixed 2047 calendar date. Under IRC §1400Z-2(c) as amended by P.L. 119-21 §70421(c)(3), for amounts invested after December 31, 2026, the elected basis equals “the fair market value of such investment on the date such investment is sold or exchanged” for an investment “sold before the date that is 30 years after the date of the investment,” and “in any other case, the fair market value of such investment on the date that is 30 years after the date of the investment.” Appreciation after the 30-year date is taxable when you sell; the statute does not change its character.

This is a meaningful improvement for investors in long-duration real estate deals, who may want to hold well past 10 years but were pushed toward a sale by the old 2047 cliff.

5. A new zone map, effective January 1, 2027

The biggest operational change is the new census tract nomination process. OBBB created a 10-year rolling nomination cycle. The first OZ 2.0 nomination cycle works like this:

• July 1 to September 28, 2026: 90-day governor nomination window (now closed; a single 30-day extension runs through October 28, 2026).
• Late 2026: Treasury reviews and certifies the nominations.
• January 1, 2027: New OZ 2.0 zones become effective.

Eligibility criteria have tightened. Under OZ 1.0, a tract could qualify if median family income was at or below 80 percent of the applicable reference (state or metro area). Under OZ 2.0, the threshold drops to 70 percent. Tracts that qualify through the alternative poverty-rate pathway (20 percent or higher poverty rate) are now disqualified if median family income exceeds 125 percent of the reference.

OBBB also eliminated the “contiguous tract” option, which had previously allowed states to nominate non-low-income tracts that were adjacent to qualifying tracts. And it eliminated the blanket zone status of all census tracts in Puerto Rico, which had accounted for a large share of the original OZ 1.0 map.

Because of these tightened criteria, the total number of OZ 2.0 tracts is capped at about 6,544 nationwide, including territories (6,293 in the 50 states and DC), down from 8,764 under OZ 1.0 — a reduction of roughly 25 percent. Those caps were set against the 25,332 eligible tracts nationwide, including territories, in the original April 2026 IRS Rev. Proc. 2026-14 appendix; Treasury’s September 2026 eligibility data lists 25,461. States can nominate no more than 25 percent of their eligible tracts, so the final map will be a subset of what’s technically qualifying.

What didn’t change

Several important elements of OZ 1.0 are preserved under OZ 2.0:

• 180-day investment window. You still have 180 days from the date of a capital gain realization to invest into a QOF.
• Form 8997. You still file Form 8997 with your return to track the deferral election.
• 10-year hold for 100 percent exclusion. The core benefit — holding for 10 years or more to eliminate tax on QOF appreciation — is unchanged.
• QOZB and QOZBP rules. The substantive rules on what a QOF can invest in, what a QOZB must do to qualify, and the list of prohibited sin businesses are carried forward.
• December 31, 2026 deferral recognition date for OZ 1.0 investors. If you invested in a QOF under OZ 1.0, your deferred capital gain is still due to be recognized on December 31, 2026. OBBB did not push that date out for existing OZ 1.0 investors.

That last point is worth emphasizing. If you’re holding an OZ 1.0 QOF position, you’re still on the original deferral clock. OZ 2.0 is not retroactive. Your 2026 tax bill on the deferred gain is coming.

What this means for investors

For investors thinking about OZ for the first time, OZ 2.0 is a materially better program than OZ 1.0 was in 2026. The benefits are durable (permanent, with a deferral clock and 30-year cap tied to each investment), and the deferral clock is tied to your investment instead of a closing calendar window.

For investors currently holding OZ 1.0 positions, the key planning considerations are:

1. The December 31, 2026 deferral recognition is still coming. Model your 2026 tax bill now. This is unchanged.
2. Your 10-year hold on existing OZ 1.0 positions still applies. Continue to hold if the exclusion at year 10 is the plan. Pre-2027 investments follow OZ 1.0 rules, including the December 31, 2047 limit on the 10-year election. The 2047 date comes from Treasury’s regulations, not the statute: Treas. Reg. §1.1400Z2(c)-1(c) keeps the 10-year election available after the 2018 zones expire, but “does not apply to elections under section 1400Z-2(c) that are related to dispositions occurring after December 31, 2047.” P.L. 119-21 did not change that for pre-2027 investments; its 30-year rule applies to amounts invested after December 31, 2026 (§70421(c)(3) and (c)(5)).
3. New capital can wait for OZ 2.0. If you have an upcoming gain that doesn’t fit the 180-day window before Dec 31, 2026, letting it roll into 2027 under OZ 2.0 rules may be more favorable — particularly if rural deals are on the table.

For investors deciding where to invest, the window between now and January 1, 2027 is mostly about preparation: understanding which census tracts are likely to be certified, which fund sponsors are positioning for OZ 2.0, and which deals fit the rural bonus structure.

The transition window: April 2026 to January 2027

The next nine months are a transition period. OZ 1.0 is still active. Governors are preparing their OZ 2.0 nominations. Treasury and the IRS are expected to issue additional guidance on the OZ 2.0 rules, including the rural bonus definition and how to make the §1400Z-2(c) election for an investment not sold by the 30-year date.

The zone calendar gives investors a predictable path:

• Now → June 30, 2026: States finalize internal selection processes. Several states (including Delaware, which launched its public OZ 2.0 mapping tool on April 15, 2026) have already published eligibility tools.
• July 1 → September 28, 2026: 90-day governor nomination window (closed; a single 30-day extension runs through October 28, 2026). States submitted tract nominations to Treasury.
• October → December 2026: Treasury review and certification.
• January 1, 2027: New OZ 2.0 zones take effect. OZ 2.0 tax rules apply to all new QOF investments from this date forward.

If you’re sitting on unrealized gains and thinking about Opportunity Zones, the practical approach is to know which tracts in your target markets are eligible, track which get nominated, and be ready to deploy into a QOF as soon as the new map goes live.

Bottom line

OZ 2.0 is a meaningfully better program than OZ 1.0. It’s permanent, the deferral is rolling, the basis step-up is simpler, the 10-year exclusion runs to a 30-year date tied to each investment, and rural deals get an enhanced benefit.

The zone map shrinks by roughly 25 percent, and the eligibility criteria are tighter. Existing OZ 1.0 investors are not migrated to OZ 2.0 — the old rules continue to apply to pre-2027 investments.

For anyone with capital gains and a long horizon, OZ 2.0 deserves a serious look as the January 1, 2027 effective date approaches — start with the practical checklist for investing in Opportunity Zones starting January 1, 2027.

Sources: Plante Moran: The OBBB and Opportunity Zones 2.0; Governing: A Strategic Playbook for Opportunity Zones 2.0; IRS: Opportunity Zones; Treasury: Qualified Opportunity Zones; 26 U.S.C. § 1400Z-2. Not tax advice. Consult a qualified CPA or tax attorney before making any investment decision.

Not tax advice.