The rules, with sources
- The test. Property is substantially improved "only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property … at the beginning of such 30-month period" (IRC §1400Z-2(d)(2)(D)(ii)). The regulations repeat it as the "substantial improvement requirement" (Treas. Reg. §1.1400Z2(d)-2(b)(4)(i)). Because additions must exceed the basis, the calculator treats spending exactly the threshold as a fail.
- Buildings, not land. For a building on land in a QOZ, the test is measured by additions to the building's basis (§1.1400Z2(d)-2(b)(4)(iv)(A)), and the land under it doesn't have to be separately improved ((b)(4)(iv)(E)). Unimproved land doesn't have to be substantially improved ((b)(4)(iv)(B)), unless it's bought with no intention of improving it by more than an insubstantial amount within 30 months ((b)(4)(iv)(C)).
- Rural zones: 50%. P.L. 119-21 inserted "(50 percent of such adjusted basis in the case of property in a qualified opportunity zone comprised entirely of a rural area …)" into §1400Z-2(d)(2)(D)(ii) (§70421(c)(4)(C)). That amendment "shall take effect on the date of the enactment of this Act", which was July 4, 2025 (§70421(c)(5)(C)).
- 2018 zones (OZ 1.0): IRS Notice 2025-50 applies the 50% threshold "for any determination made on or after July 4, 2025" (section 5) to the 3,309 2018 QOZs it lists in its Appendix as comprised entirely of a rural area (section 3).
- 2027 zones (OZ 2.0, designated January 1, 2027 to December 31, 2036): Rev. Proc. 2026-14 identifies 25,332 eligible tracts, 8,334 of them comprised entirely of a rural area (section 3.01), in its Appendix.
- "Rural area" means any area other than a city or town with more than 50,000 inhabitants and any urbanized area contiguous and adjacent to such a city or town (IRC §1400Z-2(b)(2)(C)(ii), added by §70421(c)(2)). Notice 2025-50 section 4 explains how Treasury applies it using 2020 Census data.
- When you don't need the test at all. If original use in the zone starts with the fund (for example, new construction not yet placed in service), the property meets the original-use requirement instead (§1.1400Z2(d)-2(b)(3)(i)(A)). Real property that was vacant for at least one uninterrupted calendar year before the zone's designation, or for three uninterrupted calendar years after it, and still vacant at purchase, also starts original use with the buyer ((b)(3)(i)(B)). Vacant means more than 80% of the usable square footage isn't in use ((b)(3)(iii)).
- Not modelled here: counting newly bought equipment that improves the building's functionality ((b)(4)(iii)), treating several buildings as one property ((b)(4)(v)), and how the 30-month period interacts with the working capital safe harbor (Treas. Reg. §1.1400Z2(d)-1).
Worked examples
1. Urban building
A QOF buys a building for $1,000,000 on March 15, 2027, with 25% of the price allocated to land, and $30,000 of capitalized closing costs. Building cost is $750,000, and its share of closing costs is $22,500 (75% of $30,000), so the starting basis is $772,500. The fund must add more than $772,500 to the building's basis in the 30-month period running March 16, 2027 to September 15, 2029, about $25,750 a month. A plan of $800,000 passes.
2. Building in an entirely rural 2018 zone
A $400,000 purchase on November 2, 2026 with 30% allocated to land gives a $280,000 building basis. At 50%, additions must exceed $140,000 by May 2, 2029 (period starting November 3, 2026). A $100,000 plan falls short: you'd have to add more than $40,000.
3. The Treasury regulation's hotel example
A QOF buys a hotel for $5,000,000, with $1,000,000 allocated to land and $4,000,000 to the building, furniture and fixtures. The regulation concludes the fund "must expend $4 million to improve the hotel within the 30-month substantial improvement period" (Treas. Reg. §1.1400Z2(d)-2(b)(4)(iii)(D), Example 1). With a $5,000,000 price, 20% land and no other costs, the calculator returns the same $4,000,000.