About Opportunity Zones
What are Opportunity Zones?
Opportunity Zones are low-income census tracts nominated by governors and certified by the U.S. Department of the Treasury into which investors can now make qualifying investments into new projects and enterprises in exchange for certain federal capital gains tax reductions.
What are Opportunity Funds?
A Qualified Opportunity Fund (QOF) is any private investment vehicle organized as a corporation or partnership with the specific purpose of investing in Opportunity Zones. All qualifying investments must be made through QOFs in order to be eligible for the tax incentive. QOFs must register with the Internal Revenue Service and invest at least 90 percent of their capital in qualifying investments inside Opportunity Zones communities.
Qualified Rural Opportunity Funds (QROFs) are QOFs that hold 90 percent of their assets in qualifying investments in rural Opportunity Zones. Beginning in 2027, investors in QROFs will be eligible for a 30 percent step-up in basis on their deferred gains after five years, compared to 10 percent for other OZ investments.
How does it work?
U.S. investors currently hold trillions of dollars in unrealized capital gains in stocks and mutual funds alone— a significant untapped resource for economic development. Through 2026, Opportunity Zones offer investors three specific incentives for cashing out of these investments and putting their capital gains to work supporting the economic development of low-income communities.
- The taxes due on any capital gains placed into an Opportunity Fund may be deferred until December 31, 2026.
- Investors who keep their money in an Opportunity Fund for five years receive a 10 percent step-up in basis on that original investment and an additional 5 percent after seven years.
- Investors who hold their investments in Opportunity Zones for at least 10 years face no capital gains taxes on the new investments when they sell them.
A simplified incentive structure will go into place beginning in 2027:
- Investors will defer taxes on capital gains placed into an Opportunity Fund for five years or until they dispose of the investment, whichever is earlier.
- Investors who hold their investment for five years receive a 10 percent step-up in basis on their original investment, or a 30 percent step-up in basis if the qualifying investment was made into a rural opportunity fund.
- Investors who hold their investments in Opportunity Zones for at least 10 years will still face no capital gains taxes on the new investments when they sell them.
History of Opportunity Zones
Opportunity Zones were conceived in the midst of a deeply uneven recovery that followed the Great Recession and designed to help meet the needs of communities traditionally deprived of investment dollars. The incentive is structured in a way that encourages investors to redeploy capital gains from successful investments into new, long-term investments in the kinds of struggling communities that they would normally overlook.
The concept of Opportunity Zones was originally outlined in a 2015 paper, “Unlocking Private Capital to Facilitate Economic Growth in Distressed Areas,” co-authored by a bipartisan pair of economists, Kevin Hassett and Jared Bernstein. The policy as we know it today is based on the bipartisan Investing in Opportunity Act, which was championed by Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), who led a regionally and politically diverse coalition of nearly 100 congressional cosponsors in the House and Senate. The bill was first introduced in 2016 in the 114th Congress and reintroduced in 2017 in the 115th Congress.
After the policy was enacted in 2017 as part of the Tax Cuts and Jobs Act, governors formally nominated Opportunity Zones in their respective states and territories. The Treasury Department certified the national map of Opportunity Zones designations in June 2018, and the IRS promulgated final regulations governing the use of the incentives in December 2019.
Originally authorized with time-limited tax benefits, Opportunity Zones were later made a permanent feature of the federal tax code as part of the One Big Beautiful Bill Act, ensuring long-term certainty for communities, investors, and policymakers while preserving the program’s place-based framework.
Is my community an Opportunity Zone?
While a mapping tool is available on our website, the Treasury Department’s CDFI Fund provides the authoritative reference map for whether an address is located in a Qualified Opportunity Zone. They also provide the official list of Opportunity Zone census tracts. Original Zone designations were certified in Spring 2018 and will remain in effect until December 31, 2028. The next round of zone designations will take place in 2026 and go into effect on January 1, 2027.
What can an Opportunity Fund invest in?
The policy enables funds to be responsive to the needs of different communities, allowing for investment in operating businesses, equipment, and real property. For example, funds can make equity investments in new or expanding businesses by purchasing original-issue stock of the company if substantially all of the company’s tangible property is and remains located in an Opportunity Zone. Funds can take original interests in partnerships that meet the same criteria. Funds can also invest directly in qualifying property, such as real estate or infrastructure, if the property is used in the active conduct of a business, and if either the original use of the property commences with the fund or the fund substantially improves the property by investing at least as much as the investor’s basis in refurbishments.
To learn more about exemplary investments from across the country, visit our OZ Activity Map.
How are Opportunity Zones designated?
Low-income community census tracts are the building blocks of Opportunity Zones. Eligible low-income census tracts generally have either poverty rates of at least 20 percent or median family incomes no greater than 70 percent of their surrounding areas, according to the U.S. Census Bureau’s American Community Survey data at the time of designation.
Every ten years, the governor or chief executive of every U.S. state and territory will nominate up to 25 percent of their low-income census tracts to be certified by the Secretary of the Treasury as Opportunity Zones. Eligibility is limited to only a portion of each state’s low-income census tracts in order to concentrate capital and increase the likelihood of meaningful economic development taking root in zones.
The next round of designations will take place in 2026, and the new designations will go into effect in 2027. More information on the designation process and a statistical overview of designated tracts from the 2018 nomination process can be found here.
These places are home to a disproportionate share of Black and Native residents, reflecting deep and longstanding geographic inequities.
Explore the latest data on economic distress across U.S. communities in EIG’s Distressed Communities Index.