New Treasury Data Emphasize Why OZ Designations Matter

By Kenan Fikri, Catherine Lyons, and Phoenix Vu

Just in time to inform governors’ work nominating the next round of Opportunity Zone (OZ) census tracts this summer, the Treasury Department has released new data reporting that federal OZ tax incentives drove more than $112 billion worth of investment capital into more than 6,000 communities through the end of 2024.

The new statistics, released in an Office of Tax Analysis working paper and derived from IRS tax filings, update previous estimates with two additional years of data to provide the fullest and most authoritative picture of OZ investment to date.^[1] The timing is propitious, landing shortly after the 90-day nomination window opened on July 1 for governors to designate the next round of OZ census tracts. The new designations will come into effect on January 1, 2027 and last for a decade.

The numbers

The new statistics attest to the sheer scale of investment capital mobilized by the OZ policy. In terms of dollars invested, tracts reached, and investors participating, the Treasury report finds that:

• There are approximately 12,800 QOFs active nationwide. These funds aggregate qualifying investment capital from 41,000 different taxpayers, 35,000 of which are individuals and 6,000 of which are corporations.

• In total, QOFs hold $116 billion in total assets and $112 billion in deployed Qualified Opportunity Zone Property (QOZP), meaning tangible assets at work on the ground.

• Designations translated into investment for 77 percent of all OZ census tracts across the 50 states and the District of Columbia.^[3] In other words, of the 7,826 census tracts nominated by governors for OZ status in 2018, 6,026 of them had OZ investment on the ground by the end of 2024.

• Rural tracts were no less likely to receive investment — a proportional 77 percent of rural tracts registered OZ investment. Rural investments, however, tended to be smaller. On average, rural tracts with OZ investments registered an average of $7.3 million, compared to $23.3 million in the average urban tract that received investment.

Prior to the new publication, the best-available estimates reported that OZs had mobilized $89 billion in private capital across two-thirds of designated tracts through the end of 2022.^[4] The new results demonstrate that investors continued to find new opportunities in new census tracts in the years since.

What it means for state and local governments

OZs were made a permanent feature of the tax code in last summer's OBBBA. In that legislation, Congress called for a new round of OZ census tracts to be designated. It set a 90-day window beginning on July 1, 2026 for governors to nominate up to one-quarter of their eligible census tracts — determined by a stricter qualifying criteria than under the OZ 1.0 rules^[5] — for OZ status. Those nominations will be reviewed and certified by the Treasury Department and go into effect on January 1, 2027. Designations will last a decade before governors are called on to nominate the next cohort.

Treasury's new analysis provides state and local officials in charge of zone designations with vital information. While the OZ 2.0 reform package included a robust data reporting regime that should eventually deliver tract-level statistics on the geography of OZ investment, those insights may not be available for several years yet. In the meantime, the new report is the only official, nationwide, cross-sectional analysis of OZ investment through the end of 2024, and it underscores just how important it is to get zone nominations right.

The average state saw more than $2 billion in OZ investment through the end of 2024. California, the nation's most populous state, led the way with $12.0 billion, followed by Florida with $8.8 billion and New York with $8.2 billion. Texas ($7.8 billion) and Arizona ($5.6 billion) round out the top five. No state saw less than $60 million (West Virginia), and only three other states (Alaska, Iowa, and North Dakota) saw less than $100 million.

If we put investments into per-capita terms, the competitiveness of different states in raising OZ capital comes into starker relief. DC and Utah are the clear leaders with $2,221 and $1,507 in cumulative OZ investment per person through the end of 2024. Arizona and Tennessee follow from there, each with over $700 per capita. New York narrowly beats out Florida, while most of the other top states for OZ investment per capita are in the West. Iowa, Illinois, and West Virginia all lag from this angle, too. For context, the total amount of OZ investment marshalled nationwide equates to $306 per person.^[6]

The percentage of OZ tracts that received investment provides a useful scorecard for how well states did in selecting zones that attracted investor interest.^[7] The numbers do not definitively pass judgement on selection teams or processes; nor do they necessarily capture the subjective "quality" of designations. Because governors made their selections with different priorities in mind, the "hit rate" is only one way to measure success. Recall, too, that OZs were entirely new in 2018, and it was not yet clear how the market would respond to the new incentive. However, assessing the hit rate can inform the next round of selections by identifying states that designated zones that elicited not only strong but also widespread investor interest.

Four jurisdictions lead the way with 96 percent of their OZs registering investment by the end of 2024: Arkansas, Mississippi, Hawaii, and DC. Nearly every designated tract saw investment in Colorado (94 percent), Oregon (93 percent), South Dakota (92 percent) and Arizona (91 percent), too. Nationwide, 77 percent of OZs registered investment, and most states cluster around that average. Alabama registered three-times more OZ investment dollars than its neighbor Mississippi, but it concentrated that investment in far fewer tracts: only 43 percent of Alabama's OZs saw investment. Illinois designated more misses than any other state, with only 23 percent of its OZ 1.0 tracts registering investment.

Rural tracts, again, were no less likely to receive investment than urban tracts. This finding is the closest thing to a bombshell in the Treasury report. QOF filings show that a proportional 77 percent of rural tracts registered OZ investment. In Colorado, a state that intentionally designated a disproportionate number of rural census tracts, 95 percent of rural tracts saw investment according to the new Treasury data. Those include communities like Montrose, where OZ investment has developed a mixed-use commercial area bringing new jobs to the community, and Idaho Springs, where local investors are delivering much-needed workforce housing.

The breadth of rural investment runs counter to the conventional wisdom that rural areas were underserved by OZs, a belief that led Congress to write new provisions into OZs 2.0 that enhance the incentives for rural areas. 

That said, another figure suggests that Congress's rural concerns were not entirely misplaced. On average, rural tracts with OZ investment registered $7.3 million of it, compared to $23.3 million in the average urban tract that received investment. Rural investments tended to be smaller, which means that proportionally rural areas received far less total investment capital than urban areas did. In total, 38 percent of currently designated OZs are rural, but they have attracted only 16 percent of all OZ capital. In per capita terms, OZs unlocked approximately $4,386 of investment capital per resident in designated urban tracts compared to $1,407 per resident in designated rural ones. The difference likely points to the ability of large population centers to absorb more of certain types of investment. For example, a 300-unit apartment building might attract tens of millions of OZ dollars in an urban area but not be financially viable in a rural area, where it would struggle to find tenants. 

Zone designation process update

Earlier this year EIG published a guide for state and local government officials preparing to nominate the next round of OZ census tracts. The guide is built from best practices adopted by leading states back in 2018, including standouts like Colorado and DC.

EIG also maintains an interactive map with links to official state government webpages explaining their OZ 2.0 designation processes, where such information is public. The map may be especially useful for local government leaders or other private or civic stakeholders interested in learning more about their states' processes.

To recap, governors have 90 calendar days from July 1 to nominate up to 25 percent of their eligible low-income census tracts for OZ status. Governors do so via a nomination tool provided by the Treasury Department. Extensions of up to 30 days may be requested, and Treasury officials are granted 30 days to process their approvals. Thus, all nominations must be in by October 29, 2026, and those nominations are expected to be certified by November 28th before they go into effect on January 1. A full OZ 2.0 timeline is available in the appendix table here.

Many states started their zone designation processes well before the formal opening of the nomination window and have wrapped up public engagement phases at this point. Others appear not to have gotten started or have provided very little public information signaling how they intend to make decisions that — if past trends identified in the Treasury report hold — will govern where nearly $20 billion in tax-advantaged investment capital flows annually. As we wrote in the guide mentioned above, getting a head start gives states an advantage not only in nominating a competitive cohort of OZ census tracts but also in activating investors and local communities to take advantage of the opportunity ahead.

Surveying these websites, states can be categorized into four general tiers according to how much information they have made publicly available:

• No public information: At the time of writing, 11 states still have not posted any information online about their OZ 2.0 tract selection processes. Some of these states may be engaging with stakeholders behind the scenes (Tennessee is one engaging in a very robust selection process working directly with its economic development regions). Others may be reticent amid leadership transitions. Nevertheless, the lack of transparency in how states are planning to steward public dollars — especially a state like New York, where hundreds of tracts are again likely to attract billions of OZ dollars, or Iowa, which fared comparatively poorly with its 1.0 designations — is concerning at this stage. 
• Minimal public information: 13 states and DC have signaled that they are actively engaged in the nomination process but provide little additional information on their priorities for tract characteristics. Some of these states do have nomination forms posted online for local government representatives or members of the public to recommend census tracts for nomination, but states in this bucket offer little guidance. For example, Michigan's form only requires a name, email, tract number, and a short explanation of how the tract aligns with state and local priorities. 
• Some strategic direction: Roughly one-third of states mention certain priorities or criteria they plan to consider during the process. The level of detail varies, but they all generally look to balance need with potential. In other words, states are aiming to identify "sweet spot" or "goldilocks" tracts that both exhibit genuine need and have the basics in place to attract private capital. Many of these states are also emphasizing permitting, zoning, and site-readiness in their consultations with local governments — nudging interested parties to focus on policy alignment and investment-readiness in particular. Several states in this category ask about projects in the pipeline to prove investor interest in candidate OZ tracts.
• Serious OZers: About a dozen states have clearly put significant thought into the process and are transparently communicating that to their constituents. Oklahoma conducted a survey of the public back in April to inform the state's priorities going into the zone designation process, for example. 

These states tend to provide a good amount of detail on their priorities. For example, Pennsylvania has clearly articulated five priorities: alignment with the state's housing action plan, development-ready commercial and industrial sites, downtowns and main streets, rural opportunities, and innovation-led growth. States such as Washington and Colorado have published transparent scoring and weighting systems to determine which tracts to nominate based on those priorities. 

Serious OZers are also using the designation process to build awareness around OZs broadly. They provide resources and webinars to teach jurisdictions about the incentive, how to attract investors, and how to credibly evaluate the competitiveness of an eligible tract. Illinois has published a white paper evaluating its 1.0 selections and lessons learned, and is partnering with a university to create a data and mapping tool to evaluate tracts on quantitative and qualitative metrics. Washington and Alabama are also encouraging areas to collaborate on their OZ nominations, offering extra points for broad support from local stakeholders.

What else we've learned

The new data from Treasury offer insights that are useful beyond zone designations, too — particularly on the trajectory and industry composition of investment.

Trajectory

The OZ 2.0 reform package did not just include a new round of census tract designations. It also included changes to the structure of the incentive itself that are likely going to change the trajectory of OZ fundraising and investment significantly going forward.

Under OZ 1.0 rules, interested taxpayers were offered a tax deferral attached to a fixed date — December 31, 2026 — that allowed them to delay paying taxes on realized capital gains they invested into a QOF. Two additional fixed-date incentives were attached to that: a 10-percent step-up in bases for QOF investments held for at least five years and an extra 5 percent for investments held for seven years. Once those benefits perished (especially the 5-year benefit at the end of 2021), the rate at which taxpayers deferred gains into QOFs slowed dramatically (see the below graph). The value of the total assets and deployed OZ investments (QOZ property) held by QOFs continued to increase in line with market conditions.

The effect of the fixed-date expiration of certain tax benefits can also be seen clearly on the below graph depicting the number of investors taking advantage of the new OZ incentives. The number of OZ investors increased rapidly — from zero upon enactment of the incentive to 38,000 four years later in tax year 2021. Very few new investors entered the OZ space once the 5-year, 10-percent step-up expired at the end of 2021, however. Only 3,000 new taxpayers started using the incentive between 2021 and 2024, although many entities already in the marketplace continued investing actively. 

The shape of the OZ 2.0 funding curve could differ dramatically. Under the new rules, all investors enjoy a rolling 5-year deferral with a 10-percent step-up in basis, removing the cliff that slowed the momentum of the OZ 1.0 market so significantly. States, localities, and private investors can anticipate a much steadier flow of investment and much more natural cadence of new investors entering the market.

Industry

The majority of OZ investment is classified in tax filings as real estate: 77 percent.^[8] This is in line with the perception that real estate is the dominant OZ investment activity. But the top-line figure almost certainly masks important nuances under the surface. Since a separately incorporated entity typically exists at each stage of an OZ transaction or project, even real estate that was constructed for business purposes may get classified as part of the real estate sector rather than according to the activity taking place within it, for example manufacturing or warehousing. 

We can credibly assume that residential rental real estate represents a majority of OZ projects and dollars (an assessment backed up by private sources), but there is likely meaningful differentiation in the real estate sector beyond that. The OZ incentive is frequently deployed to support mixed use, commercial, and industrial developments. With multifamily housing construction experiencing a major lull nationally, the market may respond by deploying OZs to support even more such applications under the 2.0 rules. The enhanced new rural incentives could further accelerate the diversification of OZ use-cases.

Looking forward

The OZ designation process underway this summer is one of the most consequential public policy exercises of the year. Decisions made by governors in consultation with their constituents and communities will determine where vital private revitalization dollars flow over the course of the next decade. OZ 1.0 designations transformed neighborhoods, giving once-neglected areas like Salt Lake City's Granary District an entirely new lease on life. OZs have also impacted many communities much more subtly: 44 percent of designated tracts that saw investment registered less than $1 million of OZ capital according to this new data. But put it all together and designations directly led to the creation of 460,000 new housing units spread across every state and in communities of all sizes that would not have been constructed absent the incentive. From Erie, Pennsylvania, to Selma, Alabama, OZs have proven their ability to help local visions become reality. Treasury's timely release of new data serve as a stirring reminder of the stakes surrounding this year's zone designation cycle — and the possibilities in the years ahead.

Keep checking back for insights and resources as OZs 2.0 roll out.