The next generation of Qualified Opportunity Zones is beginning to take shape as states select the communities that will participate in the revamped program beginning in 2027. On July 1, the U.S. Treasury opened a 90-day nomination period for states, territories and the District of Columbia to select eligible low-income census tracts for the new round of QOZ designations. Treasury and the IRS previously identified 25,332 eligible census tracts, including 8,334 located entirely in rural areas. Once selected and certified, the new zones will become effective January 1, 2027, and remain designated for 10 years.

The designation process follows legislation enacted in 2025 that made the Opportunity Zone incentive permanent while establishing a recurring process for redesignating zones every 10 years and enhancing incentives for qualifying rural investments. The IRS also issued Notice 2026-40 this summer, providing transitional guidance and announcing that Treasury and the IRS intend to issue proposed regulations addressing the amended QOZ rules. For advisors with clients already invested in Qualified Opportunity Funds, the transition is particularly important because the existing program and its investments do not simply disappear as the new framework takes effect.

The developments make the remainder of 2026 an important period for advisors, QOZ sponsors and investors to follow both regulatory guidance and state-level zone selections. New designations could influence where sponsors pursue projects and raise capital beginning next year, while the permanent framework may change how advisors view QOZs as a long-term tax and investment planning strategy. The increased emphasis on rural communities also creates an area worth watching as sponsors begin evaluating opportunities under the new incentives.

Sources

• U.S. Department of the Treasury, Treasury Opens the New Designation Cycle for Opportunity Zones, July 1, 2026
• Internal Revenue Service, Notice 2026-40: Transitional Guidance on Qualified Opportunity Zones, July 2026
• Internal Revenue Service, Revenue Procedure 2026-14: Procedure for Nominating Census Tracts to Be Designated as Qualified Opportunity Zones