IRS releases new guidance on opportunity zone nominations

The Revenue Procedure in large part restates the nomination procedures in Internal Revenue Code section 1400Z-1(b), but the guidance also provides insight into the new nominations process under OBBBA and contains an appendix listing the census tracts eligible for nomination, which reflect the stricter eligibility requirements OBBBA introduced.

Census Tract Eligibility

Whether a census tract is eligible for nomination is determined using data from the American Community Survey (ACS) 5-Year dataset compiled by the Census Bureau.

For the initial round of nominations under the Tax Cuts and Jobs Act of 2017 (TCJA), the state executive could select up to 25% of the census tracts within his or her jurisdiction meeting the definition of “low-income community” (LIC) in former section 1400Z-1(c)(1), which generally mirrored the definition of LIC in section 45D(e) for New Markets Tax Credit purposes.

In addition to geographic boundary changes and ACS data updates since the original TCJA nominations period, OBBBA changed the definition of LIC, reducing the overall number of census tracts eligible for nomination.

Under the TCJA definition, a census tract was eligible for nomination so long as the ACS data showed that a census tract had (i) at least a 20% poverty rate, or, alternatively, (ii) a median family income (MFI) of no more than 80% of its metropolitan area’s MFI (or, in the case of a census tract not located within a metropolitan area, 80% of the statewide MFI). Under TCJA, state executives could also nominate census tracts that did not meet the definition of LIC, so long as the tract was contiguous with a LIC tract and met certain other requirements.

Under OBBBA, the 80% MFI threshold was reduced to 70%, and a census tract with a poverty rate of at least 20% is only considered eligible if the ACS data shows that it also has an MFI of no more than 125% of its metropolitan area’s MFI (or, in the case of a census tract not located within a metropolitan area, no more than 125% of the statewide MFI). Additionally, non-LIC census tracts contiguous with eligible LIC census tracts are no longer eligible for nomination.

These changes significantly reduce the number of census tracts eligible for nomination as a QOZ: while under TCJA there were more than 41,000 eligible census tracts, under OBBBA, only 25,332 census tracts will be eligible for nomination.

Many of the census tracts that were certified as QOZs during the TCJA nominations process may now be ineligible under OBBBA. However, section 5.04 of the Revenue Procedure allows state executives to nominate census tracts not listed in the appendix of eligible census tracts if the state executive provides sufficient analysis, including data collected at the census tract level, demonstrating that the unlisted tract meets the requirements to be a LIC.

Eligible Census Tract Nominations Process

Each “chief executive officer” of a US state or territory (including the District of Columbia) — generally, its governor or, in the case of the District of Columbia, its mayor — is required to nominate census tracts for designation as QOZs and to notify the Secretary of the Treasury of such nominations.

State executives will have 90 days to submit their nominations to the Secretary of the Treasury beginning July 1, 2026, although a single 30-day extension may be requested (such 90-day period, as extended, is referred to as the “determination period”). Practically, however, Section 2.02(3)(e) of the Revenue Procedure provides that nominations will not be considered received until the end of the determination period — which means that state executives will be able to make multiple submissions of nominations and be able to modify submissions before the end of the determination period.

While OBBBA made the opportunity zone tax incentive permanent, each round of QOZ designations will only last ten years. Accordingly, the initial QOZ designations that were certified under the TCJA process will expire on December 31, 2028. New designations under OBBBA will remain in place without modification through December 31, 2036. A third round of nominations will occur in 2027, with the resulting designations taking effect on January 1, 2037.

Recommendations and Next Steps

All new QOZs should be officially certified and designated by the Secretary of the Treasury by November 27, 2026, or by December 28, 2026, if an extension was requested by a state executive. Official guidance regarding the final designation of nominated census tracts as QOZs is anticipated before January 1, 2027 — the date when the new designations become effective. 

Given the significant changes under OBBBA, sponsors, investors, and developers should carefully assess how the new QOZ nomination framework may affect their current and planned investments.

Specifically, stakeholders should consider the following action items:

• Review current QOF and QOZB holdings against the appendix of eligible census tracts in Rev. Proc. 2026-14 to identify any holdings that may be affected by the stricter OBBBA eligibility requirements.
• For long-term development projects, evaluate whether current QOZ designations (expiring December 31, 2028) will support project timelines, and consider whether new OZ 2.0 designations (effective January 1, 2027) may provide a better fit.
• Engage with state and local officials before the July 1, 2026 nomination period begins to advocate for the nomination of census tracts that align with your investment or development objectives.
• Monitor IRS and Treasury guidance for updates on the final designation of nominated census tracts, expected before January 1, 2027.

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