IRS offers guidance on nominating opportunity zone tracts

The Internal Revenue Service and the Treasury Department are providing guidance on how states, territories and the District of Columbia can nominate census tracts to be designated as qualified opportunity zones under the One Big Beautiful Bill Act.

The OBBBA made the opportunity zone program from the Tax Cuts and Jobs Act permanent and extended it to include more rural areas for real estate investors.

"Permanently extending and expanding Qualified Opportunity Zones offers states an opportunity to attract long-term investment into underserved, rural, and economically distressed areas," said IRS CEO Frank Bisignano in a statement Monday. "The IRS works collaboratively with the Treasury Department and the states to ensure a smooth QOZ designation process, which in turn encourages investment in Qualified Opportunity Funds that spur economic development."

Revenue Procedure 2026-12 describes the nomination process as well as identifies the eligible population census tracts, including those that entirely comprise a rural area. The tracts can be nominated by CEOs of the states, the District of Columbia, and the U.S. territories to be designated as QOZs starting in 2027.

A QOZ is an economically distressed area in which new investments, under certain conditions, can be eligible for preferential tax treatment. The OBBBA makes the opportunity zone tax incentive a permanent part of the Tax Code. The first round of QOZ designations following the enactment of the OBBB will take effect on Jan. 1, 2027, with new rounds coming every 10 years. In addition, the OBBB added tax benefits specific to investments made into QOZs that entirely comprise a rural area.

To be eligible for QOZ designation for 2027, a census tract needs to qualify as a low-income community. Rev. Proc. 2026-12 identifies 25,332 population census tracts that are considered to be such communities and eligible for nomination as a QOZ. Of those, 8,334 tracts entirely comprise a rural area. Under the law, the number of population census tracts in a state that can be designated as QOZs can't exceed 25% of the number of low-income communities in the state. If a state contains between 25 to 99 low-income communities, then a total of 25 eligible population census tracts can be designated. If a state has fewer than 25 LICs, then all eligible population tracts within the state can be designated.

Starting July 1, 2026, and lasting a period of 90 days, subject to a single 30-day extension, state CEOs will start nominating eligible census tracts to be designated as QOZs. Following the nomination process, the Treasury will certify and designate the nominated census tracts as QOZs. The Treasury Department and the IRS expect to issue additional guidance identifying the designated QOZs following the conclusion of the nominations and designation process, prior to Jan. 1, 2027.

To help with the nomination process, online tools and resources will be rolled out to state CEOs in the months  ahead to ensure efficiency and accuracy of their nominations.

Last year, the Treasury and the IRS previously issued Notice 2025-50 offering guidance on QOZ investments in rural areas under the OBBBA.