The risks of Opportunity Zone investing

There are six main risks: tax-law and policy change, compliance failure, illiquidity, concentration, development and power risk, and market and exit risk. The first two are specific to Opportunity Zones because they can remove the tax benefit; the rest are ordinary investment risks made sharper by a holding period of 10 years or more. The tax benefit does not remove any of them. The deferred gain is included at the earlier of a sale (or other inclusion event) or five years after the investment date.⁷

Yes. The program is permanent law, but permanent law can be amended, and for data centers the risk is concrete. On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act, which would exclude data centers from Opportunity Zone benefits; it was referred to the Senate Finance Committee.^1,2 Reps. Kristen McDonald Rivet and Don Davis introduced a House bill to bar data centers from incentives expanded by Public Law 119-21, including 100% bonus depreciation and Opportunity Zone benefits, and Sen. Ron Wyden released a framework (not a bill) with a similar aim.^1,3

None of these had been enacted as of October 20, 2026. If one passes, its effective date and any protection for existing investments would depend on the enacted text, not on bill summaries. Ask a sponsor how its fund would respond: whether the project still works without the incentive, and whether the documents allow a restructuring.

Treasury guidance is also moving. Proposed regulations published September 11, 2026 would implement the new QOF and QOZB information reporting and a formal decertification procedure; they are not final.⁴ Notice 2026-55 requests comments by November 23, 2026 on inclusion events, working capital plan changes, operating businesses and how the 30-year basis rule works without a sale.⁶ Until final rules appear, some mechanics are uncertain.

A compliance failure can cost money in penalties and, if it is serious or prolonged, the tax benefits themselves. A Qualified Opportunity Fund (QOF) that falls below the 90% asset test owes a penalty for each month of failure, equal to the shortfall times the IRS underpayment rate, unless the failure is due to reasonable cause.¹⁶ A Qualified Opportunity Zone Business (QOZB) that fails its tests stops being qualified property for the fund, which can push the fund below 90%.

Reporting failures now carry their own penalty. Under IRC §6726, a QOF that fails to file its required information return owes $500 per day, capped at $10,000 per return, or $50,000 for a fund with gross assets over $10 million; intentional disregard raises the amounts.^4,5 The most common technical risks for development projects are a working capital plan whose schedule is missed and a lease structure that does not count as an active trade or business.^17,14 Read Opportunity Zone reporting requirements and penalties.

Treat an Opportunity Zone investment as locked up for at least 10 years. The 10-year exclusion requires at least a 10-year hold, most QOF interests have no secondary market, and selling or gifting the interest is generally an inclusion event that triggers the deferred gain.⁷ Death is not an inclusion event, but heirs inherit the deferred gain.

The year-five tax is the most underestimated cash risk. At the earlier of a sale or five years after the investment, the investor recognizes the lesser of the deferred gain or the investment's fair market value, minus basis (the 10% step-up, or 30% in a rural fund).⁷ That tax is due whether or not the fund has paid any cash. If the project has lost value, the taxable amount falls, but it does not disappear.

Usually very concentrated. Many funds own one project, and even multi-asset funds often cluster in one market or asset type. GAO found that Opportunity Zone investment has gone mostly to real estate in urban areas, and QOFs held more than $108 billion of assets at the end of 2024.⁸ For a data center, the concentration is sharper still: one site, one utility, often one tenant. See single-asset vs. multi-asset funds for how fund design changes this risk.

Power delivery and construction cost are the two risks most likely to break a data center plan. Dominion Energy said in 2024 that connecting data centers above 100 MW in Northern Virginia could take up to seven years.⁹ For generators that a project might build or contract, LBNL found the median time from interconnection request to commercial operation exceeded four years for projects built in 2018 through 2024.¹⁰ Either timeline can outrun a 31-month working capital plan, and utility queues are not obviously the kind of governmental delay that tolls the safe harbor.¹⁷

• Cost: Cushman & Wakefield's 2026 guide reported data center construction costs up an average of 21% per MW since its previous edition.¹¹
• Local opposition: Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026.¹²
• State incentives: lawmakers in 28 states introduced bills to scale back or modify data center incentives in 2026 sessions, and several states paused new applications.¹³
• Lease structure: a single-tenant triple-net lease is not, by itself, an active trade or business.¹⁴
• Equipment obsolescence: hyperscalers depreciate servers over about five to six years, so IT equipment can turn over twice in a 10-year hold.¹⁸

For the timing problem in detail, see data center power timelines and the Opportunity Zone clock and power interconnection for Opportunity Zone data centers.

No structure removes these risks, but the right questions and documents reduce them. Score each risk and its mitigant before investing.

Size the investment so that a total loss, plus the year-five tax, would not change your plans. Then use the due diligence checklist and sponsor guide to test the rest.