Combining Opportunity Zones with other incentives

Yes, in most cases. The Opportunity Zone rules work at the investor level: they defer and reduce the tax on a capital gain invested in a Qualified Opportunity Fund (QOF) and exclude appreciation after 10 years. Most other incentives work at the project level: they lower construction cost, operating cost or the project's own taxable income. Because they act on different taxes and different taxpayers, they generally stack. The interactions that need care are depreciation recapture, basis for the substantial improvement test, leased-property rules under public financing structures, and state conformity.

State data center incentives are mostly sales and use tax exemptions on equipment and building materials, and they reduce the project's capital cost without affecting OZ eligibility. NCSL counted 38 states with dedicated data center tax incentives as of April 2026.¹ Good Jobs First found 36 states exempt data center building materials and IT equipment from sales and use tax, and that only 11 of them name the companies that receive the breaks.² Each state sets investment and job thresholds.

Two interactions matter. First, the incentives are moving: Ohio paused new exemption requests on May 27, 2026, Arizona adopted a three-year moratorium on new applications from July 1, 2026, and NCSL reported that lawmakers in 28 states introduced bills to scale back or modify programs in 2026.^5,17,19 Virginia kept its exemption but added a data center electricity consumption tax of $0.011 per kWh from July 1, 2026.¹⁴ A project model should show returns with and without the state exemption. Second, for a rehabilitated building, a sales tax exemption lowers the cost of improvements, which lowers the additions to basis that count toward the substantial improvement test (more than 100% of building basis within 30 months, or 50% in wholly rural zones). Our guide to state data center tax incentives and Opportunity Zones covers each state.

Property tax abatements usually stack cleanly, but payment-in-lieu-of-taxes (PILOT) structures that move title to a public entity need a separate OZ review. In a common PILOT structure, a city, port authority or industrial development agency holds title so the property is tax-exempt, leases it back to the operator, and the operator makes negotiated payments instead of taxes. Recent examples include a proposed 30-year PILOT at 30% of otherwise-owed taxes for an Amazon project in Wilmington, Ohio, and a Genesee County, New York package projected at about $285 million over 30 years.^13,20

If the QOZB leases the property back rather than owning it, the property must qualify under the leased-property rules: a lease on market terms, with extra limits if the lessor is a related party. Leased property is not subject to the original use requirement, but the QOZB's 70% tangible property test is measured on what it owns and leases.¹⁸ Have tax counsel review the title, lease and any purchase option before closing. See leased property rules for Opportunity Zone businesses.

They combine well in a partnership structure. Public Law 119-21 made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025, including MACRS property with a recovery period of 20 years or less, computer software and qualified improvement property.^7,9 Data center electrical and mechanical systems identified in a cost segregation study generally fall in short-life classes, while the building shell is 39-year property and does not qualify, and land is not depreciable.^8,15

In a partnership QOF, the QOZB's depreciation passes up to investors, who can use it to the extent of their basis (including their share of debt) and subject to the at-risk and passive activity rules. After a 10-year hold, investors can elect to exclude gain from the fund's or QOZB's asset sales, which practitioner summaries describe as including depreciation recapture, other than on inventory.¹² That pairing (deductions during the hold, no recapture on a qualifying exit) is the main reason equipment-heavy projects favor partnership funds.

They can, but both are specialized and rarely central to a data center deal. The New Markets Tax Credit (NMTC), under IRC §45D, gives investors a credit of 39% of a qualified equity investment in a community development entity, claimed over seven years (5% a year for three years, then 6% a year for four), with allocations awarded competitively by the Treasury's CDFI Fund.²¹ Both programs target low-income communities, so a project can qualify for both, but an NMTC deal has its own leverage structure, seven-year compliance period and business tests. For a capital-intensive campus, NMTC funding is usually small relative to cost.

Clean electricity credits matter where the project builds or contracts on-site generation. Under Public Law 119-21, wind and solar facilities lose the §45Y and §48E credits if placed in service after 2027 unless construction began by July 4, 2026, while other technologies such as geothermal and nuclear keep longer schedules.¹⁶ On-site generation is often owned by a separate entity; whether it sits inside the zone and inside the QOZB changes the 70% test.

Most states follow the federal treatment, but not all, and the state rule can change the investor's after-tax result. California does not conform to the federal OZ deferral or exclusion.¹⁰ Other states reported as non-conforming or only partly conforming include North Carolina, Mississippi and Massachusetts, and New York kept the 10-year exclusion while dropping deferral and step-up.¹¹ State lists differ across sources and change with each legislative session, so confirm the rule for your state of residence and the project's state.

For the full state picture, read state tax treatment of Opportunity Zone investments. For how all of these layers fit into one financing plan, see the capital stack for an Opportunity Zone data center.