# OZ Data Centers: the complete Opportunity Zone and data center guide library > OZ Data Centers sponsors data center projects in Qualified Opportunity Zones, manages the funds that invest in them and runs the operating businesses that own them, with site selection by BlackForge Data Centers. Source: https://ozdatacenters.com/guides. Index: https://ozdatacenters.com/llms.txt. Each guide below lists its URL, review date and footnoted sources. This website is for general information only. It is not an offer to sell, or a solicitation of an offer to buy, any security. Any offering will be made only through confidential offering documents, to eligible investors, where permitted by law. Opportunity Zone tax benefits depend on each investor's circumstances and on rules that can change; consult your own tax and legal advisers. # Section: Opportunity Zone basics What Opportunity Zones are, how the program works and who it is for. --- # What is an Opportunity Zone? URL: https://ozdatacenters.com/guides/what-is-an-opportunity-zone Last reviewed: 2026-10-20 An Opportunity Zone is a low-income census tract, nominated by a governor and certified by the U.S. Treasury, where new investment made through a Qualified Opportunity Fund earns federal tax benefits under IRC §1400Z-2. Investors who put capital gains into such a fund within 180 days can defer that tax for up to five years, reduce it by 10% (30% in rural zones), and pay no federal tax on the fund's appreciation after a 10-year hold. ## Key takeaways - An Opportunity Zone (OZ) is a census tract designated under IRC §1400Z-1; the tax benefits themselves are in IRC §1400Z-2. - A tract can be designated only if it is a low-income community: median family income at or below 70% of the area median, or a poverty rate of at least 20% with median family income at or below 125% of the area median. - Each governor may designate at most 25% of the state's eligible tracts (or 25 tracts if greater), and new designations take effect January 1, 2027 and last 10 years. - Treasury's eligible-tract list for the 2027 designations contains 25,332 low-income tracts, 8,334 of them wholly rural. - The program is permanent under Public Law 119-21, with new zone maps drawn every 10 years. - You do not have to live or work in a zone to invest; the investment must go through a Qualified Opportunity Fund. ## What is an Opportunity Zone, in one sentence? An Opportunity Zone is an economically distressed census tract that the federal government has certified as a place where new, long-term equity investment earns capital gains tax benefits.[^1] The designation rules are in IRC §1400Z-1 and the investor benefits are in IRC §1400Z-2, both made permanent by Public Law 119-21, the One Big Beautiful Bill Act, signed July 4, 2025.[^2][^3] The zone itself is just a map boundary. Nothing changes for the people and businesses already there. What changes is the tax treatment of new money that flows in through a specific vehicle, the Qualified Opportunity Fund (QOF). A QOF is a corporation or partnership organized to invest in Opportunity Zone property that self-certifies on IRS Form 8996.[^6] The fund either owns zone property directly or, more often, owns equity in an operating company called a Qualified Opportunity Zone Business (QOZB). Read the companion guides for the vehicle and the business: [what a Qualified Opportunity Fund is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund) and [what a Qualified Opportunity Zone Business is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business). ## Which census tracts can become Opportunity Zones? Only tracts that meet the statutory definition of a low-income community can be designated.[^1] A census tract is a small statistical area defined by the Census Bureau, usually home to a few thousand people. The test uses American Community Survey data and has two alternative prongs.[^10] **Low-income community test for Opportunity Zone eligibility (IRC §1400Z-1)** | Prong | Requirement | Benchmark | | --- | --- | --- | | Income prong | Median family income no more than 70% of the benchmark | Statewide median (non-metro tracts) or the greater of statewide or metro median (metro tracts) | | Poverty prong | Poverty rate of at least 20% and median family income no more than 125% of the benchmark | Same benchmark as the income prong | | Contiguous tracts | Not eligible; every tract must qualify on its own data | Not applicable | A tract that meets the 70% income prong qualifies regardless of its poverty rate. The 125% ceiling limits only the poverty prong, so a high-poverty tract with relatively high median income cannot be designated.[^10] Treasury published the eligible list in Rev. Proc. 2026-14: 25,332 tracts, of which 8,334 are wholly rural.[^4] **Figure: The numeric limits that decide which tracts can be zones** - Median family income vs. area median (income prong): no more than 70% (At or below 70% qualifies on its own) - Poverty rate (poverty prong): at least 20% (Plus median family income at or below 125% of the area median) - Share of eligible tracts a governor may designate: no more than 25% (Or 25 tracts, if greater) *A tract must pass the income prong or the poverty prong, and a governor can designate only a quarter of the tracts that pass. Source: IRC §1400Z-1 as amended.[^1][^10]* ## Who decides where Opportunity Zones are? Governors nominate and the Treasury Department certifies. Each state's chief executive has 90 days after a determination date to nominate tracts from the eligible list, and Treasury then certifies the nominations.[^1][^4] The first determination date under the permanent rules was July 1, 2026, and a new one follows every 10 years.[^7] A state may designate no more than 25% of its low-income-community tracts, or 25 tracts if that is greater.[^12] The CDFI Fund, a Treasury bureau, runs the online nomination tool and publishes the official zone lists.[^11] **Figure: How a census tract becomes an Opportunity Zone** 1. Treasury lists eligible tracts: Rev. Proc. 2026-14 named 25,332 2. Governor selects tracts: Up to 25% of eligible tracts 3. Nomination filed: 90-day window from July 1, 2026 4. Treasury certifies: Within 30 days, extendable 5. Zone takes effect: January 1, 2027 to December 31, 2036 *The same five steps repeat every 10 years, so each map is fixed for a decade once certified.[^1][^4][^7]* More on the process is in [how Opportunity Zones are designated](https://ozdatacenters.com/guides/how-opportunity-zones-are-designated) and [the new zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## How many Opportunity Zones are there? There are 8,764 Opportunity Zones in effect today, of which 3,309 consist entirely of rural areas, according to the IRS.[^5] Those zones remain in effect through December 31, 2028 (December 31, 2027 in Puerto Rico), overlapping with the new map.[^7] The new zones take effect January 1, 2027 and run through December 31, 2036.[^7] **Figure: Opportunity Zones by the numbers** - 8,764: Zones currently in effect, 3,309 wholly rural - 25,332: Tracts eligible for the 2027 designations - $108B+: Assets held by QOFs at the end of 2024 *Zone counts are from the IRS; fund assets are from the Government Accountability Office.[^4][^5][^8]* As of October 20, 2026, Treasury has not published a consolidated national list of the zones that take effect in 2027. States have been filing nominations, and certifications are expected through late 2026. Use [our guide to checking whether a property is in a zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone) and confirm against the official CDFI Fund list once it is released.[^11] ## What tax benefits do Opportunity Zones offer? Opportunity Zones offer three federal income tax benefits to investors who put eligible capital gains into a QOF within 180 days of the sale.[^2] For amounts invested on or after January 1, 2027, the benefits work like this:[^2][^3] **The three Opportunity Zone tax benefits** | Benefit | What it does | Holding period | | --- | --- | --- | | Deferral | Tax on the invested gain is postponed until the investment is sold or five years pass, whichever is first | From investment date to year 5 | | Basis step-up | 10% of the deferred gain is never taxed (30% for a Qualified Rural Opportunity Fund) | At least 5 years | | Exclusion | Basis can be set to fair market value on sale, so appreciation in the fund is federally tax-free | At least 10 years; value fixed at year 30 | The exclusion is usually the largest benefit. The deferral and step-up apply to the old gain; the exclusion applies to all the new growth. The full mechanics are in [Opportunity Zone tax benefits, explained](https://ozdatacenters.com/guides/opportunity-zone-tax-benefits-explained). ## Do you have to live in an Opportunity Zone to benefit? No. The IRS states that you can use the incentive even if you do not live, work or have a business in an Opportunity Zone.[^6] What matters is where the fund's money goes, not where the investor is. Individuals, corporations, partnerships, trusts and estates with eligible gains can all invest, and nonresident aliens and foreign corporations can generally defer gains that are subject to U.S. tax.[^6] Conversely, owning property in a zone does not by itself earn any benefit. A landowner gets OZ treatment only by selling to, or investing through, a QOF structure that meets the rules. See [who can invest in an Opportunity Zone fund](https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund). ## What kinds of projects get built in Opportunity Zones? Any active business that is not on the excluded list can qualify, but most capital has gone to real estate. GAO reported in August 2026 that QOFs held more than $108 billion in assets at the end of 2024, mostly invested in urban real estate.[^8] Novogradac tracks $43.61 billion of equity raised by funds that report to it through the first quarter of 2026.[^9] The excluded list is short: golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and other gambling facilities, and liquor stores.[^2] Housing, industrial, hospitality, operating companies and infrastructure all fit. To qualify, the project generally has to be new construction or a substantial renovation; buying an existing building and doing nothing does not work. ### Why data centers fit the program Data centers are among the most capital-intensive real assets being built, and many sites with land and transmission capacity sit in low-income, often rural tracts. A new campus is original-use property, so it does not need to meet the substantial improvement test. The main design issue is the lease: under the regulations, merely entering into a triple-net lease is not an active trade or business, so a fund that owns a building leased to one tenant on triple-net terms has a qualification problem.[^13] [Data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) covers the structures that work. ## Common questions **Is an Opportunity Zone the same as an enterprise zone or a TIF district?** No. An Opportunity Zone is a federal tax designation under IRC §1400Z-1 that rewards investors' capital gains. Enterprise zones and tax increment financing districts are state or local programs with their own rules. A project can sometimes use both. **How long does an Opportunity Zone designation last?** Ten years. Zones designated in the current cycle take effect January 1, 2027 and remain in effect through December 31, 2036. A new map is drawn every 10 years. **Can a governor add a tract that is not on Treasury's eligible list?** Only with data. Rev. Proc. 2026-14 lets a governor nominate an off-list tract by supplying tract-level data showing it meets the low-income community definition. Contiguous tracts that do not qualify on their own are not eligible. **Do Opportunity Zone benefits apply to state taxes?** Not automatically. The benefits are federal. Some states, including California, do not follow the federal deferral or exclusion, so check your state's conformity rules. **What happens if my zone is not redesignated in the next cycle?** Property already in the fund can keep counting. The interim guidance in Notice 2026-40 lets funds and businesses keep treating an expired zone as a zone for key tests (use in the zone, gross income and intangibles), but property acquired after 2026 in a tract that is not redesignated generally does not qualify, with narrow exceptions. Treatment of future expirations will depend on Treasury's regulations. **Is there an official Opportunity Zone map?** Yes. The CDFI Fund publishes the official list and mapping tools. As of October 2026, the national list of zones taking effect January 1, 2027 had not been published. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1: Designation" (2026). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^3]: Congress.gov, "H.R. 1, 119th Congress: One Big Beautiful Bill Act (Public Law 119-21), text" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^4]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^5]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^6]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^7]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^8]: U.S. Government Accountability Office, "Opportunity Zones (GAO-26-108132)" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^9]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 [^10]: Jackson Walker, "The One Big Beautiful Bill's New Qualified Opportunity Zones" (2025). https://www.jw.com/news/insights-obbba-qualified-opportunity-zones/ [^11]: CDFI Fund, U.S. Department of the Treasury, "Opportunity Zones" (n.d.). https://www.cdfifund.gov/Opportunity-Zones [^12]: Saul Ewing, "Opportunity Zone Regime Permanently Extended With New Benefits, Limitations, and Requirements, With a New Rural Focus" (2025). https://www.saul.com/insights/alert/opportunity-zone-regime-permanently-extended-new-benefits-limitations-and [^13]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ --- # How Opportunity Zones work, step by step URL: https://ozdatacenters.com/guides/how-opportunity-zones-work Last reviewed: 2026-10-20 Opportunity Zones work in five steps: you realize a capital gain, invest that gain in a Qualified Opportunity Fund within 180 days, elect deferral on Form 8949, and the fund deploys the cash into zone property, usually through an operating business. The deferred tax comes due after five years (on 90% of the gain, or 70% for a rural fund), and if you hold for at least 10 years the fund's appreciation is excluded from federal tax. ## Key takeaways - The clock starts on the sale date: you have 180 days to invest an eligible gain in a Qualified Opportunity Fund (QOF). - You elect deferral on Form 8949 with your tax return and report the investment every year on Form 8997. - The fund must hold at least 90% of its assets in Opportunity Zone property, usually equity in a Qualified Opportunity Zone Business (QOZB). - For investments made on or after January 1, 2027, the deferred gain is taxed after five years, with a 10% basis step-up (30% for a rural fund). - After 10 years you can elect to set your basis to fair market value on sale, so the fund's appreciation is free of federal tax; the value is fixed at year 30. ## How does an Opportunity Zone investment work, in short? You move a capital gain into a Qualified Opportunity Fund, the fund builds or improves property in a designated zone, and you hold. The tax law rewards the gain going in and the growth coming out.[^1] A Qualified Opportunity Fund (QOF) is a partnership or corporation that invests at least 90% of its assets in Opportunity Zone property and certifies itself to the IRS on Form 8996.[^5] **Figure: How money moves in an Opportunity Zone investment** - Capital gain: Investor (Sells stock, a business or real estate) - then: Invests gain within 180 days - 90% test: Qualified Opportunity Fund (Partnership or corporation, Form 8996) - then: Buys equity - 70% test: Qualified Opportunity Zone Business (Operating company, often an LLC) - then: Builds or improves - Original use: Zone property (New or substantially improved, used in the zone) *Only the gain portion of the money earns the tax benefits. Most funds invest through a lower-tier operating business rather than owning property directly.[^1][^3]* ## Step 1: What kind of gain starts the process? An eligible gain is a capital gain (short-term or long-term) that would be recognized for federal income tax purposes, from a sale to an unrelated party.[^2][^4] It includes gains from stocks, bonds, crypto, a business sale, real estate and collectibles, and the gross amount of §1231 gains from business property, unreduced by §1231 losses.[^8] Ordinary income, including depreciation recapture under §1245, is not eligible.[^4] You defer only the gain, not the sale proceeds. If you sell a property for $3 million with a $1 million gain, you need to invest $1 million to defer the whole gain. The full list of what counts is in [which capital gains qualify for deferral](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). ## Step 2: How long do you have to invest the gain? You have 180 days from the date the gain would be recognized to invest it in a QOF.[^2] For most sales that is the trade or closing date. Pass-through owners get more flexibility: a partner or S corporation shareholder can use the entity's sale date, the last day of the entity's tax year, or the unextended due date of the entity's return.[^8] **When the 180-day window starts** | Type of gain | 180-day period generally begins | | --- | --- | | Direct sale of stock, real estate or a business | Date of the sale | | §1231 gain from business property | Date of the sale | | Gain allocated from a partnership or S corporation | Entity's sale date, last day of its tax year, or the unextended due date of its return (owner's choice) | | Installment sale | Date each payment is received, or the last day of the tax year | | Capital gain dividend from a REIT or mutual fund | Generally the last day of the shareholder's tax year, or by election the date each dividend is paid | Miss the window and the gain cannot be deferred. See [the 180-day investment rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule) for edge cases. ## Step 3: How do you elect Opportunity Zone deferral? You make the election on Form 8949, attached to a timely filed federal return for the year the gain arose, reporting the QOF's name, EIN and the investment date and entering the deferred amount as an adjustment.[^9] Every year after that you file Form 8997, which reports the QOF investments you held at the start and end of the year, gains deferred during the year and any dispositions.[^6] The fund has its own filing: Form 8996, which certifies QOF status and reports the 90% asset test each year.[^5] Under proposed regulations published September 11, 2026, Form 8996 would become a separate information return with census-tract detail, and new §6726 penalties of $500 per day (capped at $10,000, or $50,000 for funds above $10 million in gross assets) apply for missing or incomplete reports. Those regulations are proposed, not final.[^10] See [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## Step 4: What does the fund do with the money? The fund puts the money to work in the zone. It must keep at least 90% of its assets in Qualified Opportunity Zone property, measured on two testing dates each year, or pay a monthly penalty on the shortfall.[^3][^5] Most funds meet the test by owning equity in a Qualified Opportunity Zone Business, which then owns and operates the real property. The two-tier structure matters because the business tier has more room: only 70% of its tangible property must qualify, and it can hold cash for up to 31 months (62 months with sequential plans) under a written working capital safe harbor while it builds.[^3][^7] **Figure: The percentage tests that keep a fund and its business qualified** - QOF assets in Opportunity Zone property: at least 90% - QOZB tangible property that is zone business property: at least 70% - QOZB gross income from active business in the zone: at least 50% - QOZB intangibles used in the zone business: at least 40% - QOZB nonqualified financial property: less than 5% (Working capital within the safe harbor is excluded) *The fund tests 90% of its assets; the business tests 70% of tangible property, 50% of gross income, 40% of intangibles and a 5% cap on nonqualified financial property.[^3][^7]* The property must be new to the zone (original use) or substantially improved, meaning the business adds more than its purchase basis in the building within 30 months. In wholly rural zones the threshold is 50% of basis.[^11] Land does not need to be improved. ## Step 5: What happens at year 5 and year 10? At year 5 the deferred gain is taxed, reduced by a basis step-up; at year 10 you become eligible to exclude all appreciation. For amounts invested on or after January 1, 2027, the deferred gain is included in income on the earlier of the date you sell or exchange the investment or five years after you invested.[^1][^12] **Figure: The Opportunity Zone holding-period clock** - Day 1: Gain realized (Sale date counts as day 1) - Day 180: Last day to invest (Gain must be in a QOF) - Year 5: Deferred gain taxed (10% step-up (30% rural)) - Year 10: Exclusion available (Basis can equal fair market value) - Year 30: Value fixed (Later growth is taxable) *Each investment runs on its own clock from its investment date. The step-up is 30% instead of 10% for a Qualified Rural Opportunity Fund.[^1][^12]* Since the deferred tax is due in year 5 while the money stays in the fund, plan to pay it from other cash. After 10 years, when you sell the QOF interest, you can elect to step up its basis to fair market value, so no federal gain is recognized on the appreciation. For sales after the 30th anniversary, basis is fixed at fair market value on that anniversary.[^1][^12] The details are in [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) and [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains). ## What does a full Opportunity Zone investment look like in numbers? Here is an illustrative case. Assumptions: an individual sells stock in March 2027 with a $1,000,000 long-term gain; a 23.8% federal rate (20% top capital gains rate plus 3.8% net investment income tax); no state tax; the investment doubles over 10 years.[^13][^14] 1. May 2027 (day 60): invests $1,000,000 in a standard QOF and elects deferral on Form 8949. Tax due now: $0 (it would have been $238,000). 2. May 2032 (year 5): deferred gain is included with a 10% step-up. Taxable amount: $900,000. Tax: $214,200, paid from other funds. 3. May 2037 (year 10 or later): the investment is worth $2,000,000. On sale, the investor elects fair market value basis. Federal tax on the $1,000,000 of appreciation: $0, versus $238,000 if it were taxable. Total federal tax paid: $214,200 on $2 million of combined gain. Without the program, the investor would have paid $238,000 on the original gain plus tax on the reinvested growth. A rural fund would cut the year-5 tax to $166,600 (70% of the gain taxed). [A full worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example) compares the after-tax outcomes in detail. ## How does the process fit a data center project? The OZ clock and a data center schedule line up well, with one caution. The 10-year minimum hold suits a stabilized campus, and the working capital safe harbor (31 months, up to 62 with sequential plans, plus tolling for government permitting delay) covers a typical build.[^7] The caution is power: utility load interconnection can take longer than the safe harbor, and whether utility interconnection delays qualify for the government-delay tolling rule is unsettled, so funds should secure power commitments before cash goes in. See [data center power timelines and the OZ clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## Common questions **Do I have to invest the entire sale proceeds?** No. Only the gain needs to be invested to defer it. Money above the eligible gain can go into the same fund, but that portion is treated as a separate investment with no Opportunity Zone tax benefits. **Can I invest in more than one Opportunity Zone fund?** Yes. You can split a gain among several QOFs, and each investment has its own investment date, 180-day test and holding-period clock. **What if I sell my fund interest before five years?** The deferred gain is taxed in the year of the sale, without any step-up, and you lose the 10-year exclusion for that interest. **Is the year-5 tax calculated on the original gain or the fund's value?** On the lesser of the deferred gain or the investment's fair market value at that time, minus your basis (the step-up). If the investment has lost value, the taxable amount falls. **Can a partnership invest its gain at the entity level?** Yes. A partnership can elect to defer at the entity level by investing within its own 180-day window. If it does not, each partner can invest their share individually. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1: Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^3]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^4]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^5]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^6]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^7]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^8]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^9]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^10]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^11]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^12]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^13]: Internal Revenue Service, "Topic no. 409, Capital gains and losses" (2026). https://www.irs.gov/taxtopics/tc409 [^14]: Internal Revenue Service, "Net investment income tax" (n.d.). https://www.irs.gov/niit --- # What is a Qualified Opportunity Fund (QOF)? URL: https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund Last reviewed: 2026-10-20 A Qualified Opportunity Fund (QOF) is a U.S. corporation or partnership organized to invest in Opportunity Zone property that self-certifies by filing IRS Form 8996 and holds at least 90% of its assets in qualifying zone property. It is the only vehicle through which an investor can earn Opportunity Zone tax benefits: deferral of a reinvested capital gain, a 10% (or 30% rural) step-up after five years, and tax-free appreciation after 10 years. ## Key takeaways - A QOF must be a corporation or a partnership (including an LLC taxed as either) organized in the United States to invest in Opportunity Zone property. - There is no IRS approval: a fund self-certifies by filing Form 8996 with its federal income tax return. - At least 90% of the fund's assets must be Opportunity Zone property, averaged over two testing dates each year; the shortfall is penalized monthly. - Qualifying assets are equity in a Qualified Opportunity Zone Business, zone business property held directly, or both; a QOF cannot invest in another QOF. - A Qualified Rural Opportunity Fund is a QOF with at least 90% of its assets in wholly rural zones, and its investors get a 30% step-up instead of 10%. ## What is a Qualified Opportunity Fund? A Qualified Opportunity Fund is an investment vehicle organized as a corporation or partnership for the purpose of investing in Qualified Opportunity Zone property, other than another QOF, that holds at least 90% of its assets in that property.[^1][^4] The definition is in IRC §1400Z-2(d)(1), and the operating rules are in Treasury Regulation §1.1400Z2(d)-1.[^1][^2] The QOF is the gateway to every Opportunity Zone tax benefit. An investor who buys real estate in a zone directly gets nothing; an investor who invests an eligible gain in a QOF gets deferral, the five-year step-up and the 10-year exclusion. See [how Opportunity Zones work](https://ozdatacenters.com/guides/how-opportunity-zones-work) for the full sequence. ## Who can set up a QOF, and how? Anyone can form a QOF, and the IRS does not approve or license them. The entity self-certifies by filing Form 8996 with its timely filed federal income tax return, including extensions, for the first year it wants to be a QOF, and files the form every year after.[^3] In the Form 8996 the fund identifies the first month it is a QOF. **Basic QOF eligibility requirements** | Requirement | Rule | | --- | --- | | Entity type | Corporation or partnership for federal tax purposes (an LLC qualifies if taxed as either) | | Where organized | In the United States, a U.S. possession or a federally recognized Indian tribe's jurisdiction | | Purpose | Organized to invest in Opportunity Zone property, stated in its governing documents | | Certification | Form 8996 filed with its return every year | | Asset test | At least 90% of assets in Opportunity Zone property | | Investments it cannot make | Interests in another QOF | A pre-existing entity can become a QOF, but its existing property counts only if it meets the same requirements as new property (for example, purchased after the statutory cutoff date and original use or substantially improved). The proposed reporting regulations published September 11, 2026 would require self-certification only in the first year, with annual Form 8996 reporting thereafter, and would set a single procedure for decertification. They are not final.[^9] The setup process is covered in [how to set up a Qualified Opportunity Fund](https://ozdatacenters.com/guides/how-to-set-up-a-qualified-opportunity-fund). ## What is the QOF 90% asset test? A QOF must hold at least 90% of its assets in Opportunity Zone property, measured as the average of two semiannual testing dates.[^1][^5] The testing dates are generally the last day of the first six months of the fund's tax year and the last day of the tax year. If the fund falls short, it owes a penalty for each month of failure equal to the shortfall times the IRS underpayment rate (the federal short-term rate plus 3 percentage points). No penalty applies if the failure is due to reasonable cause.[^1][^5] Two timing rules help: newly contributed cash can be excluded from the test for six months if held in cash, cash equivalents or short-term debt, and proceeds from a sale of zone property count as qualifying for 12 months if reinvested.[^6] **Figure: How a QOF 90% test shortfall is measured** (illustrative) - Total fund assets: $50.0M - Required zone property (90%): $45.0M - Zone property actually held (85%): $42.5M - Shortfall subject to penalty: $2.5M *Illustrative: a $50 million fund holding $42.5 million (85%) of zone property is $2.5 million short. At an assumed 7% annual underpayment rate, the penalty is about $14,600 for each month of failure.* Repeated failure has a bigger cost than the penalty: a fund that is not really investing in zone property risks decertification, which can trigger investors' deferred gains. See [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). ## What can a QOF invest in? A QOF can count three kinds of Qualified Opportunity Zone property toward its 90%: stock in a corporation that is a Qualified Opportunity Zone Business, a partnership interest in a QOZB, and Qualified Opportunity Zone business property it holds directly.[^1] The stock or partnership interest must be acquired for cash, at original issue, from the business.[^2] **Figure: Owning property directly vs. through a QOZB** - QOF owns property directly (One tier) - Fund must meet the 90% test with the property itself - No working capital safe harbor for construction cash - Simpler structure and fewer entities - Suits a completed, single property purchase with immediate improvement - QOF owns a QOZB (Two tier, most common) - Only 70% of the business's tangible property must qualify - Cash can be held up to 31 months (62 with sequential plans) - Must meet 50% gross income, 40% intangibles and 5% financial property tests - Suits development projects and operating businesses *Most funds use a two-tier structure because the business tier has a 70% test and a working capital safe harbor, while direct ownership must meet 90% at the fund level.[^2][^6]* Investments in a QOF must be equity, such as partnership interests, common or preferred stock. Debt does not qualify, although an equity interest can be pledged as collateral for a loan.[^2][^7] The business tier is explained in [what a Qualified Opportunity Zone Business is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business). ## What is a Qualified Rural Opportunity Fund? A Qualified Rural Opportunity Fund (QROF) is a QOF that holds at least 90% of its assets in Opportunity Zone property located in zones made up entirely of rural areas.[^1][^8] A rural area is anywhere other than a city or town with more than 50,000 people and the urbanized area contiguous and adjacent to it.[^10] Investors in a QROF get a 30% basis step-up after five years instead of 10%, for amounts invested on or after January 1, 2027, so only 70% of the deferred gain is taxed. Property in wholly rural zones also needs only 50% of its basis in improvements to meet the substantial improvement test.[^8][^10] See [what a Qualified Rural Opportunity Fund is](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). ## What types of QOFs are there? QOFs differ mainly by how many assets they hold and who sponsors them. The tax rules are the same for all of them. **Common QOF formats** | Format | How it works | Typical investor | | --- | --- | --- | | Single-asset fund | One project, one QOZB; investors know exactly what they own | Developers, family offices, project-specific raises | | Multi-asset fund | Several projects or QOZBs under one fund; diversified but each asset must qualify | Wealth platforms, larger investor pools | | Self-directed or private fund | An investor or family forms its own QOF to develop its own project | Business owners and landowners | | Corporate QOF | Organized as a C corporation; investors hold stock | Less common; used for certain operating businesses | Partnership QOFs dominate because they allow losses and depreciation to pass through, and after a 10-year hold they let investors elect to exclude their share of gain from the fund's asset sales. Compare the formats in [single-asset vs. multi-asset Opportunity Zone funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). ## How should an investor evaluate a QOF? Judge a QOF on the underlying project first and the tax benefit second. A tax benefit on a loss is still a loss. **Figure: A first-pass QOF screening checklist** - [pass] Form 8996 filed every year: Ask for copies or confirmation from the fund's tax preparer - [pass] Zone property in a certified tract: Check the tract against the CDFI Fund list - [watch] Working capital plan in writing: Written schedule, designated use, spending on track - [watch] Active business, not a bare triple-net lease: Single-tenant NNN leases do not count as an active business - [watch] Capital to pay year-5 tax: The fund rarely distributes enough to cover it - [pass] Plan to exit after year 10: Sale of fund interest, or fund-level asset sale *Use these as questions to ask a sponsor. A watch item is not a deal breaker, but it needs a clear written answer.[^3][^9]* The [due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) goes deeper. For data center funds, the lease structure and power timeline are the two items to examine most closely, because a single-tenant triple-net lease is not the active conduct of a trade or business under the regulations.[^11] ## Common questions **Does the IRS approve Qualified Opportunity Funds?** No. A QOF self-certifies by filing Form 8996 with its federal return. The IRS can later examine whether the fund actually met the requirements. **Can an LLC be a QOF?** Yes, if it is taxed as a partnership or a corporation. A single-member LLC that is disregarded for tax purposes cannot be a QOF. **Can I create my own QOF?** Yes. Individuals and families commonly form a QOF to develop their own project. The fund must still meet the 90% test, file Form 8996 every year and invest only eligible gain if investors want the tax benefits. **Can a QOF invest in another QOF?** No. Interests in another QOF are excluded from Qualified Opportunity Zone property. **What happens to investors if a QOF fails the 90% test?** The fund pays a monthly penalty unless it shows reasonable cause. Investors keep their deferral as long as the fund remains a QOF, but decertification can trigger the deferred gain. **How is a QROF different from a regular QOF?** A QROF holds at least 90% of its assets in wholly rural zones. Its investors get a 30% step-up after five years instead of 10%. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^4]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^5]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^6]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^7]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^8]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^9]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^10]: Internal Revenue Service, "Notice 2025-50" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^11]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ --- # What is a Qualified Opportunity Zone Business (QOZB)? URL: https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business Last reviewed: 2026-10-20 A Qualified Opportunity Zone Business (QOZB) is a corporation or partnership, owned by a Qualified Opportunity Fund, that actively conducts a trade or business in an Opportunity Zone. To qualify, at least 70% of its tangible property must be Opportunity Zone business property, at least 50% of its gross income must come from active business in the zone, at least 40% of its intangibles must be used there, and less than 5% of its assets can be nonqualified financial property. ## Key takeaways - A QOZB is the operating company in the standard two-tier structure: investors own the QOF, and the QOF owns equity in the QOZB. - At least 70% of a QOZB's tangible property, owned or leased, must be Qualified Opportunity Zone business property. - At least 50% of gross income must come from the active conduct of a business in the zone, provable through three safe harbors or a facts-and-circumstances test. - A QOZB can hold cash for up to 31 months under a written working capital safe harbor, extendable to 62 months with sequential plans. - Golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and gambling facilities, and liquor stores are excluded. - Merely entering into a triple-net lease is not the active conduct of a trade or business, which matters for single-tenant data centers. ## What is a Qualified Opportunity Zone Business? A Qualified Opportunity Zone Business is a trade or business in which substantially all of the tangible property owned or leased is Qualified Opportunity Zone business property, that meets the gross income, intangibles and financial property tests of §1397C, and that is not an excluded business.[^1] Treasury Regulation §1.1400Z2(d)-1 turns those statutory phrases into numeric tests.[^2] The QOZB matters because of where it sits. A Qualified Opportunity Fund (QOF) can meet its 90% asset test by holding stock or partnership interests in a QOZB, acquired for cash at original issue.[^1] The QOZB then builds, owns and operates the real assets. See [what a Qualified Opportunity Fund is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund) for the fund tier. **Figure: Where the QOZB sits in an Opportunity Zone structure** 1. Investors: Invest eligible capital gains within 180 days; file Form 8997 2. Qualified Opportunity Fund: Holds at least 90% of assets in zone property; files Form 8996 3. Qualified Opportunity Zone Business: 70% tangible property, 50% gross income, 40% intangibles, under 5% financial property 4. Qualified Opportunity Zone business property: Purchased, original use or substantially improved, used in the zone *Each tier has its own test. The QOZB tier carries the operating rules, so most compliance work happens there.[^1][^2]* ## What tests does a QOZB have to pass? A QOZB has to pass five tests, four numeric and one categorical.[^2][^3] They apply on the QOF's semiannual testing dates, because the fund counts its QOZB interests as qualifying only if the business qualifies on those dates. **The QOZB qualification tests** | Test | Threshold | Where it comes from | | --- | --- | --- | | Tangible property (substantially all) | At least 70% of tangible property owned or leased is QOZ business property | §1400Z-2(d)(3)(A)(i); Reg. §1.1400Z2(d)-1 | | Gross income | At least 50% of gross income from active conduct of the business in the zone | §1397C(b)(2); three safe harbors plus a facts-and-circumstances test in the regulations | | Intangibles | At least 40% of intangible property used in the active business in the zone | §1397C(b)(4); regulations define substantial portion as 40% | | Nonqualified financial property | Less than 5% of average aggregate unadjusted basis of property | §1397C(b)(8); working capital within the safe harbor excluded | | Excluded businesses | Not a golf course, country club, massage parlor, hot tub or suntan facility, racetrack or gambling facility, or liquor store | §144(c)(6)(B) | **Figure: The four numeric QOZB tests** - Tangible property that is QOZ business property: at least 70% - Gross income from active business in the zone: at least 50% - Intangible property used in the zone business: at least 40% - Nonqualified financial property: less than 5% *Three are minimums and one is a ceiling. Cash held under a valid working capital plan does not count against the 5% limit.[^2][^3][^4]* Each test is examined in detail in [the 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [the gross income, intangibles and financial property tests](https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests). ## What counts as Qualified Opportunity Zone business property? Qualified Opportunity Zone business property is tangible property used in the business that meets three conditions: it was acquired by purchase from an unrelated party, its original use in the zone begins with the business or the business substantially improves it, and it is used in a zone during substantially all (90%) of the business's holding period.[^1][^3] - Purchase: property must be bought, not contributed, from a seller that is not related under a 20% ownership test. - Original use: property is original use if first placed in service in the zone by the QOZB. A building vacant for at least three years also qualifies as original use.[^7] - Substantial improvement: within any 30-month period after acquisition, the business adds to the building's basis more than its adjusted basis at the start of the period. In zones made up entirely of rural areas, the threshold is 50% of basis.[^7][^11] - Land: land does not need to be improved separately, but it must be used in an active business; holding land for investment does not qualify. - Leased property: leased tangible property can count if the lease is at market rates. Original use does not apply to leased property, and related-party leases have extra limits.[^7] See [the original use requirement](https://ozdatacenters.com/guides/opportunity-zone-original-use) and [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## How long can a QOZB hold cash before spending it? A QOZB can hold cash for up to 31 months under the working capital safe harbor, and up to 62 months if it uses overlapping or sequential plans.[^5][^6] During the safe harbor period, the cash counts as reasonable working capital, the property being built counts toward the 70% test, and income earned on the cash counts toward the 50% gross income test. Three conditions apply. The cash must be designated in writing for acquiring, building or substantially improving tangible property in the zone. There must be a written schedule consistent with ordinary start-up of a business. And the money must actually be spent substantially as planned.[^5] **Figure: The working capital safe harbor clock** - Month 0: First cash infusion (Written plan and schedule in place) - Month 30: Substantial improvement window (Runs 30 months from the building's acquisition, often tracked alongside) - Month 31: Single plan ends (Cash should be spent as scheduled) - Month 62: Outer limit (With sequential or overlapping plans) *The 62-month outer limit runs from the first cash infusion and requires a series of plans, each with its own non-de minimis infusion. Government delay on a completed application can toll the period.[^5][^6]* Two extensions exist: tolling for delay caused by a government action on a completed application, and up to 24 more months if the zone is in a federally declared disaster area.[^5] Treasury's Notice 2026-55 asks for comments on whether a QOZB should be allowed to modify an existing plan, so expect rules here to evolve.[^12] More in [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## Does leasing real estate count as an active business? Owning and leasing real estate can be an active trade or business, but merely entering into a triple-net lease is not.[^8] A triple-net lease is one where the tenant pays taxes, insurance and maintenance in addition to rent.[^8] The regulations give two contrasting examples. A landlord that leases an entire building to one tenant on a triple-net basis is not engaged in an active business, even with an on-site office staffed to handle lease issues. A landlord that leases part of a building triple-net but actively manages and operates the rest through its own employees is.[^8][^9] Where a business does not clear the line, it is not conducting an active trade or business, so it cannot be a QOZB and its rental income does not count toward the 50% gross income test. > Multi-tenant buildings, operating businesses such as hotels and self-storage, and landlords that provide real services to tenants are the usual ways to show an active business. Confirm the structure with your tax adviser before a lease is signed. ## How does a data center qualify as a QOZB? A data center QOZB qualifies most cleanly when it operates the facility rather than handing it to a single tenant on a triple-net lease.[^10] No authority addresses hyperscale data center leases specifically, so the analysis rests on the general rule and its examples. **Figure: Data center QOZB structures against the active business rule** - [fail] Single-tenant powered shell on a triple-net lease: Textbook case of merely entering into a triple-net lease - [watch] Single tenant, modified-gross lease with landlord operations: Depends on the services and staff the QOZB provides - [pass] Multi-tenant colocation with operator services: Power, cooling, security and remote hands delivered by the QOZB - [pass] QOZB operates the data center and sells capacity: Income comes from operating the business, not passive rent *Analysis, not settled law. The more services the QOZB itself provides, the stronger the active business position.[^8][^10]* Equipment raises a second issue. Servers and networking gear owned by a tenant are the tenant's property, not the QOZB's, and they do not help the QOZB's 70% test. Equipment the QOZB owns does count but has a short life, so plan replacements. See [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) and [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## What happens if a QOZB fails a test? If a QOZB fails, the QOF's interest in it stops counting toward the fund's 90% test, which can produce a fund-level penalty.[^2] The regulations give a one-time six-month cure period for a business that fails the 70% tangible property requirement, letting it fix the problem before the fund is affected.[^4] Repeated failure can threaten the fund's status and, with it, investors' benefits. ## Common questions **Does a QOZB have to be located in an Opportunity Zone?** Its property and operations must be. At least 70% of its tangible property must be used in a zone, and at least 50% of its gross income must come from active business in the zone, but the entity itself can be organized in any state. **Can a QOZB own property outside the zone?** Yes, up to 30% of its tangible property can be non-qualifying, including property outside the zone, as long as the other tests are met. **Can an existing business become a QOZB?** Yes, if it meets all the tests. In practice, a business that already owns used property in the zone must substantially improve it or acquire new qualifying property to reach 70%. **Is a single-family rental a QOZB?** It can be, if the owner actively manages it. A building leased to a tenant who handles taxes, insurance and maintenance under a triple-net lease does not count as an active business. **Can a QOZB borrow money?** Yes. Debt is common at the QOZB level to fund construction. The QOF's investment in the QOZB must be equity, but the QOZB can use mortgage or construction loans. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^4]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^5]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^6]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^7]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^8]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^9]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^10]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^11]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^12]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf --- # Opportunity Zone tax benefits, explained URL: https://ozdatacenters.com/guides/opportunity-zone-tax-benefits-explained Last reviewed: 2026-10-20 Opportunity Zones give three federal tax benefits to capital gains invested in a Qualified Opportunity Fund within 180 days: deferral of the gain for up to five years, a basis step-up that permanently removes 10% of the gain from tax (30% for a rural fund) after five years, and, after a 10-year hold, an election to pay no federal tax on the investment's appreciation. On a $1 million gain taxed at 23.8%, the step-up alone saves $23,800, and the exclusion saves 23.8% of every dollar of growth. ## Key takeaways - Deferral: tax on an invested gain is postponed until the earlier of a sale of the QOF interest or five years after the investment date. - Step-up: after five years, basis rises by 10% of the deferred gain, or 30% for a Qualified Rural Opportunity Fund, so only 90% (or 70%) is taxed. - Exclusion: after 10 years, the investor can elect to set basis equal to fair market value on sale, so appreciation is free of federal income tax. - The exclusion is capped in time: for sales after the 30th anniversary, basis is fixed at fair market value on that anniversary. - These rules apply to amounts invested in a QOF on or after January 1, 2027. - The benefits are federal; states such as California do not conform. ## What are the three Opportunity Zone tax benefits? The three benefits are deferral, a basis step-up and a permanent exclusion of appreciation, all in IRC §1400Z-2.[^1] Each one is earned by holding a Qualified Opportunity Fund (QOF) investment for a set period. They apply to amounts invested on or after January 1, 2027.[^2][^3] **Opportunity Zone tax benefits by holding period** | If you sell the QOF interest | Deferred gain | Appreciation in the fund | | --- | --- | --- | | Before 5 years | Taxed in the year of sale, no step-up | Taxed as normal capital gain | | After 5 years, before 10 | Already taxed at year 5 on 90% (70% rural) | Taxed as normal capital gain | | After 10 years, up to year 30 | Already taxed at year 5 on 90% (70% rural) | Excluded if you elect fair market value basis | | After year 30 | Already taxed at year 5 | Excluded up to the value at the 30th anniversary; later growth taxed | ## How long can you defer a capital gain in an Opportunity Zone? You can defer the gain for up to five years. For amounts invested on or after January 1, 2027, the deferred gain is included in income in the tax year that includes the earlier of the date you sell or exchange the QOF investment or the date five years after you made it.[^1][^3] An investment made in March 2028 is taxed no later than March 2033. The amount included is the lesser of the deferred gain or the investment's fair market value on the inclusion date, minus your basis in the investment.[^1][^5] Your basis starts at zero for the gain portion. If the fund has lost value, you pay tax on less. Deferral is worth more than it looks. Five years of tax-free use of the money that would have gone to the IRS compounds inside the fund. The gain keeps its character: a deferred short-term gain is taxed as short-term when included. Detail in [how the five-year deferral works](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ## What is the Opportunity Zone basis step-up? The step-up is a 10% increase in your basis after you hold the QOF investment for five years, which means 10% of the deferred gain is never taxed. In a Qualified Rural Opportunity Fund (QROF), a QOF with at least 90% of its assets in wholly rural zones, the step-up is 30%.[^1][^4][^6] **Figure: Federal tax on a $1 million gain at year 5** (illustrative) - Tax if the gain were recognized today: 238000 $ - 10% step-up removes $100,000 of gain: -23800 $ - Extra 20% step-up for a rural fund: -47600 $ - Year-5 tax in a rural fund: $166,600: 166600 $ *Illustrative. Assumes a $1,000,000 long-term gain, a 23.8% federal rate (20% capital gains plus 3.8% net investment income tax), no state tax and no decline in the fund's value.[^7][^8]* A standard QOF investor in this example pays $214,200 at year 5; a QROF investor pays $166,600. The step-up is earned only by holding for the full five years. An investor who sells at year 4 pays tax on the whole deferred gain, and a fund that falls below the rural 90% test does not deliver the 30% figure, so rural investors should ask how the sponsor monitors that test. See [the 10% and 30% basis step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). ## How do you get tax-free gains after 10 years? If you hold the QOF investment for at least 10 years, you can elect when you sell or exchange it to treat your basis as equal to its fair market value on that date.[^1] The result is no federal capital gains tax on the appreciation. For a partnership QOF, the regulations also let investors exclude gain from the fund's own sale of its assets after the 10-year mark, which makes asset-level exits workable.[^9] The exclusion has a 30-year horizon. For a sale after the 30th anniversary of the investment, basis is fixed at fair market value on that anniversary, so growth after year 30 is taxable.[^1][^4] How the 30-year valuation is determined and elected when there is no sale is still open: Treasury's Notice 2026-55 requested comments on exactly that, due November 23, 2026.[^10] For most investors the exclusion is the main prize, because it applies to all of the new growth, not just the old gain. See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) and [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). ## How much more does an Opportunity Zone investment leave you with? In a simple illustration, a QOF leaves an investor about 33% more after-tax wealth after 10 years than paying the tax and reinvesting in a taxable account with the same return. **Figure: After-tax value after 10 years, $1 million gain** (illustrative) - Pay tax now, invest $762,000 in a taxable account: $1.34M - Standard QOF (10% step-up): $1.79M - Qualified Rural Opportunity Fund (30% step-up): $1.83M *Illustrative. Assumes a $1,000,000 gain, 23.8% federal rate, no state tax, investments double in 10 years, and the year-5 tax paid from other funds and subtracted without interest. Not a forecast of any fund's returns.* 1. Taxable path: pay $238,000 now, invest $762,000, grow to $1,524,000, pay $181,356 on the $762,000 gain. Net: $1,342,644. 2. Standard QOF: invest $1,000,000, grow to $2,000,000, pay $214,200 at year 5, nothing on the $1,000,000 of growth. Net: $1,785,800. 3. Rural fund: same, but the year-5 tax is $166,600. Net: $1,833,400. The gap widens with longer holds and higher returns, and narrows if the project underperforms. A more detailed model is in [a worked Opportunity Zone tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## Are there other tax benefits beyond the three? Yes, a few, mostly from how the rules interact with the rest of the tax code. None of them is a separate election; they follow from the structure of a partnership QOF and the 10-year basis rule. - Depreciation: a partnership QOF can pass depreciation through to investors, and 100% bonus depreciation, made permanent for property acquired after January 19, 2025, applies to qualifying equipment and improvements. Because the 10-year election sets basis to fair market value, the usual recapture on exit is generally avoided on a sale of the QOF interest.[^11] - Estate planning: death is not an inclusion event. The heir takes over the deferred gain and the decedent's holding period.[^12] - No dollar cap: there is no limit on how much gain an investor can defer, and no income limit. See [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## What can cause you to lose the benefits? Selling or otherwise disposing of the QOF interest early, or the fund losing its status, are the main risks. Inclusion events that accelerate the deferred gain include a sale or exchange, a gift (other than to a grantor trust) and distributions in excess of basis, including some debt-financed distributions.[^12] A fund that fails its asset test repeatedly can be decertified. State taxes are a separate question. California does not conform to the federal deferral or exclusion, so a California resident pays state tax on the gain in the year of sale.[^13] See [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events) and [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ## Why do these benefits suit data center investment? Data centers combine large upfront capital, heavy depreciation and long-term value, which is the profile the exclusion rewards most. A campus that takes two to three years to build and lease up has seven or more years of stabilized operation before the 10-year mark, and its exit value is excluded from federal tax. Short-lived equipment depreciates quickly, and bonus depreciation can shelter operating income along the way.[^11] OZ Data Centers sponsors funds of this kind; [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) covers the structuring. ## Common questions **Is the 10-year exclusion automatic?** No. You make an election when you sell or exchange the investment, after holding it at least 10 years. Treasury guidance on how the election is made for sales after year 30 is pending. **Do I pay tax on the deferred gain even if I do not sell?** Yes. The deferred gain is included in income five years after the investment date even if you still hold the QOF interest, so plan cash to pay it. **Is the step-up 10% of the investment or 10% of the gain?** Ten percent of the deferred gain. On a $1 million deferred gain, basis rises by $100,000 at year 5, or $300,000 in a rural fund. **Can I get the exclusion if I invest money that is not capital gain?** No. Only the portion of a QOF investment funded with a deferred eligible gain gets the benefits. Other money in the same fund is treated as a separate, ordinary investment. **Do the benefits apply to state income tax?** Only where the state conforms. California does not, and several other states conform only partly, so check your state. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Congress.gov, "H.R. 1, 119th Congress: One Big Beautiful Bill Act (Public Law 119-21), text" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^3]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^4]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^5]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^6]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^7]: Internal Revenue Service, "Topic no. 409, Capital gains and losses" (2026). https://www.irs.gov/taxtopics/tc409 [^8]: Internal Revenue Service, "Net investment income tax" (n.d.). https://www.irs.gov/niit [^9]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^10]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^11]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^12]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^13]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html --- # Are Opportunity Zones permanent? URL: https://ozdatacenters.com/guides/are-opportunity-zones-permanent Last reviewed: 2026-10-20 Yes. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, made the Opportunity Zone incentive a permanent part of the Internal Revenue Code with no sunset date. The program is permanent but the maps are not: zones are redrawn every 10 years, with the current cycle running January 1, 2027 through December 31, 2036, and each investment runs on its own five-year deferral and 10-to-30-year exclusion clock. ## Key takeaways - Public Law 119-21, section 70421, amended IRC §§1400Z-1 and 1400Z-2 so the program has no end date. - Governors nominate new zones every 10 years; the first determination date was July 1, 2026, and the next is July 1, 2036. - Zones in the current cycle take effect January 1, 2027 and run through December 31, 2036. - Deferral rolls: each gain invested on or after January 1, 2027 is taxed five years after its own investment date (or on an earlier sale), with no national deadline. - Permanent means no expiration date in the statute; Congress can still amend it, and Treasury guidance on several points is pending. ## Are Opportunity Zones permanent now? Yes. Section 70421 of Public Law 119-21, the One Big Beautiful Bill Act signed July 4, 2025, amended IRC §§1400Z-1 and 1400Z-2 to make the Opportunity Zone incentive permanent.[^1][^2][^3] There is no date in the statute after which new investments stop qualifying. Practitioners describe the change the same way: PwC calls the result enhanced and permanent Opportunity Zones, and Novogradac reports that the law makes the incentive permanent with significant changes to how it works.[^4][^5] The operative rules for new investments apply to amounts invested in a Qualified Opportunity Fund after December 31, 2026.[^6] **Figure: Permanence in three numbers** - 10 years: Length of each zone designation cycle - 5 years: Deferral period, measured from each investment - 30 years: Point at which the exclusion value is fixed *The statute sets a 10-year map cycle, a five-year rolling deferral per investment and a 30-year limit on the exclusion.[^2][^3][^6]* ## What exactly is permanent, and what changes over time? The incentive is permanent, but the map, the deadlines and some of the details move on fixed cycles. Here is how the parts break down. **Permanent features and recurring features of the Opportunity Zone program** | Feature | How it works | Source | | --- | --- | --- | | The tax incentive | No expiration date in §1400Z-2 | P.L. 119-21 §70421 | | Zone designations | New map every 10 years; each zone lasts 10 years | §1400Z-1 as amended | | Determination dates | July 1, 2026, then every 10 years | §1400Z-1; Notice 2026-40 | | Deferral | Five years from each investment date, or earlier sale | §1400Z-2(b) as amended | | Basis step-up | 10% at five years; 30% for rural funds | §1400Z-2(b)(2) as amended | | 10-year exclusion | Available for any investment held 10 years; value fixed at year 30 | §1400Z-2(c) as amended | | Operating rules | Treasury regulations, T.D. 9889 and 26 CFR 1.1400Z2 | Treasury regulations | The rolling design is what makes permanence work for investors. Because every investment has its own five-year and 10-year clock, a gain invested in 2031 gets exactly the same benefits as one invested in 2027.[^3][^7] ## How often are Opportunity Zones redrawn? Every 10 years. Governors nominate tracts within 90 days after each decennial determination date, Treasury certifies them, and the new zones remain in effect for 10 years.[^2][^6] For the current cycle, nominations opened July 1, 2026, and the zones take effect January 1, 2027 and run through December 31, 2036.[^6][^8] **Figure: The permanent Opportunity Zone calendar** - Jul 4, 2025: Law signed (P.L. 119-21 makes the program permanent) - Jul 1, 2026: Determination date (90-day nomination window opens) - Jan 1, 2027: New zones and rules (Zones and investment rules take effect) - Jul 1, 2036: Next determination date (Next nomination window) - Dec 31, 2036: Current zones end (Ten-year designation expires) *The designation cycle repeats every 10 years from the July 1, 2026 determination date.[^1][^6][^8]* Each new map is drawn from fresh data. A tract must meet the low-income community test on its own (median family income at or below 70% of the area median, or poverty of 20% or more with income at or below 125%), and a governor can designate at most 25% of eligible tracts.[^9] See [how Opportunity Zones are designated](https://ozdatacenters.com/guides/how-opportunity-zones-are-designated) and [the new zone maps for 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## Is there a deadline to invest in an Opportunity Zone fund? There is no national deadline. The only investment deadline is personal: you must invest an eligible gain within 180 days of realizing it.[^2][^10] After that, the deferral period is five years from your investment date, and the exclusion is available after 10 years. **Figure: One investment's benefit windows, in years from the investment date** - Gain deferred: 0 to 5 years (Taxed at year 5 or on earlier sale) - Holding toward exclusion: 5 to 10 years (Step-up already applied) - Exclusion available on sale: 10 to 30 years (Basis can equal fair market value) *Every investment made on or after January 1, 2027 runs on this same clock, whatever year it starts. Source: IRC §1400Z-2 as amended.[^2][^3]* That changes planning. Under a permanent, rolling program, there is no rush to invest before a cliff, and sponsors can raise capital for projects with long timelines, including data centers that need years of power and permitting work. The five-year mechanics are in [how the five-year deferral works](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ## What happens to an investment when its zone expires? An investor's benefits attach to the QOF investment, so a zone dropping off the map does not by itself end the deferral or the 10-year exclusion. The practical question is whether the fund and its operating business can still pass their tests once the tract is no longer a designated zone, because those tests require property to be used in a zone.[^3] Treasury has answered that question for the zones currently in effect, which expire December 31, 2028 (December 31, 2027 in Puerto Rico). Notice 2026-40 lets funds and businesses keep treating an expired zone as a zone for the substantially-all use test, the 50% gross income test and the intangibles test, so existing investments can reach their 10-year mark.[^6] The notice also says property acquired after 2026 in a zone that is not redesignated generally does not qualify, with exceptions for working capital plans already under way and routine replacement property.[^6] No rule yet addresses what happens when zones in the current cycle expire at the end of 2036. Treasury has said it intends to issue proposed regulations on the transition rules, and the approach in Notice 2026-40 is the best available indication. Until then, sponsors planning a hold that runs well past 2036 should model the possibility that new acquisitions in a non-redesignated tract would not qualify. Whether existing property would be protected on terms similar to Notice 2026-40 is not settled. ## Could Congress or Treasury still change the program? Yes. Permanent in tax law means the statute has no expiration date, not that it cannot be amended. Congress can change any provision of the Internal Revenue Code by a later act. Investments are generally evaluated under the law in effect when they are made, but no statute promises that. Treasury is also still filling in details. As of October 20, 2026, the open items include: - Reporting rules: proposed regulations published September 11, 2026 would implement new QOF and QOZB information returns under §§6039K and 6039L and the §6726 penalty of $500 per day. They are not final.[^11] - Comments on the operating rules: Notice 2026-55 requested comments, due November 23, 2026, on interim gains, working capital plan changes, inclusion events, operating businesses and the year-30 valuation.[^10] - Transition rules: Notice 2026-40 is interim guidance, and Treasury has said it intends to issue proposed regulations.[^6] - The 2027 map: as of this date, no consolidated national list of the new zones has been published. Congress also built in oversight. Treasury must report on QOF investment and, every five years, on the impacts and outcomes of designations, according to GAO.[^12] ## What does permanence mean for investors and developers? Permanence makes the program a standing tool rather than a one-time window. Three practical effects stand out. 1. Investors can plan around the program every time they sell an appreciated asset, not just once. 2. Sponsors can build durable fund platforms and long-term businesses, knowing new capital can keep arriving. 3. Communities and governors can plan around a 10-year map, and investors can plan around a 10-to-30-year hold. For data centers, permanence matters more than for most asset types. A large campus can take years from land control to energization, and phases can extend across a decade. Because the program has no end date and each investment runs on its own clock, each phase can raise its own OZ equity on its own schedule. See [the Opportunity Zone key dates](https://ozdatacenters.com/guides/opportunity-zone-key-dates) and [data center power timelines and the OZ clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## Common questions **When did Opportunity Zones become permanent?** On July 4, 2025, when the One Big Beautiful Bill Act (Public Law 119-21) was signed. The new investment rules apply to amounts invested in a QOF on or after January 1, 2027. **Will my Opportunity Zone stay a zone forever?** No. Each designation lasts 10 years. A tract can be redesignated in the next cycle only if it still meets the low-income community test and a governor nominates it. **Is there a last year to invest in an Opportunity Zone fund?** No. The program has no end date, and each investment gets its own five-year deferral and 10-year exclusion clock. **Is the 10-year tax-free benefit also permanent?** Yes. Any investment held at least 10 years can use the exclusion. For sales after year 30, the basis is fixed at the investment's value on its 30th anniversary. **Does the 30-year limit mean the program ends after 30 years?** No. The 30-year rule applies to each investment separately. It fixes the basis of an investment at its fair market value on the 30th anniversary, so growth after that date is taxable. New investments can keep being made. **Can a future Congress repeal Opportunity Zones?** Congress can amend or repeal any tax provision. The current statute has no sunset, and any change would depend on the terms of a future law. ## Sources [^1]: Congress.gov, "H.R. 1, 119th Congress: One Big Beautiful Bill Act (Public Law 119-21), text" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^2]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1: Designation" (2026). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^3]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^4]: PwC, "Enhanced and permanent opportunity zones as part of the OBBBA" (2025). https://www.pwc.com/us/en/services/tax/library/enhanced-and-permanent-opportunity-zones-as-part-of-the-obba.html [^5]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Venable, "The One Big Beautiful Bill Act: Impact on the Opportunity Zone Program" (2025). https://www.venable.com/insights/publications/2025/09/the-one-big-beautiful-bill-act-impact-on-the [^8]: U.S. Department of the Treasury, "Treasury Opens the New Designation Cycle for Opportunity Zones" (2026). https://content.govdelivery.com/accounts/USTREAS/bulletins/41e8950 [^9]: Jackson Walker, "The One Big Beautiful Bill's New Qualified Opportunity Zones" (2025). https://www.jw.com/news/insights-obbba-qualified-opportunity-zones/ [^10]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^11]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^12]: U.S. Government Accountability Office, "Opportunity Zones (GAO-26-108132)" (2026). https://www.gao.gov/assets/gao-26-108132.pdf --- # Who can invest in an Opportunity Zone fund? URL: https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund Last reviewed: 2026-10-20 Any taxpayer that recognizes an eligible capital gain for federal income tax purposes can invest in a Qualified Opportunity Fund and claim the tax benefits: individuals, C corporations (including REITs and regulated investment companies), partnerships, S corporations, trusts and estates, and generally foreign investors whose gains are subject to U.S. tax. The tax law has no income or net worth test, but most QOFs are private placements limited to accredited investors, which for individuals means more than $1 million of net worth excluding a primary residence or income above $200,000 ($300,000 with a spouse). ## Key takeaways - Eligibility for the tax benefits depends on having an eligible gain, not on who you are or where you live. - Eligible taxpayers include individuals, C corporations, partnerships, S corporations, trusts and estates. - Nonresident aliens and foreign corporations can generally defer gains that are subject to U.S. federal income tax. - IRAs and other tax-exempt accounts get no benefit, because they have no recognized gain to defer. - Most private QOFs sell only to accredited investors under SEC Regulation D, a securities rule rather than a tax rule. - Only the amount of eligible gain invested gets OZ treatment; extra money in the same fund is a separate, non-qualifying investment. ## Who is eligible to invest in a Qualified Opportunity Fund? Any eligible taxpayer, meaning a person that may recognize gains for federal income tax purposes, can invest an eligible gain in a Qualified Opportunity Fund (QOF) and elect deferral.[^1] The IRS confirms that you can use the incentive even if you do not live, work or have a business in an Opportunity Zone.[^2] **Eligible taxpayers under Treas. Reg. §1.1400Z2(a)-1** | Investor type | Can elect deferral? | Notes | | --- | --- | --- | | Individuals | Yes | Including married couples; either spouse can invest their gain | | C corporations | Yes | Including REITs and regulated investment companies | | Partnerships and LLCs taxed as partnerships | Yes | Entity can elect, or partners can elect individually | | S corporations | Yes | Entity or shareholders, under the pass-through rules | | Trusts and estates | Yes | Non-grantor trusts and estates follow the pass-through rules; grantor trusts are looked through | | Nonresident aliens and foreign corporations | Generally yes | For gains subject to U.S. federal income tax | | IRAs, 401(k)s, tax-exempt entities | No practical benefit | No recognized taxable gain to defer | The test is about the gain, not the investor. If you have a capital gain that would otherwise be taxed, and you invest that amount in a QOF within 180 days, you qualify. The gains that count are covered in [which capital gains qualify for deferral](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). ## Do you have to be an accredited investor? Not under the tax law, but usually in practice. Most QOFs raise money in private placements under SEC Regulation D, and those offerings are typically limited to accredited investors as defined in Rule 501 of Regulation D.[^5] **Accredited investor tests for individuals (Rule 501(a), Regulation D)** | Test | Threshold | | --- | --- | | Net worth | Over $1 million, alone or with a spouse or partner, excluding the value of a primary residence | | Income | Over $200,000 in each of the two prior years ($300,000 with a spouse or partner), with the same expected this year | | Professional credential | Holders of certain securities licenses, such as Series 7, 65 or 82 | Entities can qualify too, including those where all equity owners are accredited.[^5][^6] Fund minimums are set by each sponsor and vary widely. A family or business owner can also form its own QOF to develop its own project, in which case no outside offering is involved. Securities questions are covered in [securities rules for Opportunity Zone funds](https://ozdatacenters.com/guides/opportunity-zone-fund-securities-rules). ## Can a partnership or S corporation invest, or must the partners? Either can. A partnership, S corporation, estate or non-grantor trust that realizes an eligible gain can elect to defer it by investing at the entity level within its own 180 days. If the entity does not elect, each owner can invest their allocated share.[^1][^7] **Figure: Entity-level vs. owner-level investment of a pass-through gain** - Entity invests (One election) - Partnership or S corporation invests within 180 days of its sale - Deferral applies to all owners together - Owners do not report the gain while it is deferred - Requires owner agreement on the strategy - Owners invest individually (Each owner decides) - Each owner chooses whether to invest their share - 180 days can start at the entity's sale date - Or on the last day of the entity's tax year - Or on the unextended due date of the entity's return *Owners get three choices for when their 180 days begin, which helps when they learn about a gain only from a Schedule K-1.[^1][^7]* The pass-through timing rules are detailed in [investing partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains). ## Can foreign investors and retirement accounts invest? Foreign investors can, retirement accounts gain nothing. The IRS states that nonresident alien individuals and foreign corporations may generally elect to defer eligible gains that are otherwise subject to federal income tax in their hands.[^2] A foreign investor whose gain is not subject to U.S. tax has nothing to defer. IRAs, 401(k) plans, pension funds and charities are in the same position: gains inside them are not currently taxed, so there is no gain to defer and no reason to accept the constraints of a QOF for tax purposes. Such an account can still invest in a fund for its economics, but it will not get Opportunity Zone benefits. ## How much can you invest, and does it have to be the sale proceeds? You can invest any amount up to your eligible gain and get the benefits on that amount; there is no dollar cap. You do not need to use the actual proceeds of the sale. Any cash invested within 180 days, up to the amount of the gain, can support the election.[^7] Money above the gain is allowed but treated differently. Under §1400Z-2(e)(1), an investment only part of which is funded with deferred gain is split into two separate investments: the gain portion gets the tax benefits and the rest is an ordinary investment.[^4] **Figure: How a mixed investment is split** (illustrative) - Day 1: Investor (Has a $600,000 eligible gain) - then: Invests $1,000,000 in cash - Day 120: Qualified Opportunity Fund (Receives $1,000,000) - then: Split under §1400Z-2(e)(1) - Two separate investments ($600,000 qualifying with full OZ benefits; $400,000 non-qualifying with ordinary tax treatment) *Illustrative. An investor with a $600,000 eligible gain invests $1,000,000. Only $600,000 is a qualifying investment; the extra $400,000 is tracked separately with ordinary tax treatment.[^4]* The investment must be equity: a partnership interest or stock, including preferred stock. A loan to a QOF is not a qualifying investment, although an investor can pledge the QOF interest as collateral for a loan.[^7] An interest received for services, such as a sponsor's carried interest, is not a qualifying investment.[^1] ## What do you need to do to invest? The mechanics are short and the deadlines are firm. The IRS describes the process on its page for investing in a QOF.[^3] **Figure: Investor eligibility and readiness checklist** - [pass] You have a capital gain recognized for federal tax: From a sale to an unrelated party - [pass] You can invest within 180 days: Day count starts on the sale date or an allowed alternative - [watch] You meet the fund's investor standard: Usually accredited investor status for private funds - [watch] You can pay the year-5 tax from other funds: The fund may not distribute enough to cover it - [watch] You can hold for at least 10 years: Needed for the tax-free appreciation - [pass] You will file Form 8949 and Form 8997: Election in the gain year, Form 8997 every year *The first two items decide tax eligibility; the rest decide whether you can use a particular fund.[^1][^3][^8][^9]* File the deferral election on Form 8949 with your return for the year of the gain, listing the QOF's name and EIN and the deferred amount, and file Form 8997 every year you hold the investment.[^8][^9] Novogradac tracks $43.61 billion of equity raised by QOFs that report to it through the first quarter of 2026, a measure of how many investors already use these steps.[^10] ## What happens if an investor dies or gives the interest away? Death is not an inclusion event. The heir takes the QOF interest with the decedent's holding period, and the deferred gain becomes income in respect of a decedent, taxed when it would have been taxed to the investor.[^11] A gift of the interest, other than to a grantor trust, is an inclusion event that triggers the deferred gain.[^11] Estate planning with QOF interests is worth discussing with your tax adviser before you invest. Investor-specific planning is in [Opportunity Zones for investors](https://ozdatacenters.com/guides/opportunity-zones-for-investors) and [Opportunity Zones for family offices](https://ozdatacenters.com/guides/opportunity-zones-for-family-offices). ## Common questions **Is there an income limit for Opportunity Zone investors?** No. The tax law has no income or net worth test. Accredited investor requirements come from securities law and apply to most private funds. **Can I invest through my IRA?** You can, but you get no Opportunity Zone benefit, because gains inside an IRA are not currently taxed and there is nothing to defer. **Do I need to live in the Opportunity Zone?** No. The IRS states that you can claim the benefits without living, working or having a business in a zone. **Can a corporation invest its capital gains in a QOF?** Yes. C corporations, including REITs and regulated investment companies, are eligible taxpayers and can elect deferral on their own gains. **Can I invest money that is not from a capital gain?** Yes, but that portion is a separate investment with no Opportunity Zone tax benefits. Only the amount of eligible gain invested within 180 days qualifies. **Can I borrow to make my QOF investment?** You can use any cash, including borrowed money, to make the investment, since the rules do not require tracing to the sale proceeds. The QOF interest itself must be equity, not a loan to the fund. ## Sources [^1]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1: Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^2]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^3]: Internal Revenue Service, "Invest in a Qualified Opportunity Fund" (n.d.). https://www.irs.gov/credits-deductions/businesses/invest-in-a-qualified-opportunity-fund [^4]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^5]: U.S. Securities and Exchange Commission (Investor.gov), "Accredited Investors" (n.d.). https://www.investor.gov/introduction-investing/investing-basics/glossary/accredited-investors [^6]: Legal Information Institute, Cornell Law School, "Accredited investor" (n.d.). https://www.law.cornell.edu/wex/accredited_investor [^7]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^8]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^9]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^10]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 [^11]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning --- # Which capital gains qualify for Opportunity Zone deferral? URL: https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral Last reviewed: 2026-10-20 Any capital gain that would be recognized for federal income tax purposes qualifies for Opportunity Zone deferral, whether short-term or long-term, including gains from stock, crypto, real estate, collectibles and business sales, plus the gross amount of §1231 gains from business property. Ordinary income does not qualify, including depreciation recapture under §1245, and neither do gains from sales to a related party (20% or more common ownership) or gains already excluded from tax. ## Key takeaways - Eligible gain means capital gain (short- or long-term) that would otherwise be recognized for federal income tax purposes, from a sale to an unrelated person. - Gross §1231 gains qualify, not reduced by §1231 losses, and the 180-day window starts on the date of each sale. - Depreciation recapture taxed as ordinary income under §§1245 and 1250 is not eligible gain. - Gains from sales to a related person, using a 20% ownership threshold, are not eligible. - A deferred gain keeps its character: short-term stays short-term when it is later included in income. ## What is an eligible gain for Opportunity Zone purposes? An eligible gain is an amount treated as capital gain for federal income tax purposes that would be recognized before the deferral election, and that does not arise from a sale or exchange with a related person.[^1][^2] Section 1400Z-2(a)(1) speaks of gain from the sale or exchange of any property; the regulations limit that to capital gains, and the IRS states that ordinary gain is not eligible.[^2][^3] **Figure: Four questions that decide whether a gain is eligible** 1. Is it a capital gain?: Short- or long-term, or §1231 gain 2. Is it recognized for federal tax?: Not excluded or already deferred 3. Was the buyer unrelated?: Under 20% common ownership 4. Is it invested within 180 days?: From the sale or an allowed start date *A gain must pass all four. Most failures come from step 1 (ordinary income) or step 3 (related-party sales).[^1][^2]* ## Which kinds of gains qualify, and which do not? Most capital gains qualify regardless of the asset. Here is how common situations come out under the regulations.[^1][^4][^5] **Eligible and ineligible gains for Opportunity Zone deferral** | Type of gain or income | Eligible? | Comment | | --- | --- | --- | | Long-term capital gain on stock, funds, crypto or a business interest | Yes | Most common source of QOF investment | | Short-term capital gain | Yes | Keeps its short-term character when later included | | Gain on sale of investment real estate | Yes | Capital or §1231 gain portion | | Collectibles gain (art, coins) | Yes | Capital gain taxed at up to 28% | | Gross §1231 gain on business property | Yes | Not netted against §1231 losses | | Depreciation recapture under §1245 (equipment) | No | Ordinary income | | Ordinary income (wages, interest, inventory sales) | No | Not capital gain | | Gain on sale to a related person | No | 20% common ownership threshold | | Gain excluded from tax (home sale exclusion, excluded QSBS gain) | No | Nothing recognized to defer; any taxable excess can qualify | | Capital gain dividends from a REIT or mutual fund | Yes | 180 days generally from the last day of the shareholder's tax year, or by election from the dividend payment date | There is no minimum or maximum amount and no restriction on the type of asset sold. A gain from selling public stock can fund a real estate project, and a gain from selling a building can fund an operating business. ## How do §1231 gains and depreciation recapture work? Section 1231 gains, from selling depreciable business property and real estate held more than a year, qualify on a gross basis. The final regulations let you invest the full §1231 gain without first netting §1231 losses, and the 180-day period begins on the date of each sale.[^4][^5] The portion of the gain treated as ordinary income under §1245 or §1250 recapture is not eligible.[^4] **Figure: From total gain on a business sale to eligible gain** (illustrative) - Total gain on the sale: 1500000 $ - Ordinary income on inventory and receivables: -200000 $ - §1245 depreciation recapture on equipment: -300000 $ - Eligible gain to invest: $1,000,000: 1000000 $ *Illustrative. A company sells its assets for a $1.5 million total gain. Ordinary income items and equipment recapture are carved out; the remaining capital and §1231 gain can be invested in a QOF.* For real estate, most depreciation on buildings is recovered as unrecaptured §1250 gain, which is taxed at up to 25% but remains part of the capital or §1231 gain rather than ordinary income.[^6] Confirm the split with your tax adviser using the closing statement and depreciation schedules. More detail is in [§1231 gains and Opportunity Zones](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones). ## Why don't gains from related-party sales qualify? The statute excludes gains from a sale or exchange with a related person, defined by reference to §§267(b) and 707(b)(1) but with 20% substituted for 50%.[^3][^7] In practice, if you and the buyer share 20% or more common ownership, directly or through attribution, the gain cannot be deferred. The rule stops investors from creating eligible gain by selling assets to their own entities. It also matters on the other side of a deal: property a QOZB buys from a related party does not count as Qualified Opportunity Zone business property. See [related-party rules in Opportunity Zone deals](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## When does the 180-day window start for each type of gain? For most gains the 180 days start on the date the gain would be recognized, usually the trade or closing date. Special rules move the start for certain gains.[^1][^5] **Start of the 180-day period by gain type** | Gain type | 180-day period begins | | --- | --- | | Sale of stock or other capital asset | Trade date | | §1231 gain | Date of each sale | | Pass-through gain (partnership, S corporation, trust) | Entity's sale date, last day of its tax year, or unextended due date of its return | | Installment sale | Each payment date, or the last day of the tax year | | Net gain from §1256 contracts | Generally the last day of the tax year (only the year's net §1256 gain is eligible; confirm with your adviser) | | REIT or RIC capital gain dividend | Generally the last day of the shareholder's tax year, or by election the date each dividend is paid | Short-term and long-term gains from the same day can be invested together or separately. Track each gain, its amount and its start date, because each investment is reported separately on Form 8997.[^8] More in [the 180-day investment rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule) and [partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains). ## What about straddles, home sales and other special cases? - Straddles: gains from positions that are or have been part of a straddle are generally not eligible, subject to limited exceptions in the regulations; confirm the treatment of any hedged position with your adviser.[^9] - Home sales: gain excluded under §121 is not recognized, so it cannot be deferred. Gain above the exclusion is capital gain and can qualify. Treasury's Notice 2026-55 asks for comments on interim gains, including single-family home sales, so watch for guidance.[^10] - Gains already deferred: a gain deferred under another provision, such as a §1031 exchange, is not recognized and cannot be invested until it is. Boot recognized in an exchange can be eligible gain. - Capital losses: you do not have to net capital losses against the gain before investing. The losses remain available under the normal capital loss rules. A deferred gain keeps its tax attributes. When it is included at year 5 or on an earlier sale, it is taxed as short-term or long-term according to its original character, at the rates in effect for that later year.[^4][^6] ## Can you defer only part of a gain? Yes. You can elect to defer some or all of one or more eligible gains, and each amount you invest is its own investment with its own date.[^1] Investors often defer only part of a gain to keep cash for the year-5 tax or for other needs. Illustrative example: an investor sells a stock position on March 1 with a $2,000,000 long-term gain. On April 15 she invests $1,200,000 in one QOF, and on August 20, day 173 (counting the sale date as day 1), she invests $500,000 in a second QOF. She has deferred $1,700,000; the remaining $300,000 is taxed for the year of the sale at normal rates. Each investment gets its own five-year inclusion date and 10-year exclusion date, so her first deferred amount is included in April of year 5 and the second in August. Splitting also helps diversify among sponsors and projects. The cost is paperwork: every investment is listed separately on Form 8997 each year.[^8] ## What gains do data center investors and landowners typically bring? Data center QOF capital tends to come from three sources: stock and business sales, real estate sales, and land sales to the project itself. The first two qualify easily. A landowner selling to the project's QOZB can defer the land gain only if the landowner is not related to the buyer under the 20% test, so a landowner who wants a large equity stake in the QOZB needs careful structuring. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). ## Common questions **Do short-term capital gains qualify for Opportunity Zone deferral?** Yes. Short-term gains qualify and keep their short-term character, so they are taxed at ordinary rates when the deferred gain is later included. **Can I defer depreciation recapture in an Opportunity Zone fund?** Not the part taxed as ordinary income under §1245 or §1250. Unrecaptured §1250 gain on real estate is part of the capital or §1231 gain and generally can be invested. **Do cryptocurrency gains qualify?** Yes. Crypto held as a capital asset produces capital gain that is eligible if invested within 180 days of the sale. **Do I have to subtract my capital losses first?** No. You can invest the gross gain. Your losses remain available under the normal capital loss rules. **Can I defer gain from selling property to my own company?** Not if you and the buyer share 20% or more common ownership. Gains from sales to related persons are not eligible. **Does gain from selling my home qualify?** Only the part that is taxable. Gain excluded under the home sale exclusion is not recognized and cannot be deferred. ## Sources [^1]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1: Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^2]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^3]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^4]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^5]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^6]: Internal Revenue Service, "Topic no. 409, Capital gains and losses" (2026). https://www.irs.gov/taxtopics/tc409 [^7]: CliftonLarsonAllen, "Opportunity Zones: Debriefing the Final Regulations" (2020). https://www.claconnect.com/-/media/files/presentations/opportunity-zonesdebriefing-the-final-regulations_final.pdf [^8]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^9]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^10]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf --- # Opportunity Zone vs. 1031 exchange: which is better? URL: https://ozdatacenters.com/guides/opportunity-zone-vs-1031-exchange Last reviewed: 2026-10-20 A 1031 exchange defers all gain on investment real estate indefinitely, but only if you reinvest the full proceeds in like-kind real property within 180 days, and the deferred gain plus later growth is taxed when you finally sell (unless you hold until death). An Opportunity Zone fund accepts any capital gain, requires you to invest only the gain, taxes 90% of it (70% in a rural fund) after five years, and makes the fund's appreciation tax-free after 10 years. The 1031 is usually better for keeping a real estate portfolio intact for life; the OZ is usually better for non-real-estate gains, for freeing up principal, and for investors focused on tax-free growth. ## Key takeaways - A 1031 exchange works only for real property held for business or investment; an Opportunity Zone fund accepts any eligible capital gain. - A 1031 exchange requires reinvesting the full proceeds (and replacing debt) to defer all gain; a QOF requires investing only the gain. - Both have 180-day deadlines, but a 1031 also requires identifying replacement property within 45 days and using a qualified intermediary. - 1031 deferral can last indefinitely; OZ deferral ends after five years, with 10% (30% rural) of the gain permanently excused. - Only the Opportunity Zone excludes new appreciation from tax, after a 10-year hold. - The two can work together: taxable boot from a 1031 exchange can be eligible gain for a QOF. ## What is the difference between an Opportunity Zone and a 1031 exchange? A 1031 exchange postpones tax by rolling one investment property into another; an Opportunity Zone investment postpones and reduces tax on any capital gain and then eliminates tax on the new investment's growth. Under IRC §1031, you generally do not recognize gain or loss when you exchange real property held for business or investment for like-kind real property.[^1][^2] Under IRC §1400Z-2, you defer an eligible gain by investing it in a Qualified Opportunity Fund (QOF) within 180 days.[^3] **Figure: 1031 exchange vs. Opportunity Zone fund at a glance** - 1031 exchange (Defer) - Real property held for business or investment only - Reinvest full proceeds and replace debt to defer all gain - 45 days to identify, 180 days to close - Deferral lasts until a taxable sale - Basis carries over; growth is taxed on final sale - Opportunity Zone fund (Defer, reduce, exclude) - Any eligible capital gain, from any asset - Invest only the gain; keep the principal - 180 days to invest; no identification step - Deferral ends after five years, 10% (30% rural) excused - Growth tax-free after a 10-year hold *The 1031 rewards keeping capital in real estate; the Opportunity Zone rewards new equity held at least 10 years in a designated zone.[^1][^3]* ## How do the rules compare, point by point? **Section 1031 exchange vs. Opportunity Zone investment** | Feature | 1031 exchange | Opportunity Zone fund | | --- | --- | --- | | Eligible gains | Real property held for business or investment | Any capital gain, including stock, crypto, business sales and §1231 gains | | What you reinvest | All net proceeds, with equal or greater debt, to avoid taxable boot | Only the gain | | Deadlines | Identify in 45 days, close by the earlier of 180 days or the return due date | Invest within 180 days of the gain | | Intermediary | Qualified intermediary must hold proceeds | None; you invest directly | | Replacement asset | Like-kind U.S. real property you own directly | Equity in a QOF; location limited to designated zones | | Deferral period | Until a taxable disposition, possibly for life | Until sale or five years after investment | | Gain reduction | None | 10% after five years, 30% in a rural fund | | Tax on new growth | Taxed on final sale (unless held until death) | Excluded after 10 years, up to value at year 30 | | Depreciation | Carryover basis limits new depreciation | Fund's assets have full cost basis to depreciate | | Control | You own and manage the replacement property | Usually a passive interest in a sponsor's fund | | Reporting | Form 8824 | Form 8949 election, Form 8997 annually | The IRS lists the 1031 timing rules plainly: identify replacement property within 45 days and receive it within 180 days or by your return due date, including extensions, whichever is earlier.[^2] The OZ rules have no identification step and no intermediary, but they have a different discipline: the fund must invest in designated zones and pass ongoing asset tests.[^3][^4] ## Which leaves you with more after tax? It depends on whether you would ever sell. In an illustrative case the Opportunity Zone wins if the investor sells after 10 years, and the 1031 wins if the investor holds real estate until death, because heirs generally receive a fair market value basis under §1014.[^5] **Figure: After-tax wealth after 10 years: $3 million property with a $1 million gain** (illustrative) - 1031 exchange, sold at year 10: $5.05M - QOF for the $1M gain, $2M principal in a taxable account, sold at year 10: $5.31M - 1031 exchange, held until death (heirs' basis reset): $6.00M *Illustrative. Assumes $2 million basis, no debt and no depreciation, 23.8% federal rate, no state tax, all assets double in 10 years, and the OZ investor's year-5 tax subtracted without interest. Real outcomes depend on depreciation, leverage and returns.* 1. 1031: the $3 million rolls into a new property worth $6 million at year 10. Carryover basis is $2 million, so a sale triggers tax on $4 million: $952,000. Net: $5,048,000. 2. Opportunity Zone: the $1 million gain goes into a QOF that grows to $2 million, tax-free on exit; the year-5 tax on $900,000 is $214,200. The $2 million principal grows to $4 million in a taxable account, with $476,000 of tax on the $2 million of growth. Net: $5,309,800. 3. 1031 held until death: no income tax for the investor or, generally, the heirs on the $6 million value. Depreciation shifts the math further. A 1031 replacement property inherits the low basis of the property given up, while an OZ fund's new construction is depreciated from its full cost. See [a worked OZ tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## When is a 1031 exchange the better choice? - You want to keep owning and controlling real estate yourself. - You plan to hold real estate for life and leave it to heirs, who generally take a stepped-up basis.[^5] - You have a large depreciation recapture exposure that a 1031 defers in full; under the OZ rules, §1245 recapture taxed as ordinary income cannot be deferred.[^6] - You can find suitable like-kind property within 45 days and close within 180. - The best replacement property is not in a designated zone. ## When is an Opportunity Zone investment the better choice? - Your gain is not from real estate: stock, a business sale, crypto or collectibles cannot go into a 1031 exchange.[^1][^7] - You want to take money off the table: you invest only the gain and keep the principal. - You want new growth to be tax-free, and you can hold for at least 10 years. - You cannot find 1031 replacement property in time, or a failed exchange has left you with a recognized gain. - You want a professionally managed or diversified investment rather than another property to run. The OZ route has costs to weigh: the deferred gain is taxed after five years whether or not you have sold, your money is locked up for a decade, and the fund's project must succeed. See [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). ## Can you use a 1031 exchange and an Opportunity Zone fund together? Yes, in sequence. If a 1031 exchange produces taxable boot, such as cash kept or debt not replaced, the recognized gain is generally capital or §1231 gain that can be invested in a QOF within 180 days.[^1][^7] An investor can also split a sale: exchange part of the value into like-kind property and invest the gain on the rest in a QOF. What you cannot do is defer the same dollar of gain under both provisions, because gain deferred in a 1031 exchange is not recognized and so is not eligible gain.[^7] **Figure: Choosing between a 1031 exchange and an OZ fund** - Investment real estate Source of gain, Sell within about 10 years Planned holding horizon: Either; compare after-tax outcomes (1031 for control, OZ to free principal) - Investment real estate Source of gain, Hold for life or 10+ years Planned holding horizon: 1031 exchange (Defer for life; heirs' basis reset) - Non-real-estate gain Source of gain, Sell within about 10 years Planned holding horizon: OZ fund, if you can hold 10 years (Only route for stock and business gains) - Non-real-estate gain Source of gain, Hold for life or 10+ years Planned holding horizon: OZ fund (Tax-free growth after 10 years) *A starting point only. Most real estate sellers fall in the top row; most stock and business sellers fall in the bottom row.[^1][^3]* Real estate sellers face this choice most often; [Opportunity Zones for real estate investors selling property](https://ozdatacenters.com/guides/opportunity-zones-for-real-estate-sellers) works through the cases. Because the outcome depends on depreciation, debt, heirs and state tax, model both with your tax adviser before the sale closes. ## How does the choice look for data center real estate? For a property owner selling a data center or industrial site, a 1031 exchange into another stabilized property preserves real estate exposure. An OZ fund offers a way into new data center development, where most value is created during construction and lease-up and the 10-year exclusion captures it. New equipment and improvements also start with full basis for depreciation, including 100% bonus depreciation for qualifying property acquired after January 19, 2025.[^8] See [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Common questions **Can I do a 1031 exchange into an Opportunity Zone property?** You can exchange into real property that happens to be in a zone, but that is a 1031 exchange, not an OZ investment, and earns no OZ benefits. OZ benefits require investing eligible gain in a QOF. **Which has the longer deferral?** A 1031 exchange, which can defer gain until a taxable sale and possibly for life. OZ deferral ends after five years, but 10% of the gain (30% in a rural fund) is permanently excused. **Do both have a 180-day deadline?** Yes. A 1031 must close by the earlier of 180 days or the return due date, after identifying property within 45 days. A QOF investment must be made within 180 days of the gain. **Can stock gains go into a 1031 exchange?** No. Section 1031 applies only to real property. Stock, crypto and business-sale gains can use an Opportunity Zone fund instead. **Is depreciation recapture deferred in both?** A 1031 exchange defers it along with the rest of the gain. In an Opportunity Zone investment, recapture taxed as ordinary income cannot be deferred, though unrecaptured §1250 gain on real estate generally can. ## Sources [^1]: Internal Revenue Service, "Instructions for Form 8824, Like-Kind Exchanges (2025)" (2025). https://www.irs.gov/instructions/i8824 [^2]: Internal Revenue Service, "Like-kind exchanges: Real estate tax tips" (n.d.). https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips [^3]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^4]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^5]: Internal Revenue Service, "Publication 551, Basis of Assets" (2025). https://www.irs.gov/publications/p551 [^6]: Internal Revenue Service, "Publication 544, Sales and Other Dispositions of Assets" (2025). https://www.irs.gov/publications/p544 [^7]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1: Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^8]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities --- # Opportunity Zone glossary: every term defined URL: https://ozdatacenters.com/guides/opportunity-zone-glossary Last reviewed: 2026-10-20 This glossary defines 66 Opportunity Zone terms in plain English, grouped by theme: zones and designation, investors and gains, funds and businesses, qualification tests and safe harbors, forms and penalties, and data center terms. The core idea behind all of them: an investor defers an eligible capital gain by investing it in a Qualified Opportunity Fund within 180 days, the fund holds at least 90% of its assets in zone property, and a 10-year hold makes the fund's appreciation free of federal tax. ## Key takeaways - A Qualified Opportunity Fund (QOF) is the investment vehicle; a Qualified Opportunity Zone Business (QOZB) is the operating company it usually owns. - An eligible gain is a capital gain recognized for federal tax from a sale to an unrelated person, invested within 180 days. - The key percentages are 90% (QOF assets), 70% (QOZB tangible property), 50% (gross income), 40% (intangibles) and under 5% (nonqualified financial property). - The key periods are 180 days to invest, 31 or 62 months of working capital, 30 months to substantially improve, and 5, 10 and 30 years of holding. - Funds report on Form 8996, investors on Forms 8949 and 8997, and new §6726 penalties run $500 per day for missing reports. ## What do the zone and designation terms mean? These terms describe where the program applies and how places get on the map. The designation rules are in IRC §1400Z-1.[^1] **Zone and designation terms** | Term | Definition | | --- | --- | | Opportunity Zone (QOZ) | A low-income census tract nominated by a governor and certified by Treasury, where investment through a QOF earns tax benefits. Also called a Qualified Opportunity Zone.[^1] See [what an Opportunity Zone is](https://ozdatacenters.com/guides/what-is-an-opportunity-zone). | | Census tract | A small statistical area defined by the Census Bureau, typically a few thousand residents. Zones are designated tract by tract. | | Low-income community (LIC) | A tract with median family income at or below 70% of the area median, or a poverty rate of at least 20% with median family income at or below 125% of the area median. Only LICs can be zones.[^1] | | Area median income benchmark | Statewide median family income for tracts outside a metro area, or the greater of statewide or metro median for tracts inside one. | | Determination date | The date that starts a designation cycle. The first was July 1, 2026; another follows every 10 years.[^2] | | Nomination window | The 90 days after a determination date in which a governor nominates tracts.[^3] | | 25% cap | A state may designate no more than 25% of its LIC tracts, or 25 tracts if that is greater.[^1] | | Designation period | The 10 years a zone stays in effect. Zones in the current cycle run January 1, 2027 through December 31, 2036.[^2] | | Rural area | Any area other than a city or town of more than 50,000 people and the urbanized area contiguous and adjacent to it.[^4] | | Wholly rural zone | A zone composed entirely of rural area. Rev. Proc. 2026-14 lists 8,334 wholly rural tracts among the 25,332 eligible.[^3] | | CDFI Fund | The Treasury bureau that runs the nomination tool and publishes official zone lists and maps.[^5] | ## What do the investor and gain terms mean? These terms describe what an investor puts in and what happens to it over time. The rules are in IRC §1400Z-2(a) through (c) and Treas. Reg. §1.1400Z2(a)-1.[^6][^7] **Investor and gain terms** | Term | Definition | | --- | --- | | Eligible taxpayer | Any person that recognizes gain for federal income tax purposes: individuals, C corporations, partnerships, S corporations, trusts and estates.[^7] | | Eligible gain | A capital gain (short- or long-term) or §1231 gain that would be recognized for federal tax, not from a sale to a related person.[^7] See [which gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). | | 180-day period | The window to invest an eligible gain in a QOF, generally starting on the date the gain would be recognized, which counts as day 1. Pass-through owners have alternative start dates.[^7] | | Deferral election | The election, made on Form 8949 with a timely return, to postpone tax on the invested gain.[^8] | | Qualifying investment | An equity interest in a QOF funded with deferred eligible gain. Only this portion earns OZ benefits. | | Non-qualifying investment | Any part of a QOF investment that exceeds the deferred gain, or that was received for services. It is tracked separately with ordinary tax treatment.[^6] | | Mixed-funds investment | A single QOF investment that is partly qualifying and partly not, split into two investments under §1400Z-2(e)(1).[^6] | | Inclusion event | An event that triggers tax on the deferred gain before year 5, such as a sale, a gift (other than to a grantor trust) or a distribution in excess of basis. Death is not one.[^9] | | Five-year inclusion date | For amounts invested on or after January 1, 2027, the deferred gain is taxed on the earlier of an inclusion event or five years after the investment date.[^6] | | Basis step-up | An increase in the investor's basis equal to 10% of the deferred gain after five years, or 30% in a rural fund, so that portion is never taxed.[^6] | | 10-year election | After holding a QOF investment at least 10 years, the investor may elect on sale to set its basis to fair market value, excluding appreciation from federal tax.[^6] | | 30-year limit | For sales after the 30th anniversary of the investment, basis is fixed at fair market value on that anniversary. Election mechanics are pending.[^10] | | Holding period | The time an investor owns the QOF interest, which drives the 5-, 10- and 30-year benefits. An heir keeps the decedent's holding period.[^9] | **Figure: The investor's clock, using glossary terms** - Day 1: Eligible gain realized (180-day period begins) - Day 180: Qualifying investment deadline (Deferral election on Form 8949) - Year 5: Five-year inclusion date (Basis step-up of 10% or 30%) - Year 10: 10-year election available (Basis to fair market value on sale) - Year 30: 30-year limit (Basis fixed at that anniversary's value) *Every qualifying investment runs on its own clock from its investment date.[^6][^7]* ## What do the fund and business terms mean? These terms describe the vehicles that hold the money and the property. The fund rules are in §1400Z-2(d) and Treas. Reg. §1.1400Z2(d)-1.[^6][^11] **Fund and business terms** | Term | Definition | | --- | --- | | Qualified Opportunity Fund (QOF) | A corporation or partnership organized to invest in QOZ property that holds at least 90% of its assets in that property and self-certifies on Form 8996.[^6] See [what a QOF is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund). | | Qualified Rural Opportunity Fund (QROF) | A QOF holding at least 90% of its assets in QOZ property in wholly rural zones. Its investors get a 30% step-up.[^4] | | Qualified Opportunity Zone Business (QOZB) | An operating company owned by a QOF that meets the 70% tangible property, 50% gross income, 40% intangibles and 5% financial property tests.[^11] See [what a QOZB is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business). | | Qualified Opportunity Zone property | The assets that count toward a QOF's 90%: QOZ stock, QOZ partnership interests and QOZ business property.[^6] | | QOZ stock and QOZ partnership interest | Equity in a QOZB acquired by the QOF for cash at original issue. | | QOZ business property | Tangible property bought from an unrelated party, original use or substantially improved, and used in a zone for substantially all of the holding period.[^11] | | Two-tier structure | The common setup in which investors own a QOF and the QOF owns a QOZB that owns the real assets. | | Self-certification | How an entity becomes a QOF: it files Form 8996 with its return. There is no IRS approval.[^12] | | Decertification | A QOF ceasing to be a QOF, voluntarily or otherwise. Proposed regulations would create a single procedure.[^13] | | Sponsor | The firm that organizes and manages a QOF, typically as general partner or managing member. | **Figure: How the fund and business terms stack** 1. Eligible taxpayer: Invests eligible gain as a qualifying investment 2. Qualified Opportunity Fund: 90% investment standard, Form 8996 3. QOZ stock or partnership interest: Equity acquired for cash at original issue 4. Qualified Opportunity Zone Business: 70%, 50%, 40% and 5% tests 5. QOZ business property: Original use or substantially improved *Each layer has its own test, so the vocabulary maps directly onto the structure.[^6][^11]* ## What do the qualification test and safe harbor terms mean? These terms describe how funds and businesses stay qualified. Most come from the Treasury regulations.[^11] **Test and safe harbor terms** | Term | Definition | | --- | --- | | 90% investment standard | A QOF must hold at least 90% of its assets in QOZ property, averaged over two semiannual testing dates.[^6] See [the 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). | | Semiannual testing dates | Generally the last day of the first six months of the QOF's tax year and the last day of the tax year. | | Substantially all (70% test) | At least 70% of a QOZB's owned or leased tangible property must be QOZ business property.[^11] | | 50% gross income test | At least 50% of a QOZB's gross income must come from the active conduct of business in the zone, shown through hours, payments, location of functions or facts and circumstances.[^11] | | 40% intangibles test | At least 40% of a QOZB's intangible property must be used in its active business in the zone.[^11] | | Nonqualified financial property (NQFP) | Cash, debt, stock and similar assets, which must be under 5% of a QOZB's property, excluding working capital in the safe harbor.[^11] | | Working capital safe harbor (WCSH) | Up to 31 months to spend cash on a written plan and schedule for zone property, with income and property treated as qualifying meanwhile.[^14] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). | | 62-month extension | The outer limit for sequential or overlapping working capital plans, measured from the first cash infusion.[^14] | | Original use | Property first placed in service in the zone by the QOF or QOZB. A building vacant for at least three years also counts.[^15] | | Substantial improvement | Adding more than the building's adjusted basis in improvements within 30 months; 50% in wholly rural zones. Land is excluded.[^4][^15] | | 30-month period | The window for meeting the substantial improvement test, measured from acquisition. | | 12-month reinvestment rule | Proceeds from a QOF's sale of QOZ property count as qualifying for 12 months if reinvested and held in cash or short-term debt meanwhile. | | Six-month cash rule | A QOF may exclude newly contributed cash from its 90% test for six months if held in cash, cash equivalents or short-term debt. | | Related person | A person sharing at least 20% common ownership under modified §267(b) or §707(b)(1). Related-party sales do not produce eligible gain or qualifying property.[^16] | | Excluded (sin) businesses | Golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and other gambling facilities, and liquor stores. A QOZB may not be one.[^11] | | Active trade or business | Business activity rather than passive holding; owning and operating real property can qualify, but merely entering into a triple-net lease does not.[^17] | | Triple-net (NNN) lease | A lease in which the tenant pays taxes, insurance and maintenance in addition to rent.[^17] | | Reasonable cause | The standard that excuses the QOF 90% penalty when a failure was not due to willful neglect. | **Figure: The test percentages in one place** - 90% investment standard (QOF): at least 90% - Substantially all, tangible property (QOZB): at least 70% - Gross income from active business (QOZB): at least 50% - Intangibles used in the zone (QOZB): at least 40% - Nonqualified financial property (QOZB): less than 5% *The first is a fund-level test; the rest apply to a QOZB.[^6][^11]* ## What do the forms, reporting and penalty terms mean? These terms cover what gets filed and what it costs to get wrong. Reporting rules are being expanded: proposed regulations published September 11, 2026 are not yet final.[^13] **Forms, reporting and penalty terms** | Term | Definition | | --- | --- | | Form 8996 | The QOF's annual form to certify status and report the 90% test and any penalty.[^12] See [Forms 8996 and 8997](https://ozdatacenters.com/guides/form-8996-form-8997-explained). | | Form 8997 | The investor's annual statement of QOF investments and deferred gains held at the start and end of the year, gains deferred and dispositions.[^18] | | Form 8949 | The capital gains form on which the investor elects deferral, listing the QOF's EIN and the deferred amount.[^8] | | §6039K return | The QOF information return required by statute, covering assets, investors and impact data such as employees.[^13] | | §6039L information | The QOZB-level information a QOF must obtain and report, including the businesses' census tracts.[^13] | | §6726 penalty | $500 per day for a missing or incomplete OZ information report, capped at $10,000 per return or $50,000 for a QOF with gross assets over $10 million; higher for intentional disregard.[^13] | | §1400Z-2(f) penalty | The monthly penalty on a QOF's shortfall below 90%, equal to the shortfall times the underpayment rate.[^6] | | Underpayment rate | The IRS rate under §6621(a)(2): the federal short-term rate plus 3 percentage points. | ## What data center terms come up in Opportunity Zone deals? These terms matter when an Opportunity Zone fund builds or owns a data center, because lease structure and timing interact with the active business and working capital rules.[^17] **Data center terms in an Opportunity Zone context** | Term | Definition | | --- | --- | | Powered shell | A building with power delivered and core infrastructure but without the tenant's fit-out. Often leased triple-net to a single tenant, which is not an active business on its own.[^17] | | Colocation | A data center that leases space, power and services to multiple tenants. The operator's services support the active business position. | | Hyperscaler | A large cloud or AI company that leases or builds very large data center campuses. | | Megawatt (MW) | The standard unit of data center capacity, measured by critical IT power. | | Load interconnection | The utility process to connect a large new electric load; often the longest lead item and a key risk for the working capital timeline. | | Fit-out | Tenant-specific electrical, mechanical and IT installation. Equipment the tenant owns is not the QOZB's property. | For the structures that work, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) and [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## Common questions **What is the difference between a QOF and a QOZB?** A QOF is the fund that investors buy into; it must hold at least 90% of its assets in zone property. A QOZB is the operating business the fund usually owns; it must meet the 70% tangible property and other tests. **What is the difference between an Opportunity Zone and a Qualified Opportunity Zone?** None. They are the same thing. The statute uses Qualified Opportunity Zone; most people say Opportunity Zone. **What does QROF stand for?** Qualified Rural Opportunity Fund: a QOF with at least 90% of its assets in wholly rural zones, whose investors get a 30% basis step-up after five years instead of 10%. **What is an inclusion event?** Any event that makes the deferred gain taxable before the five-year date, such as selling or gifting the QOF interest or receiving distributions above basis. **What is the working capital safe harbor?** A rule letting a QOZB hold cash for up to 31 months (62 with sequential plans) under a written plan and schedule while it builds or improves zone property. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1: Designation" (2026). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^3]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^4]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^5]: CDFI Fund, U.S. Department of the Treasury, "Opportunity Zones" (n.d.). https://www.cdfifund.gov/Opportunity-Zones [^6]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^7]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1: Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^8]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^9]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^10]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^11]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^12]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^13]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^14]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^15]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^16]: CliftonLarsonAllen, "Opportunity Zones: Debriefing the Final Regulations" (2020). https://www.claconnect.com/-/media/files/presentations/opportunity-zonesdebriefing-the-final-regulations_final.pdf [^17]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^18]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf --- # Opportunity Zones: the 27 most common questions answered URL: https://ozdatacenters.com/guides/opportunity-zone-common-questions Last reviewed: 2026-10-20 An Opportunity Zone investment lets you defer tax on a capital gain by investing it in a Qualified Opportunity Fund within 180 days. For gains invested after December 31, 2026, the deferred gain is taxed after five years with a 10% basis step-up (30% for a rural fund), and appreciation on an investment held at least 10 years can be tax-free, up to its value at year 30. ## Key takeaways - Only gains count: you invest the capital gain (not the whole sale price) in a Qualified Opportunity Fund (QOF) within 180 days of the sale. - For amounts invested in a QOF after December 31, 2026, the deferred gain is taxed on the fifth anniversary of the investment or an earlier sale, whichever comes first. - Holding five years reduces the taxable deferred gain by 10%, or by 30% in a Qualified Rural Opportunity Fund (QROF). - After 10 years you can elect to step basis up to fair market value, so appreciation is excluded; appreciation after year 30 is taxable. - The program is permanent; new zones take effect January 1, 2027 and are redrawn every 10 years. ## What is an Opportunity Zone, and how does the program work? An Opportunity Zone is a low-income census tract designated by its governor and certified by Treasury, and investing a capital gain in a fund that builds or runs businesses there earns federal tax benefits. The rules live in IRC §§1400Z-1 and 1400Z-2, as amended by Public Law 119-21 (signed July 4, 2025), and in the Treasury regulations at 26 CFR 1.1400Z2.[^1][^2] ### 1. What is a Qualified Opportunity Zone? A census tract that met the statutory low-income test and was nominated by its state's governor and certified by Treasury. A tract qualifies as a low-income community if its median family income is no more than 70% of the area median, or if its poverty rate is at least 20% and its median family income is no more than 125% of the area median.[^3] See [what an Opportunity Zone is](https://ozdatacenters.com/guides/what-is-an-opportunity-zone). ### 2. What is a Qualified Opportunity Fund (QOF)? A QOF is a corporation or partnership organized to invest in Opportunity Zone property that self-certifies on IRS Form 8996 and holds at least 90% of its assets in qualifying property, measured on two semiannual testing dates.[^4] More in [what a QOF is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund). ### 3. What is a Qualified Opportunity Zone Business (QOZB)? A QOZB is an operating company, usually owned by a QOF, that meets its own tests: at least 70% of its tangible property is qualifying zone property, at least 50% of its gross income comes from active business in the zone, at least 40% of its intangibles are used there, less than 5% of its assets are nonqualified financial property, and it is not a listed "sin business".[^5] Most real estate and data center funds invest through a QOZB. ### 4. Is the program permanent? Yes. Public Law 119-21 made Opportunity Zones a permanent part of the Internal Revenue Code, with new zone maps every 10 years.[^6] Newly designated zones take effect January 1, 2027 and remain in effect through December 31, 2036. See [whether Opportunity Zones are permanent](https://ozdatacenters.com/guides/are-opportunity-zones-permanent). ### 5. How many Opportunity Zones are there? There are 8,764 zones in effect today, of which 3,309 consist entirely of rural areas.[^7] For the map that takes effect January 1, 2027, Treasury's list identified 25,332 eligible tracts (8,334 wholly rural); governors may designate at most 25% of eligible tracts, or 25 tracts if greater.[^8] As of October 20, 2026, no consolidated national list of the new zones has been published. **Figure: How an Opportunity Zone investment moves** - Day 1: Sale of an asset (Capital gain realized) - then: Gain within 180 days - Investor (Elects deferral on Form 8949) - then: Equity investment - Form 8996: Qualified Opportunity Fund (90% asset test) - then: Stock or partnership interest - QOZB (70% / 50% / 40% / 5% tests) - then: Acquires and improves - Zone property (Building, equipment, operations) *The investor puts only the gain into the QOF; the QOF usually invests through a QOZB that owns and operates the property in the zone.[^5]* ## Which gains qualify, and when do you have to invest them? Capital gains from a sale to an unrelated person qualify, and you generally must invest the gain in a QOF within 180 days of the date the gain would otherwise be recognized.[^9] ### 6. Which gains can be deferred? Gains treated as capital gain for federal income tax purposes, short-term or long-term, from selling stock, real estate, a business, crypto, collectibles or other property to an unrelated party. Gross §1231 gains from business property qualify too, but depreciation recapture taxed as ordinary income does not.[^10] Detail: [which gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). ### 7. Do I have to invest the whole sale price? No. Only the gain needs to be invested to defer it. If you sell stock for $1.5 million with a $500,000 basis, investing $1 million defers the full $1 million gain; your original basis can stay in your pocket. You may also invest part of the gain and pay tax on the rest. ### 8. How long do I have to invest? 180 days, starting on the day the gain would be recognized, which for a simple sale is the sale date.[^9] Owners of partnerships, S corporations and trusts get extra start-date options, and §1231 gains run from the sale date. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule). ### 9. Can I invest wages, ordinary income or cash I already have? You can invest any cash, but only the amount that represents an eligible gain for which you make a deferral election gets the tax benefits. Any other money is treated as a separate investment with no deferral, no step-up and no 10-year exclusion.[^1] ### 10. Does the buyer of my asset have to be unrelated? Yes. The gain must come from a sale or exchange with an unrelated person, using the related-party tests of §267(b) and §707(b)(1) with a 20% ownership threshold in place of 50%.[^1] ### 11. What if I sold in 2026? A gain realized in 2026 and invested in a QOF on or after January 1, 2027, within its 180-day window, is treated under the rules described here: five-year deferral and a 10% or 30% step-up.[^11] Any sale on or after July 6, 2026 has a 180-day window that reaches January 1, 2027. ## What tax benefits does an Opportunity Zone investment provide? There are three: deferral of the invested gain for up to five years, a 10% or 30% reduction of that gain after five years, and tax-free appreciation on investments held at least 10 years. These apply to amounts invested in QOFs after December 31, 2026.[^12] ### 12. How long is the gain deferred? Until the earlier of the date you sell or exchange the QOF investment (or another inclusion event occurs) or the fifth anniversary of the investment. An investment made on March 15, 2027 is included in income on March 15, 2032, and the tax is reported on the 2032 return.[^13] See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ### 13. What is the basis step-up? Your basis in the QOF investment starts at zero. If you hold it for five years, basis increases by 10% of the deferred gain, so only 90% is taxed. In a Qualified Rural Opportunity Fund, which holds at least 90% of its assets in zones made up entirely of rural areas, the increase is 30%, so 70% is taxed.[^14] See [the 10% and 30% step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). ### 14. What does the 10-year hold do? If you hold the QOF investment for at least 10 years, you can elect when you sell to set its basis equal to fair market value. The appreciation on the investment is then excluded from federal income tax.[^15] See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains). ### 15. Is there a limit on how long the exclusion lasts? Yes. If you sell after the 30th anniversary of the investment, basis is set at fair market value on that 30th anniversary, so appreciation after year 30 is taxable.[^13] Treasury has asked for comments on how the year-30 valuation will work, so the mechanics are pending.[^16] See [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). ### 16. How much can I save? On $1 million of long-term gain at a 23.8% federal rate, a five-year hold in a standard QOF cuts the deferred tax from $238,000 to $214,200, and in a QROF to $166,600. The larger benefit is the 10-year exclusion: if the $1 million doubles, the $1 million of appreciation escapes roughly $238,000 of federal tax. The [worked tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example) runs the full numbers. **Figure: Key dates for one Opportunity Zone investment** - Day 1: Gain realized (Sale to an unrelated person) - Day 180: Last day to invest (Sale date counts as day 1) - Year 5: Deferred gain taxed (10% step-up (30% QROF)) - Year 10: Exclusion available (Elect basis = fair market value) - Year 30: Basis frozen (Later appreciation taxable) *For an amount invested after December 31, 2026, every date runs from the investment date, not a national deadline.[^6]* ## Who can invest, and how do you invest? Any taxpayer with an eligible gain can invest, by buying an equity interest in a QOF and making the deferral election on the tax return for the year of the gain.[^17] ### 17. Who can invest? Individuals, partnerships, S corporations, C corporations, trusts and estates. The tax law sets no wealth test. Most QOFs are private offerings, though, and securities law usually limits those to accredited investors. See [who can invest](https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund). ### 18. Is there a minimum investment? The tax law has none. Funds set their own minimums, and an investor can spread one gain across several QOFs or invest only part of it. ### 19. Does the investment have to be equity? Yes. The investor must acquire an equity interest in the QOF, such as stock or a partnership interest. A loan to a QOF is not a qualifying investment. The QOF and QOZB themselves can borrow.[^5] See [why the investment must be equity](https://ozdatacenters.com/guides/opportunity-zone-equity-requirement). ### 20. How do I claim the deferral? Report the sale and the deferral on Form 8949 with your return for the year of the gain, listing the QOF's EIN and investment date, then file Form 8997 every year you hold the investment.[^17][^18] ### 21. Can I set up my own QOF? Yes. A partnership or corporation self-certifies by filing Form 8996.[^4] Doing it yourself means owning the compliance: the 90% asset test, the QOZB tests, and the annual reporting described below. See [how to set up a QOF](https://ozdatacenters.com/guides/how-to-set-up-a-qualified-opportunity-fund). ## What rules must the fund and business follow? The fund must stay at least 90% invested in qualifying property, its business must pass the QOZB tests, and both face new annual information reporting with daily penalties.[^5][^19] **The core tests at a glance** | Test | Threshold | Who it applies to | | --- | --- | --- | | QOF asset test | At least 90% of assets in QOZ property (averaged over two testing dates) | Fund | | Tangible property | At least 70% of tangible property is QOZ business property | QOZB | | Gross income | At least 50% from active business in the zone | QOZB | | Intangibles | At least 40% used in the zone business | QOZB | | Financial property | Less than 5% nonqualified financial property | QOZB | | Substantial improvement | Double the building's basis within 30 months (50% in wholly rural zones) | Used property | ### 22. What is the working capital safe harbor? A QOZB may hold cash for up to 31 months, extendable to 62 months with multiple plans, if it has a written plan and schedule to spend it on zone property and spends it substantially as planned.[^20] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ### 23. What reporting is required, and what are the penalties? Funds file Form 8996 every year and investors file Form 8997. New §6039K and §6039L returns carry a penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with over $10 million of gross assets. The implementing regulations were proposed on September 11, 2026 and are not final.[^19] See [reporting requirements](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What can go wrong, and how do states treat Opportunity Zone gains? Selling early, taking certain distributions or gifting the interest can trigger the deferred gain, and state tax treatment varies.[^21] ### 24. What triggers the deferred gain early? An inclusion event: selling or exchanging the QOF interest, distributions in excess of basis (including some debt-financed distributions), or a gift other than to a grantor trust. Death is not an inclusion event; the heir takes over the deferred gain and the holding period.[^21] See [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). ### 25. Do state taxes follow the federal rules? Not always. California, for example, does not conform to federal Opportunity Zone deferral or exclusion.[^22] Check your state before investing. See [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ### 26. What if the investment loses value? The amount included at year 5 is limited to the investment's fair market value, so a decline reduces the tax due on the deferred gain.[^23] The investment itself can still lose money, which is why sponsor and project diligence matter. See [Opportunity Zone investment risks](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). ## Can a data center be an Opportunity Zone investment? Yes, if the data center is owned and actively operated by a QOZB in a designated zone and the project meets the asset, income and improvement tests. ### 27. Why are data centers a fit, and what is the main trap? Data centers are capital-heavy, long-lived projects that can sit on large rural sites with power and transmission, which suits both the 10-year hold and the 30% rural step-up. The main trap is the lease: merely entering into a triple-net lease is not the active conduct of a trade or business under the regulations, so a single-tenant powered shell leased to one hyperscaler needs careful structuring.[^24] OZ Data Centers sponsors funds that own and operate data centers through QOZBs. See [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Common questions **What is the deadline to invest a capital gain in an Opportunity Zone fund?** Generally 180 days from the date the gain would be recognized, which is the sale date for a direct sale. Partners and S corporation shareholders can also start the clock at the entity's year-end or the entity's unextended return due date. **When is the deferred gain taxed?** For amounts invested after December 31, 2026, on the earlier of the date you dispose of the QOF investment or the fifth anniversary of the investment date. **Is the 10% step-up automatic?** It applies by statute if you hold the QOF investment for at least five years. In a Qualified Rural Opportunity Fund the step-up is 30%. **Do I have to hold for 10 years?** No, but the exclusion of appreciation requires at least a 10-year hold. Selling earlier means paying tax on the deferred gain (if not already paid) and on any appreciation. **Can I invest through my IRA?** An IRA generally does not pay current capital gains tax, so it has no gain to defer. The benefits are designed for taxable investors with eligible gains. **Are Opportunity Zone investments only real estate?** No. A QOZB can be an operating business, such as a data center operator or a manufacturer, as long as it meets the QOZB tests and is not on the excluded business list. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: Congress.gov, "Text of H.R. 1, 119th Congress (Public Law 119-21)" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^3]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. 1400Z-1, Designation" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^4]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^5]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^6]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^7]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^8]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^9]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1, Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^10]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^11]: Spidell, "New Qualified Opportunity Zone guidance clarifies gain recognition rules" (2026). https://spidell.com/news/hot-news-and-notes/new-qualified-opportunity-zone-guidance-clarifies-gain-recognition-rules/ [^12]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^13]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^14]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^15]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^16]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under §1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^17]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^18]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^19]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^20]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^21]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^22]: California Franchise Tax Board, "2023 Instructions for Schedule D (541), Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^23]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^24]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers --- # Opportunity Zone myths and misconceptions URL: https://ozdatacenters.com/guides/opportunity-zone-myths Last reviewed: 2026-10-20 Most Opportunity Zone mistakes come from a few myths: that you must reinvest the whole sale price, that the deferred tax is forgiven, or that any property in a zone qualifies. Under the rules, you invest only the capital gain within 180 days, the deferred gain is taxed after five years (less a 10% or 30% step-up), and only appreciation on a 10-year hold is excluded. ## Key takeaways - You only need to invest the capital gain, not the full sale proceeds, to defer it. - Deferral is temporary: for amounts invested after December 31, 2026, the deferred gain is taxed by the fifth anniversary of the investment. - The 10-year exclusion covers appreciation on the QOF investment, not the original deferred gain, and appreciation after year 30 is taxable. - Property in a zone does not qualify automatically; it must meet original use or substantial improvement tests and be used in an active business. - Merely entering into a triple-net lease is not an active trade or business under the regulations, which matters for single-tenant data centers. ## Myths about which money you can invest Only eligible capital gains, invested within 180 days, earn Opportunity Zone benefits, and you only need to invest the gain itself.[^1][^2] ### Myth 1: You have to reinvest the entire sale price Unlike a 1031 exchange, the Opportunity Zone rules look only at the gain. Sell a building for $5 million with a $3 million adjusted basis, and investing the $2 million gain in a Qualified Opportunity Fund (QOF) defers all of it. The $3 million of basis is yours to keep. The [Opportunity Zone vs. 1031 exchange](https://ozdatacenters.com/guides/opportunity-zone-vs-1031-exchange) guide compares the two side by side. ### Myth 2: Any money you invest gets the tax break Only the amount of an eligible gain for which you elect deferral counts. If you invest $1 million but only $600,000 is deferred gain, the other $400,000 is a separate investment that gets no deferral, no step-up and no 10-year exclusion.[^1] Wages, business profits and ordinary income cannot be deferred. ### Myth 3: Only long-term gains qualify Short-term capital gains qualify too, and they keep their short-term character when the deferred gain is later taxed. Gross §1231 gains from business property qualify; the part of a gain recaptured as ordinary income under §1245 or §1250 does not.[^3] See [Section 1231 gains and Opportunity Zones](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones). ### Myth 4: You can sell to a related party and reinvest The gain must come from a sale or exchange with an unrelated person. The related-party test borrows §267(b) and §707(b)(1) but uses a 20% ownership threshold instead of 50%.[^1] ## Myths about the tax benefits The benefits are real but bounded: deferral is temporary, the step-up is partial, and the exclusion covers only appreciation for up to 30 years.[^4] ### Myth 5: The deferred tax is forgiven It is not. For amounts invested in a QOF after December 31, 2026, the deferred gain is included in income on the earlier of the date you dispose of the investment or the fifth anniversary of the investment date.[^5] Plan for that tax bill, because the fund may not distribute cash to pay it. See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ### Myth 6: Everyone's deferred gain comes due on the same date There is no single national deadline. Each investment has its own five-year clock. A March 2027 investment is taxed in March 2032; a November 2028 investment in November 2033.[^4] ### Myth 7: The step-up eliminates most of the deferred gain Holding five years increases basis by 10% of the deferred gain, so 90% is still taxed. A Qualified Rural Opportunity Fund (QROF) gets a 30% step-up, leaving 70% taxed.[^6] There is no additional step-up for longer holds. See [the 10% and 30% basis step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). ### Myth 8: The 10-year exclusion wipes out the original gain too The 10-year election sets the QOF investment's basis to fair market value, which excludes the appreciation on the investment. The original deferred gain has already been taxed at year 5.[^7] See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains). ### Myth 9: The exclusion lasts forever If you sell after the 30th anniversary of the investment, basis is fixed at fair market value on that anniversary, so later appreciation is taxable.[^6] How that year-30 value will be determined is the subject of pending Treasury guidance.[^8] See [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). **Figure: Myth versus the rule** - Common belief (Myth) - Reinvest the whole sale price - Deferred tax is forgiven - One national tax date - 10-year hold erases the original gain - Any zone property qualifies - What the rules say (Rule) - Invest only the gain, within 180 days - Deferred gain taxed by year 5, less 10% or 30% - A rolling five-year clock per investment - Only appreciation is excluded, through year 30 - Original use or substantial improvement, plus active use *The rules reward the gain, not the proceeds, and they reward time: five years for the step-up, 10 years for the exclusion, with a cap at 30.[^1]* ## Myths about what property qualifies Being located in a zone is necessary but not sufficient: property must be newly placed in service or substantially improved, bought from an unrelated party, and used in an active business.[^9] ### Myth 10: Buying any building in a zone qualifies A used building must be substantially improved: additions to basis over any 30-month period must exceed the building's adjusted basis at the start of that period (land excluded). In zones made up entirely of rural areas the threshold is 50% of basis.[^10] A building vacant for at least three years can qualify as original use instead.[^11] See [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ### Myth 11: Opportunity Zones are only for real estate A Qualified Opportunity Zone Business (QOZB) can be an operating company, from a manufacturer to a data center operator. It must meet the 70% tangible property, 50% gross income, 40% intangibles and 5% financial property tests, and it cannot be a golf course, country club, massage parlor, hot tub or suntan facility, racetrack or other gambling facility, or liquor store.[^9] ### Myth 12: Leasing a building to a tenant is always an active business Owning and leasing real property can be an active trade or business, but merely entering into a triple-net lease is not. The regulations' example of a landlord leasing an entire building to one tenant on a triple-net basis fails, even with an on-site office.[^12] This is the central structuring question for powered shell data centers leased to a single hyperscaler.[^13] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). **Figure: Being in the zone is only the first test** - Tangible property that is QOZ business property: at least 70% - Gross income from active business in the zone: at least 50% - Intangibles used in the zone business: at least 40% - Nonqualified financial property: less than 5% (Must be less than 5%) *A QOZB must clear every one of these tests, in addition to buying property from an unrelated party and meeting original use or substantial improvement.[^9]* ## Myths about who can invest and how The tax law has no wealth test or minimum, but it does require an equity investment and annual reporting.[^14] ### Myth 13: The law limits Opportunity Zones to wealthy investors Any taxpayer with an eligible gain can defer it, whether an individual, partnership, corporation, trust or estate. Securities law, not tax law, is why most private QOFs accept only accredited investors. See [who can invest](https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund). ### Myth 14: You can lend money to a fund and get the benefits The qualifying investment must be equity in the QOF, such as a partnership interest or stock. Debt instruments do not qualify, although the fund and its QOZB can borrow to build.[^9] ## Myths about the program itself Opportunity Zones are a permanent part of the tax code, with new maps every 10 years and stricter reporting.[^15] ### Myth 15: The program is ending Public Law 119-21 made the program permanent. New zones take effect January 1, 2027 and run through December 31, 2036, after which a new decennial map applies.[^15] Treasury's eligibility list for the new map identified 25,332 tracts, 8,334 of them wholly rural.[^16] See [the new zone maps](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ### Myth 16: State taxes follow the federal rules automatically They do not. California does not conform to federal Opportunity Zone deferral or exclusion, and several other states conform only partly.[^17] Run the state math before relying on a combined rate. See [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ### A related misconception: failing a test instantly kills the benefits If a QOF falls below the 90% asset test, the statute imposes a monthly penalty on the fund equal to the shortfall times the federal underpayment rate, unless the failure is due to reasonable cause. It does not by itself trigger investors' deferred gains.[^1] Repeated failure and decertification are another matter. The new annual returns also carry a $500-per-day penalty, capped at $10,000 per return or $50,000 for funds with over $10 million in gross assets, under regulations that are still proposed.[^18] **Figure: Opportunity Zone investment by the numbers** - $108B+: Assets held by QOFs at the end of 2024 (GAO) - $43.61B: Equity raised by tracked QOFs through Q1 2026 (Novogradac) - 8,764: Opportunity Zones in effect today *Federal and industry tallies show the program is large and mostly invested in real estate.[^19][^20]* ## Myths about data centers in Opportunity Zones Data centers can work well in Opportunity Zones, but the structure has to fit the rules for active business, leased property and equipment.[^13] - "Servers installed by a tenant count toward the fund." Equipment a tenant owns is the tenant's property, not the QOZB's, so it does not help the QOZB's 70% tangible property test. Only property the QOZB owns or leases counts. - "A 10-year hold means 10 years of IT equipment." Hyperscalers depreciate servers over five to six years, so a fund that owns IT equipment should expect refresh cycles inside the hold. Most of the long-lived value sits in land, shell, power and cooling. - "Long construction is a problem for the cash rules." The working capital safe harbor allows 31 months per plan and up to 62 months with multiple plans, with tolling for government delay on a completed application. It is a schedule to manage, not a bar.[^21] - "Rural sites always get the 30% step-up." Only a QROF, holding at least 90% of its assets in zones made up entirely of rural areas, gets 30%. A rural-feeling site in a mixed zone does not.[^22] See [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) for the full treatment. ## Common questions **Is Opportunity Zone tax deferral permanent?** No. For amounts invested after December 31, 2026, the deferred gain is taxed on the earlier of a disposition or the fifth anniversary of the investment. The program itself is permanent. **Does the 10-year rule make the original gain tax-free?** No. It excludes appreciation on the QOF investment. The original deferred gain is taxed at year 5, reduced by the 10% or 30% step-up. **Can I invest my whole sale proceeds in a QOF?** Yes, but only the portion equal to an eligible gain you elect to defer gets the benefits. The rest is a separate, non-qualifying investment. **Does a rural property automatically get the 30% step-up?** No. The 30% step-up requires a Qualified Rural Opportunity Fund, which holds at least 90% of its assets in zones made up entirely of rural areas. **Do I need to live in an Opportunity Zone to invest?** No. The investor can live anywhere. The fund's property and business must be in the zone. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1, Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^3]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^4]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^5]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^6]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^7]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^8]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under §1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^9]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^10]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement for Qualified Opportunity Zones" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^11]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^12]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^13]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^14]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^15]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^16]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^17]: California Franchise Tax Board, "2023 Instructions for Schedule D (541), Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^18]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^19]: U.S. Government Accountability Office, "GAO-26-108132, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^20]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 [^21]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^22]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas # Section: Tax benefits & the math Deferral, basis step-ups, the ten-year exclusion and how the numbers work out. --- # The Opportunity Zone 180-day investment rule URL: https://ozdatacenters.com/guides/opportunity-zone-180-day-rule Last reviewed: 2026-10-20 To defer a capital gain under the Opportunity Zone rules, you must invest it in a Qualified Opportunity Fund within 180 days, starting on the day the gain would otherwise be recognized (the sale date counts as day 1). A gain realized on March 1, 2027 must be invested by August 27, 2027; partners and S corporation shareholders can instead start the clock at the entity's year-end or its unextended return due date. ## Key takeaways - The 180-day period begins on the day the gain would be recognized for federal tax purposes; for a direct sale that is the sale date. - A gain realized March 1, 2027 has a last investment day of August 27, 2027 (day 180). - Gross §1231 gains run from the date of each sale, not from year-end. - Partners, S corporation shareholders and beneficiaries can use the entity's sale date, the last day of the entity's tax year, or the entity's unextended return due date. - A 2026 gain invested in a QOF on or after January 1, 2027, within its 180 days, gets the five-year deferral and the 10% or 30% step-up. ## How long do you have to invest a capital gain in an Opportunity Zone fund? You have 180 days. Section 1400Z-2(a)(1)(A) allows deferral only for an amount invested in a Qualified Opportunity Fund (QOF) during the 180-day period that begins on the date of the sale or exchange that produced the gain.[^1] A QOF is a corporation or partnership that self-certifies on Form 8996 and holds at least 90% of its assets in Opportunity Zone property.[^2] The regulations define the period as the 180 days beginning on the day the gain would be recognized for federal income tax purposes if you did not elect to defer it.[^3] Because the period begins on that day, the recognition date counts as day 1 and the last day to invest is 179 days later. Count carefully and do not plan a closing for day 180; wires, subscription documents and fund acceptance all take time. **Illustrative last-day calculations (recognition date counts as day 1)** | Gain recognized | Day 180 (last day to invest) | | --- | --- | | January 1, 2027 | June 29, 2027 | | March 1, 2027 | August 27, 2027 | | June 1, 2027 | November 27, 2027 | | December 31, 2027 | June 27, 2028 | Each eligible gain has its own window. If you sell three properties in a year, you have three 180-day periods, and you can invest each gain in the same QOF or in different QOFs, in full or in part. The [overview of eligible gains](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral) covers which gains count. ## When does the 180-day clock start for different kinds of gain? For most gains the clock starts on the sale date, but the regulations give special start dates for §1231 gains, pass-through gains, installment sales and fund dividends.[^3][^4] **Start of the 180-day period by type of gain** | Type of gain | 180-day period begins | Notes | | --- | --- | --- | | Direct sale of stock, real estate or other capital asset | Date of the sale or exchange | Short-term and long-term gains both qualify | | Section 1231 gain (business property held over one year) | Date of each sale | Gross §1231 gain counts, unreduced by §1231 losses; ordinary recapture does not | | Partner, S corporation shareholder or beneficiary share of entity gain | Last day of the entity's tax year (default) | Owner may elect the entity's sale date or the entity's unextended return due date | | Installment sale | Date each payment is received, or year-end | Each payment can open its own window | | RIC or REIT capital gain dividend | Generally the last day of the shareholder's tax year | The shareholder may elect to start on the date each dividend is paid instead | Section 1231 gains get their own treatment because they are netted at year-end to decide whether they are capital or ordinary. The regulations sidestep that: the gross §1231 gain is eligible and its window runs from the sale date.[^4][^5] See [Section 1231 gains and Opportunity Zones](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones). Pass-through owners get the most flexibility. If a partnership, S corporation, estate or non-grantor trust does not invest its gain in a QOF itself, each owner can defer its share, and its window starts by default on the last day of the entity's tax year. The owner may instead elect the entity's sale date or the due date of the entity's return without extensions, which is March 15 for a calendar-year partnership.[^6][^7] The [K-1 gains guide](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains) walks through each option. **Figure: Three windows for one partnership gain** (illustrative) - Sale-date window: 5 to 10.9 months from January 1, 2027 (June 1 to November 27, 2027) - Year-end window (default): 12 to 17.9 months from January 1, 2027 (December 31, 2027 to June 27, 2028) - Return due date window: 14.5 to 20.3 months from January 1, 2027 (March 15 to September 10, 2028) *Illustrative: a calendar-year partnership sells property on June 1, 2027 and does not defer at the entity level. Each partner can choose any of these 180-day windows; the latest ends September 10, 2028.* ## What counts as investing within the 180 days? You must acquire an equity interest in an entity that is a QOF at the time of the investment, within the window, and then make the deferral election on your return.[^8][^9] - Equity only. The qualifying investment is stock in a QOF corporation or an interest in a QOF partnership. A loan to the fund does not qualify. - The fund must be a QOF. An entity self-certifies on Form 8996 and names the first month it is a QOF; money contributed before that month is not a qualifying investment.[^2] - Cash is the normal method. The regulations also permit contributions of property, with rules that can limit the qualifying amount, so property contributions need specific advice. - Buying an existing QOF interest from another investor can also be a qualifying investment if it is done within your 180 days. - Only the gain needs to be invested. Your original basis in the sold asset does not have to go into the fund. Commitments are not investments. If a fund calls capital over time, only the amounts actually contributed within your window qualify. That is why most QOFs that build large projects take the investor's full gain at one closing and hold the cash at the business level under the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor), which allows up to 31 months per written plan and up to 62 months in total.[^10] **Figure: Meeting the 180-day deadline** 1. Fix day 1: Confirm the recognition date for each gain 2. Pick the window: Pass-through owners choose among three start dates 3. Diligence the QOF: Certification month, structure, sponsor 4. Fund the equity: Wire before day 180; keep proof of date 5. Elect on Form 8949: With the return for the year of the gain *Work backward from day 180 and finish diligence before the window gets short.* ## What happens if you sell in 2026 and invest in 2027? A gain realized in 2026 and invested in a QOF on or after January 1, 2027, within its 180-day window, receives the rules for amounts invested after December 31, 2026: a five-year deferral and a 10% or 30% basis step-up.[^11][^12] The statutory effective date turns on when the amount is invested in the QOF, not when the gain was realized.[^12] Any gain recognized on or after July 6, 2026 has a 180-day window that reaches January 1, 2027. A gain recognized today, October 20, 2026, can be invested through April 17, 2027. Timing matters in the other direction too. An amount invested on or before December 31, 2026 does not get the rules described on this site; under the statute, gain deferred by such an investment is included in income on December 31, 2026, so a late-2026 investment provides essentially no deferral.[^13] Notice 2026-40 also says gain included on that date cannot be deferred again in a new QOF investment.[^12] > Pass-through owners with 2026 entity gains can often reach 2027 easily. A calendar-year partnership's 2026 gain has a default window starting December 31, 2026 and ending June 28, 2027, and the due-date election starts it on March 15, 2027. ## How do you report the investment and make the election? You elect deferral on Form 8949, attached to a timely filed return for the year the gain would have been recognized, and you file Form 8997 each year you hold the investment.[^9][^14] On Form 8949 you report the sale as usual, then report the deferral as a separate line with the QOF's EIN and the investment date, entering the deferred amount as a negative adjustment.[^9] Form 8997 then tracks the deferred gain from year to year, including what you held at the beginning and end of each year and any dispositions.[^14] Because the 180 days can run past April 15, many investors file on extension or amend after investing. A partner using the return due date window for a 2027 partnership gain could invest as late as September 2028, after the partner's own 2027 return is due; the election belongs on the 2027 return, so the partner should extend or plan to amend. See [Form 8996 and Form 8997](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## What if you miss the 180-day deadline? If you miss the window, that gain cannot be deferred, and the amount you invest becomes a non-qualifying investment with no Opportunity Zone tax benefits.[^1] There is no general late-investment relief in the current rules. Check, though, whether another start date is available. A partner who missed the sale-date window may still be inside the year-end or due-date window. An installment seller may have new windows with each payment. The checklist below catches the common errors. **Figure: 180-day readiness check** - [pass] Recognition date confirmed: Closing statement or K-1 shows the date of the gain - [pass] Window choice documented: Pass-through owners note which start date they used - [watch] QOF certified for the month of investment: Ask for the Form 8996 first-month designation - [watch] Wire timed with margin: Fund at least a week before day 180 - [fail] Investing a commitment rather than cash: Only amounts contributed within the window qualify *Most failed deferrals come from a wrong day 1, a fund that was not yet a QOF, or a late wire.* ## What does the 180-day rule mean for data center investments? Data center projects need capital for years, but each investor's money must go in within that investor's 180 days, so funds collect equity in closings and the QOZB manages the long build with the working capital safe harbor.[^10] Two groups see this most often. Landowners who sell sites to data center developers usually have §1231 or capital gain with a sale-date window, so they should line up a QOF before closing the land sale. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). Investors in a sponsor's fund should expect a closing schedule built around their windows, with cash deployed under a written plan as power, permits and construction milestones arrive. For how that plays out, see [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## Common questions **Does the sale date count as day 1 of the 180 days?** Yes. The regulations say the 180-day period begins on the day the gain would be recognized, so that day is day 1. A March 1 sale has a last day of August 27. **Do weekends or holidays extend the 180-day deadline?** Do not assume so. Treat day 180 as a hard calendar date and fund well before it. **Can I invest part of a gain within 180 days and the rest later?** You can invest part of a gain within its window. Any part invested after the window closes is not a qualifying investment. **When does the 180-day period start for a K-1 gain?** By default on the last day of the partnership's tax year. The partner can elect the partnership's sale date or the partnership's return due date without extensions instead. **Can I use one gain for investments in several funds?** Yes. You can split a gain among several QOFs, each within the same 180-day window. **Does a 2026 gain invested in January 2027 get the five-year deferral?** Yes, if the investment is within the gain's 180-day window. The effective date depends on when the amount is invested in the QOF. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1, Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^4]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^5]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^6]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^7]: Goulston & Storrs, "Qualified Opportunity Zones: Final Regulations Provide Clarity" (2020). https://www.goulstonstorrs.com/content/uploads/pdf/publication/qualified-opportunity-zones-final-regulations-provide-clarity.pdf [^8]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^9]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^10]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^11]: Spidell, "New Qualified Opportunity Zone guidance clarifies gain recognition rules" (2026). https://spidell.com/news/hot-news-and-notes/new-qualified-opportunity-zone-guidance-clarifies-gain-recognition-rules/ [^12]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^13]: Current Federal Tax Developments, "IRS Notice 2026-40: Comprehensive Analysis of Post-OBBBA Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/6/18/irs-notice-2026-40-comprehensive-analysis-of-post-obbba-transitional-guidance-on-qualified-opportunity-zones [^14]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf --- # How the five-year Opportunity Zone deferral works URL: https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral Last reviewed: 2026-10-20 For amounts invested in a Qualified Opportunity Fund after December 31, 2026, the deferred capital gain is taxed in the year that includes the earlier of the date you dispose of the investment or the fifth anniversary of the investment date. Holding the full five years increases basis by 10% of the deferred gain (30% in a Qualified Rural Opportunity Fund), so $1 million of deferred gain becomes $900,000 of taxable gain, or $700,000 in a rural fund. ## Key takeaways - Each investment has its own clock: an investment made March 15, 2027 is included in income on March 15, 2032. - The amount included is the lesser of the deferred gain or the investment's fair market value, minus your basis in the investment. - Basis starts at zero and increases by 10% of the deferred gain at five years, or 30% for a Qualified Rural Opportunity Fund. - At a 23.8% federal rate, $1 million of deferred long-term gain produces $214,200 of tax at year 5 in a standard QOF and $166,600 in a rural fund. - A sale, certain distributions or a gift before year 5 triggers the deferred gain early and forfeits the step-up. ## When is a deferred Opportunity Zone gain taxed? The deferred gain is included in income in the taxable year that includes the earlier of two dates: the date the Qualified Opportunity Fund (QOF) investment is sold or exchanged (or another inclusion event occurs), or the date five years after the investment was made.[^1][^2] This rolling rule applies to amounts invested in QOFs after December 31, 2026.[^3] There is no national deadline. Two investors who invest a month apart have inclusion dates a month apart. The clock runs from the date of the investment, not the date of the sale that produced the gain, so a gain realized in October 2027 and invested in January 2028 is included in January 2033.[^4] **Figure: The five-year clock for one investment** - Jan 10, 2027: Gain realized (180-day window opens) - Mar 15, 2027: QOF investment (Basis in QOF interest is $0) - Apr 15, 2028: Election filed (Form 8949 with the 2027 return) - Mar 15, 2032: Five-year date (10% step-up; 90% of gain included) - Apr 15, 2033: Tax due (With the 2032 return) *Illustrative dates for a gain realized January 10, 2027 and invested March 15, 2027 in a calendar-year taxpayer's QOF; the five-year clock starts on the investment date.[^2]* ## How much of the deferred gain is taxed at year 5? The amount included is the excess of the lesser of the deferred gain or the fair market value of the QOF investment, over your basis in the investment.[^1][^5] Your basis starts at zero and, after five years, increases by 10% of the deferred gain, or by 30% for a Qualified Rural Opportunity Fund (QROF).[^6] A QROF is a QOF that holds at least 90% of its assets in Opportunity Zone property in zones made up entirely of rural areas.[^7] For a standard QOF held five years, 90% of the deferred gain is taxed; for a QROF, 70%. If the investment has lost value, the fair market value cap reduces the inclusion further. See [the 10% and 30% basis step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). **Illustrative inclusion at year 5 on $1,000,000 of deferred gain** | Scenario | Lesser of gain or FMV | Basis at year 5 | Gain included | Tax at 23.8% | | --- | --- | --- | --- | --- | | Standard QOF, value up | $1,000,000 | $100,000 | $900,000 | $214,200 | | QROF, value up | $1,000,000 | $300,000 | $700,000 | $166,600 | | Standard QOF, value falls to $600,000 | $600,000 | $100,000 | $500,000 | $119,000 | | Sold in year 3 for $1,200,000 | $1,000,000 | $0 (no step-up) | $1,000,000 deferred gain plus $200,000 appreciation | $285,600 | **Figure: How the value cap and step-up shrink the included gain** (illustrative) - Deferred gain: 1000000 $ - Value cap: investment worth $600,000: -400000 $ - 10% basis step-up: -100000 $ - Gain included at year 5: 500000 $ *Illustrative: $1,000,000 of deferred gain in a standard QOF whose value has fallen to $600,000 at year 5. The included gain is $500,000, or $119,000 of tax at 23.8%.* Assumptions for every example on this page: the deferred gain is long-term, taxed at the 20% top federal rate plus the 3.8% net investment income tax (23.8%), with no state tax and no change in rates. Year-3 sale tax: $1,200,000 of total gain times 23.8% equals $285,600, assuming the appreciation is long-term. ## Worked example: $1 million of gain deferred for five years An investor with a $1 million long-term gain who invests it in a standard QOF and holds five years owes $214,200 at year 5 instead of $238,000 at the time of sale, and pays it five years later. 1. Gain realized January 10, 2027: $1,000,000 of long-term capital gain. Tax if not deferred: $1,000,000 times 23.8% equals $238,000, due with the 2027 return. 2. Investment March 15, 2027: $1,000,000 into a standard QOF. Initial basis: $0. 3. Step-up March 15, 2032: basis increases by 10% of $1,000,000, to $100,000. 4. Inclusion March 15, 2032: the lesser of $1,000,000 deferred gain or the investment's value (assume $1,400,000) is $1,000,000; minus $100,000 basis equals $900,000 included. 5. Tax: $900,000 times 23.8% equals $214,200, reported on the 2032 return. 6. After inclusion: basis increases by the $900,000 included, to $1,000,000. The deferral is also worth money because tax paid later costs less in present-value terms. At a 5% discount rate, $214,200 paid five years from now has a present value of about $167,800, and the QROF's $166,600 about $130,500, against $238,000 paid now. The [full tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example) adds the 10-year exclusion. **Figure: Present value of federal tax on $1 million of gain** (illustrative) - Pay tax at sale: $238,000 - Standard QOF, tax at year 5: $167,800 - Rural QOF (QROF), tax at year 5: $130,500 *Illustrative: 23.8% federal rate, tax discounted five years at 5% for the QOF cases, no state tax.* ## How and when do you pay the tax on the deferred gain? You report the included gain on the return for the taxable year that contains the five-year date and pay it through estimated taxes and the return, like any other gain.[^8] - Character carries over. A deferred long-term gain is included as long-term gain, and a short-term gain as short-term. Rates in effect for the inclusion year apply, so a change in capital gains rates would change the bill.[^9] - Estimated taxes. For a calendar-year individual with a March 2032 inclusion, the gain falls in 2032 and estimated payments during 2032 may be required to avoid an underpayment penalty. - Reporting. Form 8997 tracks the deferred gain each year and reports the inclusion; the gain itself is reported on Form 8949 and Schedule D for the inclusion year.[^8] - State tax. State treatment can differ; California, for example, does not conform to federal deferral.[^10] See [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). The tax is due whether or not the fund distributes cash. Most investors plan to pay it from other funds. Some funds distribute cash around year 5 from operations or a refinancing, but distributions must be structured carefully because a distribution in excess of basis can itself be an inclusion event. ## What triggers the deferred gain before year 5? An inclusion event before the fifth anniversary triggers the deferred gain early, and because the five-year holding period was not met, there is no 10% or 30% step-up.[^11][^5] **Common inclusion events** | Event | Inclusion event? | Comment | | --- | --- | --- | | Sale or exchange of the QOF interest | Yes | Gain included to the extent of the interest disposed of | | Distribution in excess of basis | Yes | Basis is low before year 5, so distributions need care; debt-financed distributions can be included, depending on the partner's basis | | Gift of the QOF interest | Yes | Except a gift to a grantor trust | | Death of the investor | No | The heir takes over the deferred gain as income in respect of a decedent and the holding period | | Transfer to a grantor trust | No | Treated as still owned by the grantor | Partial dispositions trigger a proportional part of the deferred gain. Treasury asked for comments on inclusion-event rules in Notice 2026-55 (comments due November 23, 2026), so further guidance may refine these rules.[^12] See [Opportunity Zone inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). ## What happens to your basis after the deferred gain is taxed? Once the deferred gain is included, your basis in the QOF investment increases by the amount included, so a sale between years 5 and 10 taxes only the appreciation.[^1] Continuing the example: after the $100,000 step-up and the $900,000 inclusion, basis is $1,000,000. Selling in year 7 for $1,400,000 produces $400,000 of gain. Holding at least 10 years lets you elect a fair market value basis instead, excluding that appreciation entirely, up to the investment's value on its 30th anniversary.[^13] See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) and [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). ## How does the five-year date line up with a data center project? For a ground-up data center, year 5 often lands during lease-up or early operations, before the project's value is fully realized, so investors should plan to fund the year-5 tax from outside cash.[^14] Power interconnection, permitting and construction can take several years, and the QOZB can hold cash for up to 31 months per plan (62 months maximum) under the working capital safe harbor while it builds.[^15] A stabilized, leased facility may support a refinancing that funds distributions, but the timing and the distribution's tax treatment are deal-specific. Ask the sponsor how it expects the year-5 date to fall against the build schedule. See [the data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## What is still pending from Treasury? The five-year rule itself is in the statute, but several implementing details await regulations.[^12][^3] - Notice 2026-40 is interim transition guidance and announced proposed regulations that have not been issued. - Notice 2026-55 requests comments on inclusion events, interim gains and other §1400Z-2 issues, due November 23, 2026. - Detailed rules on how a fund establishes and keeps QOF versus QROF status over the five years have not been issued; review the fund documents. ## Common questions **Is the Opportunity Zone deferral always five years?** Five years is the maximum for amounts invested after December 31, 2026. A sale or other inclusion event before then ends the deferral earlier. **Do I get the 10% step-up if I sell in year 4?** No. The step-up requires a five-year hold. A year-4 sale includes the full deferred gain plus any appreciation. **Do I need cash from the fund to pay the year-5 tax?** No, the tax is due regardless of distributions. Plan to pay it from other funds unless the sponsor has a clear distribution plan. **What if my QOF investment is worth less than the deferred gain at year 5?** The amount included is capped at the investment's fair market value, minus your basis, so a decline reduces the tax. **Does the deferred gain keep its long-term character?** Yes. The included gain keeps the character it had when deferred, taxed at the rates in effect for the year of inclusion. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^3]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^4]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^5]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^6]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^7]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^8]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^9]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^10]: California Franchise Tax Board, "2023 Instructions for Schedule D (541), Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^11]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^12]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under §1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^13]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^14]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^15]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same --- # The Opportunity Zone basis step-up: 10% and 30% URL: https://ozdatacenters.com/guides/opportunity-zone-basis-step-up Last reviewed: 2026-10-20 If you hold a Qualified Opportunity Fund investment for at least five years, your basis increases by 10% of the deferred gain, so only 90% of that gain is taxed; in a Qualified Rural Opportunity Fund the increase is 30%, so 70% is taxed. On $1 million of deferred long-term gain at a 23.8% federal rate, that saves $23,800 in a standard fund and $71,400 in a rural fund, for amounts invested after December 31, 2026. ## Key takeaways - The step-up equals 10% of the deferred gain for a standard QOF and 30% for a Qualified Rural Opportunity Fund (QROF), after a five-year hold. - It applies to amounts invested in a QOF after December 31, 2026; there is no additional step-up for longer holds. - A QROF must hold at least 90% of its assets in Opportunity Zone property located in zones made up entirely of rural areas. - Each 10 points of step-up saves 2.38% of the deferred gain at a 23.8% federal rate: $23,800 per $1 million at 10%, $71,400 at 30%. - A sale or other inclusion event before year 5 forfeits the step-up. ## What is the Opportunity Zone basis step-up? The step-up is a statutory increase in your basis in a Qualified Opportunity Fund (QOF) investment after you have held it five years, equal to 10% of the deferred gain, or 30% if the fund is a Qualified Rural Opportunity Fund (QROF).[^1][^2] When you defer a gain by investing it in a QOF, your basis in that investment starts at zero.[^1] Basis is what the tax law subtracts from value to measure gain, so a zero basis means the full deferred gain would be taxed when it is included. The step-up raises that basis before the inclusion at year 5, so less gain is taxed. It applies to amounts invested in QOFs after December 31, 2026.[^3] **Step-up by fund type (five-year hold)** | Fund type | Basis increase | Share of deferred gain taxed | Federal tax per $1M at 23.8% | | --- | --- | --- | --- | | No Opportunity Zone investment | None | 100%, at sale | $238,000 | | Qualified Opportunity Fund (QOF) | 10% of deferred gain | 90%, at year 5 | $214,200 | | Qualified Rural Opportunity Fund (QROF) | 30% of deferred gain | 70%, at year 5 | $166,600 | There is one step-up date. The rules for these investments do not add a further increase for a longer hold; the next benefit is the 10-year exclusion of appreciation, covered in [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains).[^4] ## How much tax does the step-up save? At a 23.8% federal rate, the 10% step-up saves 2.38% of the deferred gain and the 30% step-up saves 7.14%, paid five years after the investment.[^5] Assumptions: long-term capital gain taxed at the 20% top federal rate plus the 3.8% net investment income tax (23.8%), no state tax, no change in rates, and a QOF investment worth at least the deferred gain at year 5. These figures are illustrative. **Illustrative federal tax at year 5 by size of deferred gain** | Deferred gain | Tax with no step-up | QOF tax (10% step-up) | QOF saving | QROF tax (30% step-up) | QROF saving | | --- | --- | --- | --- | --- | --- | | $250,000 | $59,500 | $53,550 | $5,950 | $41,650 | $17,850 | | $1,000,000 | $238,000 | $214,200 | $23,800 | $166,600 | $71,400 | | $5,000,000 | $1,190,000 | $1,071,000 | $119,000 | $833,000 | $357,000 | **Figure: Federal tax on $1 million of deferred gain at year 5** (illustrative) - Taxed in full (no step-up): $238,000 - Standard QOF (10% step-up): $214,200 - Rural QROF (30% step-up): $166,600 *Illustrative: 23.8% federal rate, no state tax. The rural fund's 30% step-up saves three times as much as the standard 10%.* The same math at a different size: $500,000 of deferred gain in a QROF held five years receives a $150,000 basis increase (30%), so tax applies to $350,000.[^5] For a full projection that includes the 10-year exclusion, see the [tax savings worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## What qualifies a fund for the 30% rural step-up? A QROF is a QOF that holds at least 90% of its assets in Opportunity Zone property located in Qualified Opportunity Zones composed entirely of rural areas.[^6][^7] The statute defines a rural area as any area other than a city or town with a population greater than 50,000 and any urbanized area contiguous and adjacent to such a city or town.[^8] A zone qualifies only if it is made up entirely of rural area; a tract that is partly urbanized does not. Under the zones in effect today, 3,309 of 8,764 are wholly rural.[^6] Treasury's eligible list for the map taking effect January 1, 2027 includes 8,334 wholly rural tracts out of 25,332.[^9] **Figure: Standard QOF versus Qualified Rural Opportunity Fund** - Qualified Opportunity Fund (10% step-up) - At least 90% of assets in QOZ property, any zone - Basis +10% of deferred gain at year 5 - 90% of deferred gain taxed - Substantial improvement: double the building's basis in 30 months - Qualified Rural Opportunity Fund (30% step-up) - At least 90% of assets in QOZ property in wholly rural zones - Basis +30% of deferred gain at year 5 - 70% of deferred gain taxed - Substantial improvement in wholly rural zones: 50% of basis in 30 months *The rural fund's extra benefits depend on where nearly all of its assets sit, measured at the fund level.[^6]* Two practical points. First, the test is at the fund level, so a multi-asset fund with one urban property and several rural ones may fail it. Second, a property in a rural zone helps a standard QOF too: the 50% substantial improvement threshold in wholly rural zones applies to any QOF or QOZB, not only a QROF.[^10] See [what a QROF is](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund) and [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## When do you lose or limit the step-up? You lose the step-up if an inclusion event occurs before the five-year date, and its value shrinks if the investment is worth less than the deferred gain.[^11] - Early disposition. Selling, gifting (other than to a grantor trust) or taking certain distributions from the QOF interest before year 5 triggers the deferred gain without any step-up.[^12] See [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). - Falling value. The included amount is the lesser of the deferred gain or the investment's fair market value, minus basis. If $1 million of deferred gain sits in a QROF worth $800,000 at year 5, the inclusion is $800,000 minus $300,000, or $500,000.[^1] - Only qualifying amounts. Money invested beyond your elected deferred gain is a separate investment with no step-up. - Fund status. The 30% rate depends on the fund being a QROF. Detailed rules for how QROF status is established and maintained over the five years have not been issued as of October 20, 2026, so read the fund's documents and covenants closely. **Figure: Step-up and value cap together in a rural fund** (illustrative) - Deferred gain: 1000000 $ - Value cap: investment worth $800,000: -200000 $ - 30% basis step-up: -300000 $ - Gain included at year 5: 500000 $ *Illustrative: $1,000,000 of deferred gain in a QROF whose investment is worth $800,000 at year 5; $500,000 is included, or $119,000 of tax at 23.8%.* ## What happens to basis after the step-up and inclusion? After the deferred gain is included at year 5, your basis rises by the amount included, so your total basis equals the original deferred gain (assuming the value cap did not apply).[^1] In the $1 million standard QOF example, basis goes from $0 to $100,000 (step-up), then to $1,000,000 (after the $900,000 inclusion). A sale between years 5 and 10 taxes only appreciation above $1,000,000. After 10 years, the fair market value election makes the step-up irrelevant to the exit, because basis is reset to value anyway.[^13] The step-up's job is to shrink the year-5 tax bill. The [five-year deferral guide](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) covers when and how that bill is paid. ## How does the step-up work with several investments or tranches? Each qualifying investment has its own five-year date and its own step-up, measured on the gain deferred by that investment.[^14] If you invest $600,000 of one gain in March 2027 and $400,000 of another gain in September 2027, the first tranche steps up by $60,000 in March 2032 and the second by $40,000 in September 2032, each followed by its own inclusion. Form 8997, filed every year, tracks each investment's date and deferred gain, which is the record you and your preparer use to compute each step-up.[^14] Keep the fund's capital account statements with your Form 8997 history; the fund's records and yours should agree on every investment date. See [Form 8996 and Form 8997](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## Why the 30% step-up matters for rural data centers Large data center campuses often sit outside cities near transmission and cheap land, so a single-asset fund that owns a campus in a wholly rural zone can be a QROF and give investors the 30% step-up.[^15] The same rural location halves the substantial improvement threshold if the project buys an existing building to convert, and the long life of shell, power and cooling assets suits the 10-year hold.[^10] The questions to ask are whether the tract is wholly rural on Treasury's list, whether the zone will be designated on the map taking effect January 1, 2027, and whether the fund can keep 90% of assets in such zones through year 5. See [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). OZ Data Centers sponsors funds of this kind. ## Common questions **How large is the Opportunity Zone basis step-up?** For amounts invested in a QOF after December 31, 2026, the step-up is 10% of the deferred gain after five years, or 30% in a Qualified Rural Opportunity Fund. There is no further step-up for longer holds. **Is the step-up automatic?** Yes. It applies by statute when you have held the investment for at least five years. You do not make a separate election for it. **Does the 30% step-up apply to any property in a rural area?** No. The fund must be a QROF, holding at least 90% of its assets in Opportunity Zone property in zones made up entirely of rural areas. **Does the step-up affect the 10-year exclusion?** No. The step-up reduces the gain taxed at year 5. The 10-year election separately resets basis to fair market value on sale. **What if I sell after four years?** There is no step-up. The full deferred gain, up to the investment's value, is included in the year of sale, plus any appreciation. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^3]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^4]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^5]: Willkie Farr & Gallagher, "One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones" (2025). https://www.willkie.com/publications/2025/07/one-big-beautiful-bill-act-extends-tax-incentives-for-qualified-opportunity-zones [^6]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^7]: Venable, "The One Big Beautiful Bill Act: Impact on the Opportunity Zone Program" (2025). https://www.venable.com/insights/publications/2025/09/the-one-big-beautiful-bill-act-impact-on-the [^8]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement for Qualified Opportunity Zones" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^9]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^10]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^11]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^12]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^13]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^14]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^15]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers --- # The 10-year hold: tax-free gains on Opportunity Zone investments URL: https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains Last reviewed: 2026-10-20 If you hold a Qualified Opportunity Fund investment for at least 10 years, you can elect when you sell it to set your basis equal to its fair market value, so the appreciation is excluded from federal income tax. For a sale after the 30th anniversary of the investment, basis is set at the value on that anniversary, so only appreciation through year 30 is tax-free; the original deferred gain is still taxed at year 5. ## Key takeaways - The election under §1400Z-2(c) is available on a sale or exchange of a QOF investment held at least 10 years. - It excludes appreciation on the QOF investment; it does not exclude the original deferred gain, which is taxed at year 5. - For a QOF partnership, the regulations adjust basis to fair market value including the investor's share of debt, and extend the election to the fund's asset sales other than inventory. - Appreciation after the 30th anniversary of the investment is taxable, because basis is fixed at the year-30 value. - On a $1 million investment that grows to $2.5 million by year 12, the election excludes $1.5 million of gain, about $357,000 of federal tax at 23.8%. ## What is the Opportunity Zone 10-year exclusion? It is an election, available when you sell or exchange a Qualified Opportunity Fund (QOF) investment held at least 10 years, to treat your basis in the investment as equal to its fair market value on the date of sale, which eliminates the gain.[^1][^2] A QOF is a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property.[^3] The 10-year election is the program's largest benefit: deferral and the step-up reduce tax on the gain you already had, while the exclusion removes tax on everything the investment earns in value. The regulations limit the election to a qualifying investment held at least 10 years; to the extent an inclusion event (such as a sale or gift of part of the interest) has reduced or ended the qualifying investment, that portion is no longer eligible.[^2] **Figure: When the exclusion is available** - Year 0: Invest the gain (Basis $0) - Year 5: Deferred gain taxed (Less 10% or 30% step-up) - Year 10: Election available (Basis = fair market value on sale) - Years 10 to 30: Full exclusion window (All appreciation excluded) - After year 30: Basis frozen (Year-30 value; later growth taxable) *For an investment made March 15, 2027, appreciation is excludable on a sale from March 2037; for sales after March 2057, basis is fixed at the year-30 value.[^4]* ## What does the 10-year election exclude, and what does it not? It excludes the appreciation on the qualifying QOF investment; it does not exclude the original deferred gain, appreciation after year 30, or any part of a mixed investment that was not deferred gain.[^1][^5] **What the 10-year election reaches** | Item | Excluded? | Why | | --- | --- | --- | | Appreciation on the QOF interest through year 30 | Yes | Basis is reset to fair market value on sale | | The original deferred gain | No | Taxed at year 5 (90% or 70% after the step-up) | | Appreciation after the 30th anniversary | No | Basis is fixed at the year-30 value | | Cash invested beyond the elected gain | No | A separate, non-qualifying investment | | Gain on an interest held less than 10 years | No | The holding period has not been met | | State income tax | Depends | Some states, such as California, do not conform[^6] | The basic election is set by statute and regulation. How the year-30 basis is determined and documented is open; Notice 2026-55 asks for comments on that valuation.[^7] See [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). ## Worked example: the exclusion on a 12-year hold An investor who puts $1,000,000 of gain into a standard QOF and sells in year 12 for $2,500,000 excludes $1,500,000 of gain, about $357,000 of federal tax. Assumptions: the $1,000,000 is long-term capital gain invested March 15, 2027; the investment is worth $2,500,000 when sold in March 2039; federal rate 23.8% (20% plus the 3.8% net investment income tax); no state tax; the fund is a partnership and the sale is of the investor's interest. Figures are illustrative. 1. Year 5 (March 2032): basis steps up by $100,000; $900,000 of deferred gain is included; tax $214,200. Basis becomes $1,000,000. 2. Year 12 (March 2039): the investor sells for $2,500,000. Without the election, gain would be $2,500,000 minus $1,000,000, or $1,500,000, and tax $357,000. 3. With the election: basis is set to $2,500,000, so gain is zero and federal tax at exit is $0. 4. Total federal tax over the life of the investment: $214,200, all of it on the original gain. **Figure: Federal tax at a year-12 sale for $2.5 million** (illustrative) - Sale without 10-year election: $357,000 - Sale with 10-year election: $0 - Tax paid at year 5 either way: $214,200 *Illustrative: $1,000,000 standard QOF investment, basis $1,000,000 after year-5 inclusion, 23.8% federal rate, no state tax.* The full multi-strategy comparison, including what the same money would earn outside a QOF, is in the [Opportunity Zone tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## How does the 10-year election work in a QOF partnership? Most QOFs are partnerships, and the regulations give them two exit paths: sell the partnership interest with basis stepped up to fair market value including debt, or have the fund sell its assets and let investors exclude the resulting gains.[^2][^8] **Figure: Two ways to exit a QOF partnership after 10 years** - Sell the QOF interest (Interest sale) - Investor sells its partnership interest - Basis is adjusted to fair market value, including the investor's share of fund debt - Partnership asset bases are adjusted too, so ordinary income from recapture is generally eliminated - Buyer acquires the fund or the investor's stake - Fund sells its assets (Asset sale) - QOF (or a lower-tier QOZB) sells property - Gain flows to the investor on Schedule K-1 - Investor may elect to exclude the gain, other than gain from inventory sold in the ordinary course - Useful for multi-asset funds selling properties one at a time *Both paths can exclude the gain; which one fits depends on the buyer, the assets and whether the fund holds several properties.[^2]* Debt matters because many QOF partnerships borrow, and an investor's share of partnership liabilities is part of what a buyer effectively pays. Basis reset to value including debt keeps the investor from recognizing gain on debt-financed value.[^9] Practitioner summaries also describe the asset-sale election as reaching §1231 gain and depreciation recapture, not only capital gain; confirm the treatment of a specific sale with your tax adviser.[^10] Distributions are a separate question. A distribution that exceeds basis can be an inclusion event, and debt-financed distributions in the first years carry special risk. See [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing). ## How do you make the election, and what can go wrong? You make the election on your return for the year of the sale, reporting the sale and the basis adjustment, and you must have held the qualifying investment at least 10 years without an intervening inclusion event.[^2][^11] - Holding period. It runs from the date you acquired the QOF interest. An heir who inherits the interest keeps the decedent's holding period.[^12] - Inclusion events. A portion of the interest that an earlier inclusion event removed from your qualifying investment (by sale or gift, for example) is no longer eligible. Some inclusion events, such as certain distributions, are generally read not to reduce the qualifying investment itself; confirm the treatment of any specific event with your adviser.[^2] - Fund failures. A QOF that decertifies or a QOZB that fails its tests can jeopardize the benefit; the [90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test) is tested twice a year for the life of the fund. - Losses. If the investment is worth less than your basis after year 5, you would not make the election; the loss is measured against your actual basis. - Reporting. Investors file Form 8997 annually; funds file Form 8996 and, under proposed rules, new §6039K information returns with daily penalties for failure.[^13] ## What does the 10-year rule mean for a data center fund? Data centers suit the 10-year hold because most of their value is in long-lived land, shell, power and cooling infrastructure, and a stabilized, leased facility is the kind of asset buyers acquire as a going concern.[^14] Three design points follow. First, plan the exit as an interest sale where possible, so the basis reset covers debt and depreciation. Second, expect equipment turnover: IT equipment has much shorter lives than the hold, and tenant-owned servers are not the fund's property at all. Third, make sure the QOZB is actively operating the facility, because merely entering into a triple-net lease is not an active trade or business, and a failed QOZB undermines the exclusion.[^15] See [Opportunity Zone exit strategies](https://ozdatacenters.com/guides/opportunity-zone-exit-strategies) and [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). Bonus depreciation can add to the result. Permanent 100% bonus depreciation for qualifying property acquired after January 19, 2025 lets a data center QOZB deduct short-life equipment quickly, and an interest sale after 10 years with the basis reset can avoid recapturing those deductions.[^16] See [depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## Common questions **Is the 10-year Opportunity Zone exclusion automatic?** No. It is an election you make on the return for the year you sell or exchange the QOF investment, after holding it at least 10 years. **Does the 10-year rule make my original capital gain tax-free?** No. The original deferred gain is taxed at year 5, reduced by the 10% or 30% step-up. The 10-year election excludes appreciation on the QOF investment. **Can I hold longer than 10 years?** Yes. The exclusion covers appreciation through the 30th anniversary of the investment. For sales after year 30, basis is fixed at the year-30 value. **Does the election cover depreciation recapture?** For a sale of a QOF partnership interest, the regulations adjust partnership asset bases as well, which generally eliminates recapture. For asset sales by the fund, confirm the treatment with your adviser. **What if I die before year 10?** Death is not an inclusion event. The heir keeps your holding period and can make the election after the combined holding period reaches 10 years. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^3]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^4]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^5]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^6]: California Franchise Tax Board, "2023 Instructions for Schedule D (541), Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^7]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under §1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^8]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^9]: Bloomberg Tax, "Opportunity Zone Investing: How Is Debt Handled in Determining the Basis Step-Up After 10 Years?" (2019). https://news.bloombergtax.com/daily-tax-report/insight-opportunity-zone-investing-how-is-debt-handled-in-determining-the-basis-step-up-after-10-years [^10]: Kilpatrick Townsend, "Final IRS Rules Spur Development of New Opportunity Zone Funds" (2020). https://ktslaw.com/insights/alert/2020/4/final-irs-rules-spur-development-of-new-opportunity-zone-funds [^11]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^12]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^13]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^14]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^15]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^16]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities --- # The 30-year limit on Opportunity Zone gains URL: https://ozdatacenters.com/guides/opportunity-zone-30-year-limit Last reviewed: 2026-10-20 The Opportunity Zone exclusion is capped in time: if you sell a Qualified Opportunity Fund investment after the 30th anniversary of the investment date, your basis is set at its fair market value on that anniversary, so appreciation through year 30 is tax-free and appreciation after year 30 is taxable. For amounts invested after December 31, 2026, the earliest 30th anniversaries fall in 2057, and Treasury has not yet said how the year-30 value will be determined. ## Key takeaways - Appreciation on a QOF investment is excludable for sales from year 10 through year 30 after the investment date. - For a sale after the 30th anniversary, basis equals fair market value on the 30th anniversary; later appreciation is taxed on sale. - The limit does not force a sale; it freezes the excluded amount at the year-30 value. - An investment made March 15, 2027 reaches its 30th anniversary on March 15, 2057. - Notice 2026-55 asks how the year-30 valuation and election should work, so the mechanics are pending. ## What is the 30-year limit on Opportunity Zone gains? It is a cap on the 10-year exclusion: for a Qualified Opportunity Fund (QOF) investment sold after its 30th anniversary, basis is set at fair market value on the 30th anniversary instead of on the date of sale.[^1][^2] The exclusion works by resetting basis to fair market value. If you have held a QOF investment at least 10 years, you can elect on sale to treat your basis as its value, so the appreciation is not taxed.[^3] Under §1400Z-2(c) as amended by Public Law 119-21, that reset is measured no later than the 30th anniversary of the investment.[^4][^5] Value added after that date is taxed when you sell, as ordinary appreciation would be. **Figure: The life of one QOF investment** - Mar 15, 2027: Investment (Basis $0) - Mar 15, 2032: Year 5 (Deferred gain taxed, less step-up) - Mar 15, 2037: Year 10 (Exclusion election available) - Mar 15, 2057: Year 30 (Basis fixed at this date's value) - After 2057: Sale (Only post-year-30 growth taxed) *For an investment made March 15, 2027, the full exclusion window runs from March 2037 to March 2057.[^2]* ## Which investments does the 30-year limit apply to? It applies to amounts invested in QOFs after December 31, 2026, the same investments that receive the rolling five-year deferral and the 10% or 30% step-up.[^6][^7] Each investment has its own 30-year date, measured from the date that investment was made. Investors who fund in several tranches will have several anniversaries. The limit applies equally to standard QOFs and to Qualified Rural Opportunity Funds; the rural fund's advantage is in the year-5 step-up, not the exclusion.[^4] ## Worked example: selling at year 30 versus year 35 and year 40 Selling at or before the 30th anniversary excludes all appreciation; selling five years later taxes the value added in those five years. Assumptions: $1,000,000 of long-term gain invested March 15, 2027 in a standard QOF; basis $1,000,000 after the year-5 inclusion; investment value $10,000,000 at year 30, $13,000,000 at year 35 and $16,000,000 at year 40; post-year-30 appreciation is long-term capital gain taxed at 23.8% federal (20% plus 3.8% net investment income tax); no state tax; current rates throughout. Figures are illustrative. **Illustrative federal tax at exit** | Sale date | Sale value | Basis used | Taxable gain | Federal tax at 23.8% | | --- | --- | --- | --- | --- | | Year 12 | $2,500,000 | $2,500,000 (fair market value on sale) | $0 | $0 | | Year 30 | $10,000,000 | $10,000,000 (fair market value on sale) | $0 | $0 | | Year 35 | $13,000,000 | $10,000,000 (value at year 30) | $3,000,000 | $714,000 | | Year 40 | $16,000,000 | $10,000,000 (value at year 30) | $6,000,000 | $1,428,000 | **Figure: A year-35 sale under the 30-year limit** (illustrative) - Sale price, year 35: 13000000 $ - Basis after year-5 inclusion: -1000000 $ - Appreciation through year 30 (excluded): -9000000 $ - Taxable post-year-30 gain: 3000000 $ *Illustrative: $13,000,000 sale price; the original $1,000,000 basis and $9,000,000 of appreciation through year 30 are not taxed, leaving $3,000,000 taxable ($714,000 at 23.8%).* **Figure: Federal tax at exit by year of sale** (illustrative) - Sell in year 12: $0 - Sell in year 30: $0 - Sell in year 35: $714,000 - Sell in year 40: $1,428,000 *Illustrative: same assumptions as the table. Tax is zero through year 30 and rises with every year of growth after it.* ## Do you have to sell at year 30? No. The 30-year rule fixes the basis used on a later sale; it does not by itself require a sale or trigger tax at year 30, as described in practitioner summaries of the amended statute.[^2][^4] Holding past year 30 can still make sense. You keep the excluded value locked in, and tax on later growth is deferred until you sell, like any other investment. The cost is that you need evidence of the year-30 value years or decades later, which is where the open questions are. Family offices with multigenerational horizons should plan the year-30 date as carefully as the year-10 date. See [Opportunity Zones for family offices](https://ozdatacenters.com/guides/opportunity-zones-for-family-offices). ## How can investors plan around the 30-year date? The planning goal is simple: realize as much appreciation as possible on or before the 30th anniversary, or accept that later growth will be taxed like any other investment.[^3] **Options as the 30th anniversary approaches** | Option | How it works | Watch for | | --- | --- | --- | | Sell the QOF interest by year 30 | Elect fair market value basis; all appreciation excluded | Buyer demand and pricing for a fund interest | | Fund sells assets by year 30 | Investors elect to exclude K-1 gains from the fund's asset sales | Inventory gains are not excludable | | Partial sales over years 10 to 30 | Sell portions of the interest and exclude each portion's gain | Each sale is a separate election | | Hold past year 30 | Basis on a later sale is the year-30 value | Proof of that value; pending Treasury rules | | Transfers to family | Gifts and transfers have their own rules | A gift can end qualifying status; get advice first | Because a fund-level asset sale can qualify for the election, a sponsor can also schedule dispositions of individual properties before investors' 30-year dates, which is useful in multi-asset funds with investors who came in at different times.[^8] See [single-asset vs. multi-asset funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). ## What is still unsettled about the 30-year rule? How the year-30 fair market value is determined, documented and elected when there is no sale at year 30 is unsettled, and Treasury has asked for comments.[^9][^10] Notice 2026-55, released September 22, 2026, requests comments on several §1400Z-2 issues, including the year-30 election and valuation; comments are due November 23, 2026.[^9] Until regulations are proposed, these questions are open: - Valuation method. Whether an appraisal at the anniversary will be required, and what standard (for example, enterprise value of a QOF partnership interest versus the fund's underlying assets) applies. - Timing of the election. Whether the investor must elect or report anything in the year of the 30th anniversary, or only on the later sale. - Partnership mechanics. How a QOF partnership will adjust inside basis or report year-30 values to investors so a later asset sale can be measured. - Interaction with inclusion events and transfers after year 30, including gifts and transfers at death. > Practical step now: if you expect to hold beyond year 30, ask the sponsor whether the fund will obtain an independent valuation at each investor's 30th anniversary and how it will report it. Keep that record with your Form 8997 history. ## How does the 30-year limit fit with the other Opportunity Zone benefits? It is the last of four time-based markers: 180 days to invest, five years to the step-up and inclusion, 10 years to the exclusion, and 30 years to the cap.[^5] **Figure: The four clocks of an Opportunity Zone investment** 1. 180 days: Invest the gain in a QOF 2. Year 5: 10% or 30% step-up; deferred gain taxed 3. Year 10: Elect fair market value basis on sale 4. Year 30: Excluded amount fixed at this value *Each clock runs from a specific date: the gain for the first, and the investment date for the rest.* For most funds, the 30-year cap is far from the planned exit; many sponsors target a sale between years 10 and 15. It matters most for long-lived infrastructure and for investors who want to own an asset indefinitely. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule), [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral), [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) and [key dates and timeline](https://ozdatacenters.com/guides/opportunity-zone-key-dates). ## Does the 30-year limit matter for data center investments? It can, because powered land, substations, shells and cooling plants can stay productive for decades, while servers and other IT equipment turn over on cycles of five or six years.[^11] A data center fund that plans to hold a campus long term should treat year 30 as a natural exit or recapitalization date, and should expect several equipment and tenant cycles before it. Sponsors also need to keep the QOZB actively operating the facility for the whole holding period, since merely entering into a triple-net lease is not an active trade or business under the regulations, and the exclusion depends on the fund and its business continuing to qualify.[^12] See [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). ## Common questions **Does the 30-year limit apply to my current Opportunity Zone investment?** It applies to amounts invested in a QOF after December 31, 2026. Each such investment has its own 30-year date from its investment date. **Is the gain after year 30 taxed at year 30 or when I sell?** Under practitioner readings of the statute, it is taxed when you sell, measured from the year-30 value. Treasury guidance on the year-30 mechanics is pending. **Will I need an appraisal at year 30?** Treasury has not said. Notice 2026-55 asks for comments on how the year-30 value should be determined, so plan to document value at that date. **Does the 30-year limit affect the 10% or 30% step-up?** No. The step-up applies to the deferred gain at year 5. The 30-year limit affects only the exclusion of appreciation. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^4]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^5]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Current Federal Tax Developments, "IRS Notice 2026-40: Comprehensive Analysis of Post-OBBBA Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/6/18/irs-notice-2026-40-comprehensive-analysis-of-post-obbba-transitional-guidance-on-qualified-opportunity-zones [^8]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^9]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under §1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^10]: Current Federal Tax Developments, "IRS Solicits Technical Comments on Opportunity Zone Regulations Post-OBBBA (Notice 2026-55)" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/22/irs-solicits-technical-comments-on-opportunity-zone-regulations-post-obbba-administrative-focus-on-interim-gains-single-family-housing-and-working-capital-safe-harbors [^11]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^12]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ --- # Opportunity Zone tax savings: a worked example URL: https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example Last reviewed: 2026-10-20 On a $1 million long-term capital gain taxed at 23.8% federal, paying the tax and investing the rest leaves about $1,342,600 after 10 years if the investment doubles. Investing the full gain in a standard Qualified Opportunity Fund with the same return leaves about $1,785,800 after the year-5 tax of $214,200, roughly $443,000 more; a Qualified Rural Opportunity Fund leaves about $1,833,400. ## Key takeaways - Paying tax at sale on a $1 million long-term gain costs $238,000 at 23.8% federal, leaving $762,000 to invest. - In a standard QOF, the full $1 million is invested and the year-5 tax is $214,200 (90% of the gain); in a rural QOF it is $166,600 (70%). - If both investments double over 10 years, the taxable alternative nets about $1,342,644 after exit tax; the QOF nets about $1,785,800, because the $1 million of appreciation is excluded. - Most of the advantage comes from the 10-year exclusion, not the deferral or step-up, so it depends on the investment actually appreciating. - The comparison assumes equal pre-tax returns; fees, risk, liquidity and state taxes can change the answer. ## What are the assumptions in this Opportunity Zone example? The example compares three ways to handle a $1,000,000 long-term capital gain realized in February 2027, using current federal rates and identical pre-tax investment returns. Every number is illustrative.[^1] **Assumptions** | Item | Assumption | | --- | --- | | Gain | $1,000,000 long-term capital gain from selling stock to an unrelated buyer, February 2027 | | Federal rate | 23.8%: 20% top long-term capital gains rate plus 3.8% net investment income tax | | State tax | None (many states tax gains; some, such as California, do not conform to the Opportunity Zone rules)[^2] | | Investment return | Value doubles over 10 years (about 7.2% a year compounded), no interim distributions | | QOF timing | Invested March 15, 2027, within 180 days; year-5 tax paid from other funds; sold just after the 10th anniversary | | Fees and risk | Ignored to isolate the tax effect; both investments assumed equally risky | These are the rules for amounts invested in a Qualified Opportunity Fund (QOF) after December 31, 2026: deferral until the fifth anniversary, a 10% basis step-up (30% for a Qualified Rural Opportunity Fund, or QROF), and an election to exclude appreciation on a sale after at least 10 years.[^3][^4][^5] ## Strategy A: pay the tax now and invest the rest Paying the tax at sale leaves $762,000 to invest, which grows to $1,524,000 and nets $1,342,644 after a 23.8% tax on the $762,000 of growth. 1. Tax at sale: $1,000,000 times 23.8% equals $238,000. 2. Invest the remaining $762,000 in a taxable investment. 3. Year 10: the investment doubles to $1,524,000. 4. Exit tax: ($1,524,000 minus $762,000 basis) times 23.8% equals $181,356. 5. Net after all federal taxes: $1,524,000 minus $181,356 equals $1,342,644. Total federal tax paid: $419,356. **Figure: Strategy A: pay tax at sale, then invest** (illustrative) - Gain proceeds: 1000000 $ - Tax at sale: -238000 $ - Growth over 10 years: +762000 $ - Tax on growth at exit: -181356 $ - Net after tax: $1,342,644: 1342644 $ *Illustrative: 23.8% federal rate, investment doubles over 10 years, no state tax.* ## Strategy B: invest the gain in a standard Qualified Opportunity Fund Investing the full $1,000,000 in a QOF defers the tax to year 5, cuts it to $214,200 with the 10% step-up, and excludes all $1,000,000 of appreciation at exit, for a net of $1,785,800. 1. March 15, 2027: invest $1,000,000 in a QOF and elect deferral on Form 8949 with the 2027 return.[^6] Basis in the QOF interest: $0. 2. March 15, 2032 (year 5): basis steps up by 10% of the deferred gain, to $100,000. Included gain: $1,000,000 minus $100,000 equals $900,000. Tax: $900,000 times 23.8% equals $214,200, paid with the 2032 return.[^7] 3. After inclusion, basis is $1,000,000. 4. Just after March 15, 2037 (year 10): the investment is worth $2,000,000. The investor sells and elects to treat basis as fair market value, so the $1,000,000 of appreciation is excluded.[^5] 5. Net after all federal taxes: $2,000,000 minus $214,200 equals $1,785,800. Total federal tax paid: $214,200. **Figure: Strategy B: invest the gain in a standard QOF** (illustrative) - Gain invested: 1000000 $ - Growth over 10 years: +1000000 $ - Year-5 tax on $900,000: -214200 $ - Exit tax on appreciation (excluded): 0 $ - Net after tax: $1,785,800: 1785800 $ *Illustrative: same return as Strategy A; the only tax is on 90% of the original gain at year 5, and appreciation is excluded under the 10-year election.* ## Strategy C: invest the gain in a Qualified Rural Opportunity Fund A QROF works the same way with a 30% step-up, so the year-5 tax falls to $166,600 and the net rises to $1,833,400.[^8] A QROF must hold at least 90% of its assets in Opportunity Zone property in zones made up entirely of rural areas.[^9] The year-5 math: basis $300,000, included gain $700,000, tax $700,000 times 23.8% equals $166,600. The exit is identical to Strategy B. The step-up difference alone is worth $47,600 more than a standard QOF on this gain. See [the 10% and 30% basis step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). ## How do the three strategies compare? With equal returns, the QOF strategies leave $443,156 (standard) and $490,756 (rural) more after federal tax than paying tax up front. **Figure: Net after federal tax at year 10 on a $1 million gain** (illustrative) - A: pay tax now, invest $762,000: $1,342,644 - B: standard QOF: $1,785,800 - C: rural QOF (QROF): $1,833,400 *Illustrative: 23.8% federal rate, investment doubles over 10 years in every case, no state tax, no fees, year-5 tax paid from other funds.* **Where the QOF advantage comes from (Strategy B versus A)** | Source of benefit | Approximate value | How | | --- | --- | --- | | Deferral and step-up | $261,800 | The $238,000 that A paid at sale stays invested in B and doubles to $476,000; B then pays $214,200 at year 5 (the 10% step-up accounts for $23,800 of that saving) | | 10-year exclusion | $181,356 | A pays 23.8% exit tax on its $762,000 of growth; B pays none on its $1,000,000 | | Total difference in net result | $443,156 | $1,785,800 minus $1,342,644 | A stricter comparison charges the QOF for the year-5 tax payment. If the $214,200 paid at year 5 had stayed invested at the same return for five more years, it would have grown to about $302,900 before tax. Subtracting that $88,700 of forgone growth still leaves the standard QOF roughly $354,000 ahead. ## How sensitive are the savings to investment returns? The advantage grows with appreciation, because the 10-year exclusion is worth more the more the investment gains; with no growth, only the step-up is left. **Illustrative net after federal tax at year 10 by investment multiple** | Value multiple at year 10 | A: pay tax now | B: standard QOF | B minus A | C: rural QOF | C minus A | | --- | --- | --- | --- | --- | --- | | 1.0x (no growth) | $762,000 | $785,800 | $23,800 | $833,400 | $71,400 | | 1.5x | $1,052,322 | $1,285,800 | $233,478 | $1,333,400 | $281,078 | | 2.0x | $1,342,644 | $1,785,800 | $443,156 | $1,833,400 | $490,756 | | 3.0x | $1,923,288 | $2,785,800 | $862,512 | $2,833,400 | $910,112 | Two cautions. First, the comparison assumes the QOF earns the same pre-tax return as the alternative; a weaker project, higher fees or a forced early sale can erase the tax benefit. Second, if the QOF investment loses value, the year-5 inclusion is capped at fair market value minus basis, which softens but does not remove the loss.[^10] See [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). ## What would change the result for a real investor? State tax, the type of gain, the hold period and the fund's structure are the four variables that move the answer most.[^2] - State tax. A state that does not conform to the federal rules taxes the gain at sale and the appreciation at exit; add those costs to Strategy B. See [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). - Short-term gain. A short-term gain keeps its character when included at year 5, so the deferred tax is at ordinary rates, and the exclusion of appreciation is the same. - Selling before year 10. With no exclusion, a year-7 sale taxes appreciation over the $1,000,000 basis. At a 1.62x value (the same 7.2% return), Strategy B nets about $1,261,700 versus about $1,124,600 for Strategy A at the same date: still ahead, but by far less. - Depreciation. A real estate or data center QOF passes through depreciation deductions. With permanent 100% bonus depreciation for qualifying property acquired after January 19, 2025, those deductions can be large early on, and a sale of a QOF partnership interest after 10 years with the basis election can avoid recapture.[^11][^5] See [depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## What does this look like for a data center fund? The same math applies to a data center QOF, with two adjustments: the year-5 date usually falls during construction or lease-up, and the exit value depends on a stabilized, actively operated facility.[^12] Investors should plan to pay the year-5 tax from outside funds, because a ground-up campus may not distribute cash that early. A site in a wholly rural zone held by a QROF moves the result from Strategy B to Strategy C. And the exclusion is only as good as the fund's compliance for the full hold, including active operation rather than a bare triple-net lease. See [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). If you want to test these numbers against a specific gain, [talk to our team](https://ozdatacenters.com/#contact). ## Common questions **How much tax does an Opportunity Zone investment save on a $1 million gain?** In this illustration at 23.8% federal, the year-5 tax is $214,200 instead of $238,000 at sale, and if the investment doubles over 10 years the exclusion avoids about $238,000 of exit tax. The net result is about $443,000 better than paying tax up front. **Is most of the benefit from deferral or from the 10-year exclusion?** From the exclusion and the extra capital invested. The 10% step-up alone is worth $23,800 per $1 million at 23.8%. **Does the example include state taxes?** No. State treatment varies, and some states, such as California, do not conform to the federal Opportunity Zone rules. **What if the investment does not grow?** With no growth, the only benefits are the step-up and five years of deferral: $23,800 of tax saved per $1 million in a standard QOF, $71,400 in a rural fund. **Why is the year-5 tax paid from other funds?** The tax is due whether or not the fund distributes cash. Many QOFs, especially development projects, do not distribute enough by year 5 to cover it. ## Sources [^1]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: California Franchise Tax Board, "2023 Instructions for Schedule D (541), Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^3]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^4]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^5]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^6]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^7]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^8]: Willkie Farr & Gallagher, "One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones" (2025). https://www.willkie.com/publications/2025/07/one-big-beautiful-bill-act-extends-tax-incentives-for-qualified-opportunity-zones [^9]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^10]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^11]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^12]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers --- # Section 1231 gains and Opportunity Zones URL: https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones Last reviewed: 2026-10-20 Gains from selling business real estate, land and equipment held more than a year (Section 1231 gains) can be invested in a Qualified Opportunity Fund, and the full gross gain qualifies without netting against §1231 losses. The 180-day window starts on the date of each sale, and any part of the gain recaptured as ordinary income under §1245 or §1250 cannot be deferred. ## Key takeaways - Gross §1231 gain is eligible for Opportunity Zone deferral, unreduced by §1231 losses from other sales. - The 180-day investment period for a §1231 gain begins on the date of the sale, not at year-end. - Depreciation recapture treated as ordinary income under §1245 or §1250 is not eligible gain. - Unrecaptured §1250 gain on real estate (taxed at up to 25%) is part of the §1231 gain and can be deferred. - Landowners selling farmland or business land to data center developers usually have §1231 or capital gain they can defer, subject to the related-party rules. ## What is a Section 1231 gain? A §1231 gain is gain on the sale of depreciable property or real property used in a trade or business and held more than one year, such as a rental building, business land, or equipment.[^1] Section 1231 is a hybrid. At year-end, a taxpayer nets all §1231 gains and losses: a net gain is treated as long-term capital gain, and a net loss is ordinary. A lookback rule then recharacterizes net §1231 gain as ordinary income to the extent of net §1231 losses deducted in the prior five years. Separately, depreciation recapture under §1245 (equipment) and §1250 (certain real property) is carved out first and taxed as ordinary income.[^2] **Figure: Three kinds of gain on a business asset sale** - Capital gain (Eligible) - Stock, investment land, collectibles - Short-term or long-term - 180 days from the sale date - Section 1231 gain (Eligible (gross)) - Business real estate, land and equipment held over one year - Includes unrecaptured §1250 gain on buildings - Gross gain, not netted with §1231 losses - 180 days from each sale date - Ordinary recapture (Not eligible) - §1245 recapture on equipment - §1250 ordinary recapture on real property - Taxed as ordinary income in the year of sale *Only the first two can be invested in a Qualified Opportunity Fund; ordinary recapture cannot.[^1]* ## Can Section 1231 gains be invested in an Opportunity Zone fund? Yes. Under the regulations, the gross amount of eligible §1231 gain, unreduced by §1231 losses, can be invested in a Qualified Opportunity Fund (QOF), and the 180-day period begins on the date of each sale.[^1][^3] A QOF is a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property.[^4] The regulations treat §1231 gain sale by sale, which removes the year-end timing problem: you do not have to wait until December to know whether you have a net gain. The eligible amount is limited to the §1231 gain that exceeds any amount treated as ordinary income under §1245 or §1250.[^2][^5] **How the rules treat §1231 gains** | Question | Rule | Source | | --- | --- | --- | | How much is eligible? | Gross §1231 gain from each sale, not reduced by §1231 losses | Treas. Reg. §1.1400Z2(a)-1 | | When does the 180-day period start? | Date of the sale or exchange | Treas. Reg. §1.1400Z2(a)-1 | | Is depreciation recapture eligible? | No, to the extent treated as ordinary income under §1245 or §1250 | Treas. Reg. §1.1400Z2(a)-1 | | Must the buyer be unrelated? | Yes, with a 20% related-party threshold | IRC §1400Z-2(e)(2) | | Which benefits apply? | Five-year deferral, 10% or 30% step-up and 10-year exclusion, for amounts invested after December 31, 2026 | IRC §1400Z-2 | The regulation is at 26 CFR 1.1400Z2(a)-1.[^6] The statute requires that eligible gain come from a sale or exchange with an unrelated person, using the tests of §267(b) and §707(b)(1) with 20% in place of 50%.[^7] For amounts invested after December 31, 2026, the deferred gain is included on the earlier of a disposition or the fifth anniversary of the investment.[^8] See [which gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). ## Worked examples: how much of a business asset gain can you defer? Subtract ordinary recapture from the total gain; what remains is §1231 gain you can defer, including any unrecaptured §1250 gain on a building. ### Example 1: a rental or industrial building A building (excluding land) bought for $2,000,000 and depreciated straight-line by $500,000 is sold for $3,000,000. Adjusted basis is $1,500,000, so total gain is $1,500,000. Real property depreciated straight-line generally has no §1250 ordinary recapture, so the entire $1,500,000 is §1231 gain. Of that, $500,000 is unrecaptured §1250 gain (taxed at up to 25%) and $1,000,000 is taxed at long-term capital gain rates. All $1,500,000 is eligible to invest. ### Example 2: equipment Equipment bought for $500,000 and depreciated by $300,000 has an adjusted basis of $200,000. Sold for $600,000, the gain is $400,000. The first $300,000 (the depreciation taken) is §1245 recapture, ordinary income, and not eligible. The remaining $100,000 is §1231 gain and can be deferred. If the same equipment sold for $400,000, the entire $200,000 gain would be recapture and nothing could be deferred. **Figure: Equipment sale: from total gain to eligible gain** (illustrative) - Sale price: 600000 $ - Adjusted basis: -200000 $ - §1245 recapture (ordinary, not eligible): -300000 $ - Eligible §1231 gain: $100,000: 100000 $ *Illustrative: equipment with a $200,000 adjusted basis sold for $600,000. Only gain above the $300,000 of §1245 recapture is eligible for a QOF.* ### Example 3: a business asset sale with mixed assets Selling an operating business as an asset sale produces a mix: gain on goodwill (generally capital gain), gain on real estate and equipment (§1231 plus any recapture), and ordinary income on inventory and receivables. Each piece is tested separately. The purchase price allocation therefore drives how much of the sale can go into a QOF. See [Opportunity Zones for business owners selling a company](https://ozdatacenters.com/guides/opportunity-zones-for-business-owners-selling). ## How does deferring a 1231 gain interact with Section 1231 netting? A deferred §1231 gain is not recognized in the year of sale, so it stays out of that year's §1231 netting; the deferred amount keeps its tax attributes and is recognized when included.[^1][^3] That has two practical effects. First, if you have §1231 losses in the same year, they are netted without the deferred gain, which can leave a net §1231 loss that is deductible as ordinary. Second, the five-year lookback rule may recharacterize later net §1231 gains as ordinary to the extent of net §1231 losses taken in the prior five years. How a deferred §1231 gain is netted in the inclusion year, including under the lookback rule, is technical; model it with your tax adviser before choosing how much to defer. Rates are those in effect for the inclusion year. For amounts invested after December 31, 2026, inclusion is on the fifth anniversary at the latest, after a 10% basis step-up, or 30% in a Qualified Rural Opportunity Fund.[^9] See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ## What about 1231 gains from partnerships, S corporations or installment sales? Pass-through owners can defer their share of an entity's §1231 gain with the same three start-date choices as other pass-through gains, and installment sellers can invest as payments arrive.[^3][^10] - If a partnership or S corporation does not invest the gain itself, each owner can defer its share. The 180-day period starts by default on the last day of the entity's tax year, or by election on the entity's sale date or the entity's return due date without extensions (March 15 for a calendar-year partnership).[^10] - Real estate partnerships often sell buildings mid-year. A partner who wants to invest quickly can use the sale date; one who needs the K-1 first can use the due date window. - For an installment sale, the 180-day period can run from each payment received or from year-end, so each payment can be invested separately.[^5] See [partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains) and [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule). ## How do you report a deferred 1231 gain? Report the sale on Form 4797 as usual and make the deferral election on Form 8949 with the return for the year of the sale, then track the investment on Form 8997 each year.[^11][^12] The deferral line on Form 8949 shows the QOF's EIN, the date of the investment and the deferred amount as a negative adjustment.[^11] Keep the closing statement, the depreciation schedule that supports the recapture calculation, and the QOF's confirmation of the investment date. See [Form 8996 and Form 8997](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## What does this mean for landowners selling to data center developers? Farmland, ranchland and business land sold for a data center campus usually produces §1231 gain (land used in a business) or capital gain (land held for investment), and both can be deferred in a QOF within 180 days of the sale.[^1] Land is not depreciable, so a land sale has no §1245 or §1250 recapture; farm buildings and equipment sold with the land may. Large campuses can produce very large gains for landowners because developers seek big sites near transmission. Two cautions: plan the QOF investment before closing so the 180 days are not lost to diligence, and watch the related-party rules if the landowner will also invest in the fund that buys the land. The gain must come from a sale to an unrelated person, and a QOZB must buy its property from an unrelated party, each tested at a 20% ownership threshold.[^7][^13] See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners) and [related-party rules](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## Common questions **Can I defer a Section 1231 gain if I also had Section 1231 losses this year?** Yes. The gross §1231 gain is eligible, unreduced by §1231 losses. The losses are netted separately in the year of sale. **When does the 180-day clock start for a Section 1231 gain?** On the date of the sale or exchange that produced the gain, not at the end of the tax year. **Can I defer depreciation recapture in an Opportunity Zone fund?** No. Gain treated as ordinary income under §1245 or §1250 is not eligible. Unrecaptured §1250 gain on real estate, which is part of §1231 gain, can be deferred. **Is gain on selling farmland to a data center developer eligible?** Generally yes, as §1231 gain if the land was used in a farming business for more than a year, or as capital gain if held for investment, provided the buyer is unrelated. **Does a deferred 1231 gain get the 10% step-up?** Yes. For amounts invested after December 31, 2026, a five-year hold increases basis by 10% of the deferred gain, or 30% in a Qualified Rural Opportunity Fund. ## Sources [^1]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^2]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^3]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^4]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^5]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^6]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1, Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^7]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^8]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^9]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^10]: Goulston & Storrs, "Qualified Opportunity Zones: Final Regulations Provide Clarity" (2020). https://www.goulstonstorrs.com/content/uploads/pdf/publication/qualified-opportunity-zones-final-regulations-provide-clarity.pdf [^11]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^12]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^13]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 --- # Investing partnership and K-1 gains in an Opportunity Zone fund URL: https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains Last reviewed: 2026-10-20 Capital gains earned inside a partnership, S corporation, estate or trust can be deferred in two ways: the entity can invest the gain in a Qualified Opportunity Fund within 180 days of its sale, or, if it does not, each owner can invest its share of the gain shown on the K-1. Owners can start their 180 days on the entity's sale date, the last day of the entity's tax year, or the unextended due date of the entity's return (March 15 for a calendar-year partnership). ## Key takeaways - If the partnership does not elect to defer, each partner can defer its distributive share of eligible gain in its own QOF investment. - A partner's 180-day period starts by default on the last day of the partnership's tax year; the partner may elect the partnership's sale date or its return due date without extensions. - For a calendar-year partnership's 2027 gain, the due-date window runs March 15 to September 10, 2028. - A partner can invest cash from any source equal to its share of the gain; it does not need a distribution of the sale proceeds. - A calendar-year partnership's 2026 gain can be invested in 2027 under either the year-end or the due-date window, which brings the five-year deferral and 10% or 30% step-up. ## Can you invest a K-1 capital gain in an Opportunity Zone fund? Yes. The regulations let a partnership, S corporation, estate or non-grantor trust defer its own eligible gain by investing in a Qualified Opportunity Fund (QOF), and if the entity does not, each owner can defer its share of that gain.[^1][^2] A QOF is a corporation or partnership that self-certifies on Form 8996 and holds at least 90% of its assets in Opportunity Zone property.[^3] Eligible gain is gain treated as capital gain, including gross §1231 gain, from a sale to an unrelated person.[^4][^5] For amounts invested after December 31, 2026, the deferred gain is taxed on the earlier of a disposition or the fifth anniversary of the investment, with a 10% basis step-up (30% in a Qualified Rural Opportunity Fund).[^6][^7] **Figure: Entity-level versus partner-level deferral** - Partnership invests the gain (Entity level) - Partnership elects deferral and invests within 180 days of its sale - Partnership owns the QOF interest - Every partner shares the result, whether or not it wanted to - The partnership must hold 10 years for the exclusion - Each partner invests its share (Partner level) - Partnership does not elect; gain flows out on the K-1 - Each partner decides whether and how much to invest - Three possible start dates for the 180 days - Partner can use cash from any source *The entity-level route locks every owner into the QOF; the partner-level route lets each partner decide.[^2]* ## How does deferral work at the partnership level? The partnership itself invests an amount up to its eligible gain in a QOF within 180 days of its sale and makes the election on its return, so the gain is not passed through to partners in that year.[^1] This works when all partners want the same result, as in a family partnership or a single-strategy real estate fund, and when the partnership will stay in existence long enough to hold the QOF interest for 10 years. The deferred gain is later included at the partnership level and allocated to partners. It is a poor fit when partners have different goals, because the decision binds everyone. Many partnerships therefore leave the choice to partners and tell them promptly about the gain. ## When does a partner's 180-day period start? By default on the last day of the partnership's tax year, but a partner may elect to start it on the partnership's sale date or on the due date of the partnership's return without extensions.[^2][^8][^9] **Partner windows for a calendar-year partnership selling property on June 1, 2027 (start date counts as day 1)** | Start date option | Window opens | Last day to invest | When it helps | | --- | --- | --- | --- | | Partnership's sale date (elective) | June 1, 2027 | November 27, 2027 | Partner knows about the sale early and wants to invest fast | | Last day of partnership's tax year (default) | December 31, 2027 | June 27, 2028 | Partner wants to see the full-year result | | Partnership return due date, without extensions (elective) | March 15, 2028 | September 10, 2028 | Partner needs the K-1 before deciding; extended K-1s often arrive late | **Figure: A partner's three 180-day windows** (illustrative) - Sale-date window: 5 to 10.9 months from January 1, 2027 (Jun 1 to Nov 27, 2027) - Year-end window: 12 to 17.9 months from January 1, 2027 (Dec 31, 2027 to Jun 27, 2028) - Due-date window: 14.5 to 20.3 months from January 1, 2027 (Mar 15 to Sep 10, 2028) *Illustrative: a calendar-year partnership sells property on June 1, 2027 and does not defer at the entity level. The due-date window ends about 15 months after the sale.* The same options apply to S corporation shareholders and to beneficiaries of estates and non-grantor trusts; for an estate or trust, the unextended return due date is typically April 15.[^9] The due-date option exists because partnership returns are often extended to September 15, so many partners would otherwise receive their K-1 after the default window had mostly run. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule). ## Which K-1 gains qualify, and how much can a partner invest? A partner can invest up to its distributive share of the partnership's eligible gain, using cash from any source.[^1] - Capital gains on the K-1, short-term or long-term, qualify. - Section 1231 gains qualify on a gross basis, unreduced by §1231 losses; the portion that is §1245 or §1250 ordinary recapture does not. See [Section 1231 gains and Opportunity Zones](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones).[^5] - Ordinary income items, such as interest, rents and operating income, do not qualify. - The partner does not need the partnership to distribute the sale proceeds. Deferral depends on investing an amount equal to the gain within the window, not on tracing the cash. - The partner can invest part of its share, split it among several QOFs, or skip deferral entirely. Partnerships help their partners by reporting, as early as possible, the date of each sale and the amount and character of each eligible gain. A partner that hears about a sale only from its K-1 in September has already lost the sale-date window. **Figure: How a K-1 gain reaches a QOF** - Partnership sells property (Realizes capital or §1231 gain) - then: Allocates gain - Schedule K-1 (Partner's share of the gain) - then: Reports share and sale date - Partner (Chooses a start date) - then: Invests within 180 days - Qualified Opportunity Fund (Equity investment) *At the partner level, the gain flows out on the K-1 and the partner invests its own cash within its chosen window.[^10]* ## Can a 2026 partnership gain be invested under the rules for 2027 investments? Yes, if the partner's investment is made on or after January 1, 2027 within a valid 180-day window, because the effective date turns on when the amount is invested in the QOF.[^11][^6] For a calendar-year partnership's 2026 gain, the default year-end window opens December 31, 2026 and closes June 28, 2027, and the due-date window runs from March 15, 2027 to September 10, 2027. Either way, a partner can invest in 2027 and receive the five-year deferral and the 10% or 30% step-up. An amount invested on or before December 31, 2026 does not get these rules, and gain deferred by such an investment is included in income on December 31, 2026.[^12] This is a time-sensitive opportunity for partners in funds that sold assets in 2026. ## How does a partner report the deferral? The partner makes the election on its own Form 8949 for the tax year in which it would otherwise report its share of the gain, then files Form 8997 every year it holds the QOF investment.[^10][^13] A partner using the due-date window for a 2027 gain may invest in mid-2028, after its own 2027 return is due. The election belongs on the 2027 return, so the partner should file on extension or plan to amend once invested. The Form 8949 entry shows the QOF's EIN, the investment date and the deferred amount as a negative adjustment.[^10] See [Form 8996 and Form 8997](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## What appears on the K-1 from the QOF itself? Most QOFs are partnerships, so investors receive K-1s from the fund, and gains the fund recognizes before the investor's 10-year mark are generally taxable to the investors.[^14] If a QOF sells property and reinvests the proceeds within 12 months, the proceeds count toward the fund's 90% asset test during that period, but that rule protects the fund's status, not the tax on the gain. Treasury's Notice 2026-55 requests comments on such interim gains, so this may change.[^15] After 10 years, investors in a QOF partnership can elect to exclude gains from the fund's asset sales reported on their K-1, other than gains from inventory sold in the ordinary course.[^16] See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) and [what to expect in fund reporting](https://ozdatacenters.com/guides/opportunity-zone-fund-investor-reporting). ## How do K-1 gains show up in data center deals? Land partnerships, development joint ventures and real estate funds that sell sites or stabilized facilities to data center buyers generate K-1 gains, and their partners can defer them in a data center QOF.[^17] A family land partnership selling acreage for a campus can invest at the entity level if the family agrees, or let each partner decide. A developer partnership that sells a stabilized facility can do the same. Watch the related-party limits if partners will invest in the same project that bought the asset, since eligible gain must come from a sale to an unrelated person at a 20% threshold.[^4] OZ Data Centers sponsors funds that accept K-1 gains within these windows. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners) and [Opportunity Zones for CPAs and advisers](https://ozdatacenters.com/guides/opportunity-zones-for-cpas-and-advisers). ## Common questions **What is the deadline to invest a K-1 capital gain in an Opportunity Zone fund?** 180 days from the start date the partner uses: the partnership's sale date, the last day of its tax year (default), or its unextended return due date. For a calendar-year partnership's 2027 gain, the latest window ends September 10, 2028. **Does the partnership have to distribute cash for me to invest?** No. You can invest your own cash equal to your share of the gain. The deferral does not trace the sale proceeds. **Can a partnership and its partners both defer the same gain?** No. If the partnership elects to defer, the gain is not passed through for partners to defer. If it does not elect, each partner can defer its own share. **Do S corporation shareholders and trust beneficiaries get the same options?** Yes. The same three start dates apply to S corporation shareholders and to beneficiaries of estates and non-grantor trusts, using the entity's dates. **Can I defer Section 1231 gain from my K-1?** Yes, your share of gross §1231 gain qualifies, but not the part treated as ordinary depreciation recapture. ## Sources [^1]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(a)-1, Deferring tax on capital gains by investing in opportunity zones" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(a)-1 [^2]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^3]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^4]: Office of the Law Revision Counsel, U.S. House of Representatives, "26 U.S.C. Subchapter Z: Opportunity Zones (§§1400Z-1 and 1400Z-2)" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^5]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^8]: Goulston & Storrs, "Qualified Opportunity Zones: Final Regulations Provide Clarity" (2020). https://www.goulstonstorrs.com/content/uploads/pdf/publication/qualified-opportunity-zones-final-regulations-provide-clarity.pdf [^9]: Current Federal Tax Developments, "Final Regulations on Qualified Opportunity Zone Funds Released by IRS" (2019). https://www.currentfederaltaxdevelopments.com/blog/2019/12/22/final-regulations-on-qualified-opportunity-zone-funds-released-by-irs [^10]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^11]: Spidell, "New Qualified Opportunity Zone guidance clarifies gain recognition rules" (2026). https://spidell.com/news/hot-news-and-notes/new-qualified-opportunity-zone-guidance-clarifies-gain-recognition-rules/ [^12]: Current Federal Tax Developments, "IRS Notice 2026-40: Comprehensive Analysis of Post-OBBBA Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/6/18/irs-notice-2026-40-comprehensive-analysis-of-post-obbba-transitional-guidance-on-qualified-opportunity-zones [^13]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^14]: Current Federal Tax Developments, "IRS Solicits Technical Comments on Opportunity Zone Regulations Post-OBBBA (Notice 2026-55)" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/22/irs-solicits-technical-comments-on-opportunity-zone-regulations-post-obbba-administrative-focus-on-interim-gains-single-family-housing-and-working-capital-safe-harbors [^15]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under §1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^16]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(c)-1, Investments held for at least 10 years" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(c)-1 [^17]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers --- # Opportunity Zone inclusion events: what triggers tax early URL: https://ozdatacenters.com/guides/opportunity-zone-inclusion-events Last reviewed: 2026-10-20 An inclusion event is any transaction that reduces an investor's equity interest in a Qualified Opportunity Fund, or that the regulations treat as a cash-out, and it makes the deferred gain taxable before the five-year date. Selling the QOF interest, gifting it, receiving distributions above basis and decertification of the fund are inclusion events; death and transfers to a grantor trust are not. The amount included is the lesser of the remaining deferred gain or the fair market value of the interest given up, minus the investor's basis. ## Key takeaways - Deferred gain is taxed on the earlier of an inclusion event or five years after the investment date (§1400Z-2(b)(1)). - Selling, gifting, donating to charity or transferring the QOF interest in divorce are inclusion events under Treas. Reg. §1.1400Z2(b)-1(c). - A distribution from a QOF partnership is an inclusion event only to the extent it exceeds the investor's basis in the QOF interest. - Death is not an inclusion event; the heir takes on the deferred gain as income in respect of a decedent and keeps the holding period. - An inclusion event before the fifth anniversary forfeits the 10% (or 30% rural) basis step-up on the gain it triggers. - A QOF selling one of its own assets is not an inclusion event for investors, but the fund must reinvest within 12 months to protect its 90% test. ## What is an Opportunity Zone inclusion event? An inclusion event is a transaction that causes some or all of an investor's deferred capital gain to be recognized before the statutory deadline. Under §1400Z-2(b)(1), gain deferred by investing in a Qualified Opportunity Fund (QOF) is included in income in the taxable year that includes the earlier of two dates: the date the investment is sold or exchanged, or five years after the investment was made.[^1] The regulations turn the phrase “sold or exchanged” into a defined term, the inclusion event, and list what counts.[^2] The general rule in Treas. Reg. §1.1400Z2(b)-1(c) is functional. An event is an inclusion event if it reduces the investor's direct equity interest in the qualifying investment, or if the investor receives property from the QOF in a transaction treated as a distribution for tax purposes, whether or not the investor's percentage interest changes.[^2] Later paragraphs of the same section then apply that rule to specific situations: partnerships, S corporations, gifts, death, trusts, nonrecognition transactions and decertification.[^3] Two definitions matter throughout. A qualifying investment is the equity interest in a QOF for which the investor made a deferral election. A QOF is a partnership or corporation that self-certifies on Form 8996 and holds at least 90% of its assets in Qualified Opportunity Zone property.[^4] Interests bought with money that was not deferred gain are non-qualifying investments, and the inclusion rules do not apply to them. See [what a Qualified Opportunity Fund is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund) for the basics. > The rolling five-year deferral and the 10% and 30% basis step-ups described in this guide apply to gains invested in a QOF on or after January 1, 2027.[^5] ## Which transactions are inclusion events? Most transfers that move the QOF interest away from the investor are inclusion events; transfers that keep the same taxpayer in place are generally not. The table summarizes the common cases under the final regulations, T.D. 9889.[^2][^3] **Common transactions and whether they trigger deferred gain** | Transaction | Inclusion event? | Notes | | --- | --- | --- | | Sale or exchange of the QOF interest | Yes | Full or partial; partial sales trigger a proportionate share of deferred gain | | Gift to an individual or non-grantor trust | Yes | Donee does not inherit the deferral | | Charitable contribution of the interest | Yes | Treated like other gifts | | Transfer incident to divorce | Yes | Unlike most §1041 transfers, this triggers the deferred gain | | Distribution from a QOF partnership above basis | Yes, to the excess | Distributions within basis are not inclusion events | | QOF corporation distribution treated as return of basis or gain under §301(c)(2) or (3) | Yes | Dividends paid from earnings and profits are not | | QOF ceases to be a QOF (decertification) | Yes | All remaining deferred gain is included | | Death of the investor | No | Heir takes the gain as income in respect of a decedent | | Transfer to or from the investor's grantor trust | No | Grantor is still treated as the owner | | QOF sells one of its assets | No, for investors | Fund must reinvest within 12 months to protect its 90% test | Certain nonrecognition transactions, such as tax-free contributions, mergers and reorganizations involving the QOF, have their own rules. Many are not inclusion events if the investor ends up holding an interest in a QOF of equivalent value, but a transaction that gives the investor boot or moves the interest outside a QOF can be.[^2][^6] These are the transactions most worth checking with counsel before closing. ## How much deferred gain is included when an inclusion event happens? The amount included is the lesser of the remaining deferred gain attributable to the interest given up, or the fair market value of that interest, minus the investor's basis in it. This is the formula in §1400Z-2(b)(2)(A), which applies to both an early inclusion event and the five-year deadline.[^1][^7] Basis in a qualifying investment starts at zero. It rises by 10% of the deferred gain once the investment has been held five years (30% for a Qualified Rural Opportunity Fund), and it rises again by the amount of gain actually included.[^1][^5] Because an early inclusion event comes before year five, there is no step-up to subtract: the entire deferred gain, or the fair market value if lower, is taxed. For a partial disposition, the regulations allocate deferred gain in proportion to the share of the qualifying investment given up. An investor who sells 25% of a qualifying investment includes 25% of the remaining deferred gain, subject to the same fair-market-value limit.[^2][^7] **Figure: How much gain is included at year five** (illustrative) - Deferred gain: 2000000 $ - Value below deferred gain (lesser-of rule): -300000 $ - 10% basis step-up at year five: -200000 $ - Gain included at year five: 1500000 $ *Illustrative. An investor defers $2,000,000 of gain in a standard QOF in April 2027. At the fifth anniversary the interest is worth $1,700,000. The lesser-of rule caps the inclusion at fair market value, and the 10% step-up reduces it further, so $1,500,000 is taxed. An inclusion event before year five would forfeit the $200,000 step-up.* ### Worked example: selling in year three Illustrative assumptions: 20% federal long-term capital gains rate plus 3.8% net investment income tax (23.8%), no state tax. The same investor sells the entire QOF interest in year three for $2,600,000. The inclusion amount is the lesser of $2,000,000 deferred gain or $2,600,000 value, minus zero basis: $2,000,000, or $476,000 of tax. Basis then increases by the $2,000,000 included, so the sale itself produces $600,000 of additional gain, or $142,800 of tax. Total federal tax: $618,800, and no step-up and no 10-year exclusion. Compare the [10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains), where the $600,000 of appreciation would be excluded. ## How does the five-year deadline interact with inclusion events? The five-year deadline is the backstop: if no inclusion event has happened by the fifth anniversary of the investment, the remaining deferred gain is included anyway. Each investment has its own date, so an investor who invests in March 2027 and again in September 2027 has two separate deadlines.[^5][^8] The details of this rolling clock are in [how the five-year deferral works](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). After the deferred gain has been included at year five, a later sale is no longer an inclusion event for that gain because there is nothing left to defer. Sales after that point matter only for the 10-year election. A sale between year five and year ten taxes the appreciation; a sale after year ten can exclude it.[^1][^9] **Figure: The clock on one QOF investment** - Day 1: Gain realized (Sale date is day 1 of the 180-day window) - By day 180: Invest in QOF (Investment date starts the clock) - Before Year 5: Early inclusion event (No step-up; full deferred gain taxed) - Year 5: Deferred gain included (10% step-up, or 30% for a QROF) - Year 10: Exclusion available (Elect basis equal to fair market value on sale) - Year 30: Basis value fixed (Appreciation after year 30 is taxable) *Each investment date starts its own clock. An inclusion event before the year five mark taxes the full deferred gain without the step-up; after year ten, the investor can elect to exclude appreciation, with basis fixed at the year 30 value for later appreciation.[^1][^5]* ## What are the inclusion rules for QOF partnerships and S corporations? For a QOF partnership, the main risk is cash distributions, which are inclusion events only to the extent the cash exceeds the partner's basis in the qualifying investment. Because basis starts at zero, a partner's basis in the early years comes mainly from its share of partnership liabilities under §752 and allocated income.[^2][^10] A large distribution early in the hold can therefore trigger deferred gain even when the fund is performing well. - Debt-financed distributions: practitioners generally read the regulations to allow a refinancing distribution that does not exceed the partner's basis, but a distribution within two years of the partner's contribution can be recharacterized as a disguised sale under §707, which the regulations treat as reducing the qualifying investment. These rules are technical; confirm with counsel before any distribution.[^10][^6] - Allocations of losses: deductions allocated to a partner reduce basis, which shrinks the room for later distributions. - Transfers of the partnership interest by the QOF's owners, including some partnership mergers and divisions, are tested under the same reduction-in-interest rule.[^2] S corporations have their own rules. Where an S corporation holds a qualifying investment, the regulations treat a large aggregate change in the ownership of its stock (more than 25%) as an inclusion event for that investment, and distributions from a QOF S corporation are tested against basis under §1368.[^2][^3] The details are technical, so confirm them with counsel. Most sponsors use the partnership form; see [Opportunity Zone fund structures](https://ozdatacenters.com/guides/opportunity-zone-fund-structures). ## Do gifts, death or trusts trigger the deferred gain? Gifts do; death and grantor trusts do not. A gift of a qualifying investment, including a gift to a non-grantor trust or a charity, is an inclusion event, so the donor recognizes the deferred gain and the donee receives an interest that is no longer a qualifying investment.[^2][^11] Death is the important exception. When an investor dies, the transfer to the estate or heir is not an inclusion event. The heir succeeds to the decedent's deferral, keeps the holding period for the five-year and 10-year rules, and reports the deferred gain as income in respect of a decedent under §691 when it is later included.[^11][^12] The heir does not get a §1014 step-up on that deferred gain. Transfers between an investor and the investor's grantor trust are ignored because the grantor is still treated as the owner for income tax purposes. If the trust later stops being a grantor trust, for example on the grantor's release of the relevant power during life, that change is an inclusion event.[^11] ## What do inclusion events mean for a data center fund? For a data center fund, the practical inclusion risk is the refinancing distribution after stabilization, not a sale. A campus that leases up can often support a refinancing well before year five, and sponsors are tempted to return capital. Distributions within each partner's basis are fine; distributions above basis trigger deferred gain without the step-up.[^2][^10] **Figure: Inclusion-event checks for a data center QOF** - [watch] Refinancing distribution before year five: Model each partner's basis, including §752 debt share, before distributing - [watch] Distribution within two years of contribution: Disguised-sale risk under §707 - [pass] Sale of a stabilized building by the QOZB: Not an inclusion event for investors; the QOZB must keep passing its own tests while it holds the proceeds - [pass] Admission of new investors: Dilution without a transfer by existing investors is not a reduction in their interest - [watch] Conversion of the fund to a REIT or corporation: Nonrecognition rules apply; get counsel sign-off - [fail] Fund decertification or failure to file Form 8996: Decertification triggers all remaining deferred gain; a fund that stops filing may be treated as decertified *A sponsor-level checklist. Items marked watch are where data center funds most often create unintended inclusion events.* Asset sales inside the structure work differently. If a Qualified Opportunity Zone Business (QOZB) sells a building or the QOF sells a QOZB interest, investors keep their deferral. When the QOF itself sells, it has 12 months to reinvest the proceeds for purposes of the 90% test; when the QOZB sells, the QOZB must keep meeting its own tests while it holds the cash. Either way, the gain on the sale itself is taxable to the fund's partners unless the 10-year election applies.[^2][^3] Financing choices are covered in [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing). ## How is an inclusion event reported? The investor reports the included gain on Form 8949 and Schedule D for the year of the inclusion event and updates Form 8997, which tracks QOF investments and deferred gain held at the start and end of each year.[^13][^4] The included gain keeps the character it had when deferred: a short-term gain that was deferred is still short-term when included.[^2] The QOF reports its own status on Form 8996 every year; commentators note that a fund that stops filing may be treated as having decertified, and decertification is an inclusion event for every investor. Proposed regulations published September 11, 2026 would create a single formal decertification procedure and new information returns; they are not final.[^14] See [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained). > Notice 2026-55 asks for comments on the inclusion-event rules, with comments due November 23, 2026. Changes, if any, would come through new proposed regulations.[^9] ## Common questions **Is selling part of my QOF interest an inclusion event?** Yes. A partial sale triggers a proportionate share of the remaining deferred gain, limited by the fair market value of the portion sold. The rest of the investment keeps its deferral and holding period. **Does a refinancing distribution trigger my deferred gain?** Only to the extent the distribution exceeds your basis in the QOF partnership interest. Basis starts at zero but includes your share of fund liabilities under §752. Distributions within two years of your contribution can also raise disguised-sale issues. **What happens to deferred gain when an investor dies?** Death is not an inclusion event. The heir inherits the deferred gain as income in respect of a decedent, keeps the decedent's holding period, and includes the gain at the five-year date or on a later inclusion event. **If the fund sells a data center, do investors owe the deferred gain?** No. A sale of assets by the QOF or its QOZB is not an inclusion event for investors. A QOF that sells must reinvest the proceeds within 12 months to count them toward the 90% test (a QOZB that sells must keep meeting its own tests), and gain on the asset sale is taxable unless the 10-year election applies. **Does pledging my QOF interest as loan collateral count as an inclusion event?** Generally no. A pledge does not reduce your equity interest. A foreclosure that transfers the interest to the lender would be a sale or exchange and therefore an inclusion event. **Do I lose the basis step-up if an inclusion event happens early?** Yes, for the gain that the event triggers. The 10% step-up (30% for a QROF) applies only once the investment has been held five years, so gain included earlier is taxed in full. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(b)-1: Inclusion of gain that has been deferred under section 1400Z-2(a)" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(b)-1 [^3]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^4]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (n.d.). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^5]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^6]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^7]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^8]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^9]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^10]: REjournals, "Final opportunity zone regulations released" (2019). https://rejournals.com/final-opportunity-zone-regulations-released/ [^11]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^12]: Greenberg Traurig, "Qualified Opportunity Zones: Final Treasury Regulations Released" (2019). https://www.gtlaw.com/ar/insights/2019/12/qualified-opportunity-zones-final-treasury-regulations-released [^13]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^14]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf --- # State tax treatment of Opportunity Zone investments URL: https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones Last reviewed: 2026-10-20 Opportunity Zone deferral and exclusion are federal benefits; each state decides whether its own income tax follows them. Most states that start from federal taxable income conform automatically, but California does not conform at all, North Carolina requires an add-back, Massachusetts does not follow the rules for personal income tax, and New York decoupled in its 2021 budget. A California resident who defers $1,000,000 of gain federally can still owe up to about $133,000 of state tax for the year of sale. ## Key takeaways - IRC §1400Z-2 governs federal tax only; state conformity depends on how each state adopts the Internal Revenue Code. - California does not conform to federal Opportunity Zone deferral or exclusion and has no similar provision, according to its Franchise Tax Board. - North Carolina requires taxpayers to add back gain deferred or excluded under the federal Opportunity Zone rules. - Massachusetts is reported to conform for corporate excise but not for personal income tax; New York decoupled state and city taxes in its 2021 budget. - Fixed-date conformity states may not follow the current federal rules (rolling five-year deferral, 10% and 30% step-ups) until they update their conformity date. - The investor's state of residence usually taxes the deferred gain; the project's state matters mainly for nonresident source income and local incentives. ## Do states follow the federal Opportunity Zone tax benefits? Most states with an income tax follow them, but not all, and the answer depends on how each state ties its tax code to the Internal Revenue Code. The Opportunity Zone benefits live in IRC §1400Z-2: deferral of an eligible gain invested in a Qualified Opportunity Fund (QOF), a 10% basis step-up after five years (30% for a Qualified Rural Opportunity Fund), and exclusion of appreciation after a 10-year hold.[^1] Those rules reduce federal taxable income. A state reaches the same result only if its own tax base starts from federal income and it has not carved the provision out.[^2] States conform to the federal code in three main ways, and the method drives the result.[^3][^4] **Figure: How state conformity methods treat Opportunity Zone benefits** - Rolling conformity (Usually conforms) - Adopts the IRC as currently in effect - Picks up the current federal Opportunity Zone rules automatically - Can still decouple by statute, as North Carolina did - Check each year for new add-backs - Fixed-date conformity (Depends on the date) - Adopts the IRC as of a set date - A date before the OZ statute means no conformity at all - A date before July 4, 2025 may mean the prior version of §1400Z-2 applies for state purposes - Legislature must act to update - Selective or explicit decoupling (Often decoupled) - Adopts only listed IRC sections - May exclude §1400Z-2 or limit it to in-state zones - Can conform for corporate tax but not personal income tax - Read the statute, not a summary *Rolling conformity states pick up federal changes automatically unless they act to decouple. Fixed-date and selective states follow only the version of the code they have adopted.[^3][^4]* ## Which states do not conform to Opportunity Zone rules? The states consistently reported as not following, or only partly following, the federal rules are California, North Carolina, Massachusetts (personal income tax), Mississippi and New York, with Arkansas listed as limited conformity and Hawaii reported inconsistently. The table lists only states where our sources say something specific, and notes where they disagree.[^5][^6] **Reported state treatment of Opportunity Zone deferral and exclusion (verify before filing)** | State | Reported treatment | Source quality and notes | | --- | --- | --- | | California | Does not conform to deferral or exclusion; no similar provision | Primary: Franchise Tax Board instructions. EY reported in October 2025 that California still does not conform.[^2][^7] | | North Carolina | Decoupled: deferred gain and later excluded gain must be added back | Secondary: practitioner and policy summaries of S.B. 99.[^5][^8] | | Massachusetts | Does not conform for personal income tax; reported to conform for corporate excise | Secondary: practitioner summary citing the state's fixed conformity date for individuals.[^5] | | Mississippi | Listed as not conforming | Secondary only; no statutory detail found.[^5] | | New York | State and New York City decoupled in the 2021 budget | Press and state Senate sources. Sources differ on whether any part of the exclusion survives; confirm with the Department of Taxation and Finance.[^9][^10] | | Arkansas | Limited conformity | Novogradac conformity table; detail not confirmed.[^6] | | Hawaii | Conflicting reports | Hawaii legislation conformed to §§1400Z-1 and 1400Z-2 but limited benefits to zones designated by the governor; one practitioner source calls Hawaii non-conforming.[^11][^12][^13] | > Some sources also list Oregon and Colorado as partly conforming. We could not confirm either from a source that states the rule, so we do not list them. State treatment changes with each legislative session; check the state's current statute or revenue department guidance for the tax year in question. States without a broad personal income tax, such as Texas and Florida, have no capital gains tax for an individual to defer, so conformity is not an issue for residents there. A state with a separate capital gains tax should be checked on its own terms. ## How does California treat Opportunity Zone investments? California taxes the gain in the year of sale as if no QOF investment had been made. The Franchise Tax Board's instructions state that California does not conform to the deferral and exclusion of capital gains invested in federal Opportunity Zone funds under §§1400Z-1 and 1400Z-2 and has no similar provisions, and the corporate booklet says the same for corporations.[^2][^14] California's 2025 conformity bill, S.B. 711, updated the general conformity date but continued to decouple from Opportunity Zones, bonus depreciation and increased §179 expensing.[^7] Advocacy groups continue to push for conformity; a June 2026 brief argued conformity would bring gains for disadvantaged communities at modest revenue cost, but no enacted change was found.[^15] Because the appreciation is also taxable in California at exit, a California resident gets the federal 10-year exclusion but not a state one. ## What does nonconformity cost? A worked example The cost is that state tax is due now rather than deferred, and appreciation is taxed at exit. Illustrative assumptions: an investor realizes $1,000,000 of long-term capital gain in 2027 and invests it in a QOF within 180 days. Federal rate 23.8% (20% plus 3.8% net investment income tax). California's top marginal rate is 13.3%.[^5] A hypothetical nonconforming state at a flat 5% is shown for comparison. **Figure: Tax due for the year of sale on a $1,000,000 gain invested in a QOF** (illustrative) - Federal tax (deferred): $0 now - Conforming state: $0 now - Nonconforming state at 5%: $50,000 - California at 13.3%: $133,000 *Illustrative. Federal tax is deferred for up to five years in every case. Residents of conforming states also defer state tax; residents of nonconforming states pay state tax in the year of sale.* At year five, the federal inclusion is $900,000 after the 10% step-up ($214,200 at 23.8%). The California resident already paid state tax on the full $1,000,000 and gets no step-up. If the investment doubles and is sold after year 10, the $1,000,000 of appreciation is federally excluded but taxable in California, about $133,000 more at the top rate. See [a full federal worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example) for the federal side. ## Do states follow the current federal rules for investments made after 2026? Rolling conformity states generally do; fixed-date states may not until they update. The current rules, including the rolling five-year deferral and the 10% and 30% step-ups, apply to amounts invested in QOFs after December 31, 2026.[^16] A state that adopts the IRC as of a date before July 4, 2025 has not adopted those amendments for its own tax. Practitioner surveys of state responses to Public Law 119-21 show states reacting provision by provision, with some adding back specific items and others updating their dates.[^4][^3] This creates two practical questions for 2027 investments in fixed-date states: whether state deferral follows a five-year rolling date, and whether the state recognizes the new zones designated for January 1, 2027. Neither has a general answer. We have not found state guidance resolving either point, so treat it as an open item for each fixed-date state. ## Which state taxes the gain: where I live or where the project is? Usually the state where the investor lives. Residents are taxed on income from all sources, so the residence state's conformity decides whether the original gain can be deferred.[^13] The project's state matters when it taxes nonresidents on gain sourced there, for example gain from selling real property located in the state, and for corporate investors filing in that state.[^13][^17] **Figure: Checking state treatment before you invest** 1. Identify residence state: And any state where the gain is sourced 2. Find the conformity method: Rolling, fixed-date or selective 3. Look for an OZ add-back: Statute or revenue department guidance 4. Check the conformity date: Before or after July 4, 2025 5. Model state tax now and at exit: Including the 10-year appreciation *Run these checks for the tax year of the sale and again for the year of exit.* Moving changes the analysis. An investor who defers gain while living in a conforming state and later moves can face questions about which state taxes the deferred gain at inclusion; this is a fact-specific issue to confirm with your tax adviser. ## What does state conformity mean for an Opportunity Zone data center? For a data center fund, state conformity affects the investor's after-tax return, while the project's state affects operating economics through separate incentives. Many states offer sales and use tax exemptions for data center equipment, and those apply regardless of Opportunity Zone conformity. See [state data center tax incentives](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). Depreciation is the other state issue. Public Law 119-21 made 100% bonus depreciation permanent for property acquired after January 19, 2025, and data center electrical, mechanical and IT equipment is a large share of cost.[^18] States that decouple from bonus depreciation, California among them, require slower state depreciation, which changes the losses passed through to investors.[^7] For the federal side, see [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## Common questions **Does every state follow the federal Opportunity Zone deferral?** No. Most income-tax states that conform to the current Internal Revenue Code follow it, but California does not conform, North Carolina requires an add-back, Massachusetts does not conform for personal income tax, and New York decoupled in 2021. **If I live in California and invest in a QOF in another state, do I get state deferral?** No. California taxes residents on the gain in the year of sale regardless of where the QOF invests, and it does not provide the 10-year exclusion either. **Do states follow the 10-year exclusion even if they do not follow deferral?** It depends on the state. Some sources report partial conformity in certain states, but the reports conflict, so confirm the current statute for your state before relying on a state exclusion. **Will states adopt the rolling five-year deferral for investments after 2026?** Rolling conformity states generally pick it up automatically unless they decouple. Fixed-date states follow it only after updating their conformity date to on or after July 4, 2025. **Does the state where the data center is located matter to me as an investor?** Mainly if you are a nonresident with gain sourced there or a corporate taxpayer filing in that state. For individual investors, the residence state's treatment usually controls the deferral. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^3]: Sikich, "Breaking down the OBBBA: Will state tax policy conform to it?" (2025). https://www.sikich.com/insight/breaking-down-the-obbba-will-state-tax-policy-conform-to-it/ [^4]: Business Facilities, "Opportunity Zones 2.0: Federal Policy Meets State Implementation" (2026). https://businessfacilities.com/opportunity-zone-2-0-federal-policy-meets-state-implementation/ [^5]: Aprio, "Not All States Are On Board with the Tax Benefits of Qualified Opportunity Zone Investments" (n.d.). https://aprio.com/?p=5911 [^6]: Novogradac, "State Tax Code Conformity: Personal Income" (n.d.). https://novoco.com/resource-centers/opportunity-zones-resource-center/state-tax-code-conformity-personal-income [^7]: EY Tax News, "California updates general date of conformity to Internal Revenue Code while continuing to decouple from significant federal provisions" (2025). https://taxnews.ey.com/news/2025-2032-california-updates-general-date-conformity-to-internal-revenue-code-while-continuing-to-decouple-from-significant-federal-provisions [^8]: Institute on Taxation and Economic Policy, "States Should Decouple from Costly Federal Opportunity Zones and Reject Look-Alike Programs" (n.d.). https://itep.org/states-should-decouple-from-costly-federal-opportunity-zones-and-reject-look-alike-programs/ [^9]: The Real Deal, "New York deals a blow to Opportunity Zones program" (2021). https://therealdeal.com/2021/04/15/new-york-deals-a-blow-to-opportunity-zones-program [^10]: New York State Senate, "New York Daily News: NYS pulling out of opportunity zone tax breaks at state level" (2021). https://www.nysenate.gov/newsroom/in-the-news/2021/michael-gianaris/new-york-daily-news-nys-pulling-out-opportunity-zone-tax [^11]: Hawaii State Legislature, "Standing Committee Report No. 1152 on H.B. 1041" (2019). https://data.capitol.hawaii.gov/sessions/session2019/CommReports/HB1041_HSCR1152_.HTM [^12]: Hawaii Economic Council, "Hawaii conforms to IRC except for increase in UBTI" (2019). https://www.hecouncil.org/news/2019/07/03/main/hawaii-conforms-to-irc-except-for-increase-in-ubti [^13]: Holthouse Carlin & Van Trigt, "The State of Opportunity Zone Investing" (n.d.). https://www.hcvt.com/insights-alerts-Investing-Opportunity-Zones-State-Issues.html [^14]: California Franchise Tax Board, "2019 Form 100 Corporation Tax Booklet" (2019). https://www.ftb.ca.gov/forms/2019/2019-100-booklet.html [^15]: California Forward, "Multi-Year Impact of Opportunity Zone Conformity" (2026). https://cafwd.org/wp-content/uploads/2026/06/multi-year-impact-opportunity-zone-conformity.pdf [^16]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^17]: Novogradac, "State Tax Code Conformity: Corporate Income" (n.d.). https://novoco.com/resource-centers/opportunity-zones-resource-center/state-tax-code-conformity-corporate-income [^18]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities --- # Depreciation, bonus depreciation and Opportunity Zones URL: https://ozdatacenters.com/guides/opportunity-zone-depreciation Last reviewed: 2026-10-20 Opportunity Zone projects claim ordinary depreciation and, for qualifying property acquired after January 19, 2025, permanent 100% bonus depreciation. Investors in a QOF partnership can use those deductions to the extent of their basis, which starts at zero but generally includes their share of fund debt. If the investment is held at least 10 years and the investor elects fair market value basis, the final regulations exclude the gain on exit, including depreciation recapture, which is the main reason depreciation and Opportunity Zones fit together. ## Key takeaways - 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. - Buildings (39-year nonresidential real property) do not qualify for bonus depreciation; cost segregation moves eligible components into 5-, 7- and 15-year classes. - A QOF partner's basis in a qualifying investment starts at zero, so deductions are usable mainly through the partner's share of fund liabilities. - Under the 10-year election, gain on the sale of the QOF interest is excluded, and investors can elect to exclude a QOF partnership's asset-sale gains other than inventory gains; practitioners read that election to reach §1231 gain and recapture. - Sold before 10 years, depreciation reduces basis and comes back as recapture, taxed at ordinary rates for §1245 property. - Data center servers are commonly depreciated over five to six years for book purposes, so a 10-year hold usually includes at least one equipment refresh. ## Can Opportunity Zone projects claim depreciation? Yes. A Qualified Opportunity Fund (QOF) or the Qualified Opportunity Zone Business (QOZB) it owns depreciates its property under the normal rules of §§167 and 168. Nothing in §1400Z-2 limits depreciation.[^4] Opportunity Zone status changes what happens when the investment is sold, not how assets are depreciated while they are held. The connection is that depreciation lowers tax basis, and a lower basis normally means more taxable gain, including ordinary-income recapture, on sale. The 10-year rule removes that gain. So deductions taken during the hold are not paid back at exit if the investor qualifies for and makes the 10-year election.[^5][^6] That is what makes accelerated depreciation more valuable inside a QOF than in an ordinary real estate investment. ## Does 100% bonus depreciation apply to Opportunity Zone property? Yes, for property that qualifies under §168(k). Public Law 119-21 made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025.[^1][^15] Qualified property includes MACRS property with a recovery period of 20 years or less, computer software and qualified improvement property. A transitional election allows 40% or 60% for certain 2025 property.[^1][^2] The building shell is 39-year property and does not qualify. Cost segregation, an engineering study that splits a project's cost into its tax classes, identifies the portion that does: site work and land improvements (15-year), many electrical and mechanical systems serving equipment rather than the building (5- or 7-year), and personal property.[^3][^8] Data centers have an unusually large share of cost in these classes because power and cooling dominate the budget. Power infrastructure is the single largest component, about 21% of a greenfield build, according to Cushman & Wakefield's 2026 cost guide.[^12] **Figure: How a data center's cost sorts into depreciation classes** 1. IT equipment and software: 5-year or 3-year; bonus-eligible; usually owned by the tenant in a lease 2. Electrical and mechanical systems serving equipment: Often 5- or 7-year, such as UPS, generators and process cooling; bonus-eligible 3. Land improvements and site utilities: 15-year, such as paving, fencing and site drainage; bonus-eligible 4. Qualified improvement property: 15-year interior improvements to an existing building; bonus-eligible 5. Building shell and building systems: 39-year straight line; not bonus-eligible 6. Land: Not depreciable *Typical cost segregation categories. Only the layers marked as bonus-eligible qualify for 100% bonus depreciation; the classification of each component depends on an engineering study and the facts.[^1][^3]* > Qualified production property under §168(n), the separate 100% expensing for buildings used in manufacturing, production or refining, generally does not cover a data center. Do not assume a data center building qualifies.[^1] ## Can QOF investors use depreciation losses? Investors in a QOF partnership can use allocated losses only to the extent of their basis, and basis in the qualifying investment starts at zero. Under §1400Z-2(b)(2)(B), an investor's initial basis in a QOF interest acquired with deferred gain is zero.[^4] A partner's share of partnership liabilities under §752 generally adds outside basis, which is what lets a leveraged project pass losses through. The regulations treat that deemed contribution as basis but not as a separate investment of eligible gain.[^7][^10] - Basis limit (§704(d)): losses beyond basis are suspended and carried forward. - At-risk limit (§465): qualified nonrecourse real estate financing generally counts as at risk. - Passive activity limits (§469): most QOF investors are passive, so losses offset passive income only. - Excess business loss limit (§461(l)): applies to noncorporate taxpayers with large net business losses. An all-equity QOF with no debt gives its investors almost no capacity to use losses in the early years, which is one reason commentators note that cost segregation pays off mainly when there is debt or additional non-qualifying equity in the structure.[^8] For a QOF taxed as a corporation, losses stay at the corporate level. See [Opportunity Zone fund structures](https://ozdatacenters.com/guides/opportunity-zone-fund-structures) and [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing). ## What happens to depreciation recapture after a 10-year hold? It is excluded if the investor makes the 10-year election. An investor who has held a qualifying investment for at least 10 years can elect to treat its basis as fair market value on sale, so the gain, including recapture, is not taxed.[^4][^5] The final regulations, T.D. 9889, went further in two ways that matter for depreciation.[^10] - On a sale of a QOF partnership interest, the basis adjustment accounts for the partner's share of fund liabilities, so the relief of debt that was used to fund depreciation does not create gain.[^5] - If a QOF partnership or S corporation (or a lower-tier partnership it owns) sells assets, the investor can elect to exclude its share of the gain, other than gain from the sale of inventory in the ordinary course of business. Practitioner summaries of the final regulations describe this election as reaching §1231 gain and depreciation recapture; confirm the treatment of a specific sale with your tax adviser.[^5][^6] Sold before 10 years, the normal rules apply. Depreciation on §1245 property (equipment) is recaptured as ordinary income; depreciation on buildings is taxed as unrecaptured §1250 gain at up to 25%. The appreciation above original cost is capital gain. Holding for at least 10 years is the condition that makes accelerated depreciation a permanent benefit rather than a timing benefit; see [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains). > For appreciation after the 30th anniversary of the investment, basis is fixed at fair market value on that anniversary. How the year 30 value is set without a sale is still pending Treasury guidance.[^4][^14] ## Worked example: depreciation in a data center QOF Illustrative assumptions: a QOF partnership invests $20,000,000 of deferred gain in a QOZB that builds a $50,000,000 data center with $30,000,000 of qualified nonrecourse debt. Cost segregation assigns $3,000,000 to land, $14,000,000 to the 39-year building and $33,000,000 to bonus-eligible 5-, 7- and 15-year property. Federal rates: 37% ordinary, 25% on unrecaptured §1250 gain, 20% on capital gain, each plus 3.8% net investment income tax. No state tax. - Year one: $33,000,000 of bonus depreciation plus about $350,000 of building depreciation. Investor basis from the $30,000,000 debt share limits usable losses to $30,000,000; the rest is suspended. - Year five: the $20,000,000 deferred gain is included less the 10% step-up: $18,000,000, or $4,284,000 of tax. - Year 11: the QOF interest is sold for a value implying an $80,000,000 asset price. Accumulated depreciation is about $36,600,000, so adjusted basis in the assets is about $13,400,000. **Figure: Federal tax on exit in year 11, with and without the 10-year election** (illustrative) - Ordinary investment, no OZ: About $21.6M - QOF held 10+ years, election made: $0 *Illustrative, using the assumptions above. Without the election, about $33,000,000 of §1245 recapture is taxed at 40.8%, $3,600,000 of §1250 gain at 28.8% and $30,000,000 of capital gain at 23.8%. With the election, the gain is excluded.* The year-one deductions are worth up to 40.8% of the amount used at the investor's marginal rate, and none of that is clawed back on exit. The cost of the structure is that the deferred gain is still taxed at year five. Your own numbers will depend on debt terms, passive income and state treatment, so confirm with your tax adviser. ## How do short-lived data center assets fit a 10-year hold? Equipment will be replaced during the hold, and each replacement must meet the property rules on its own. Hyperscalers depreciate servers over roughly five to six years for book purposes; Amazon shortened a subset of servers and networking equipment from six years to five effective January 1, 2025, citing the pace of AI development.[^11] Over a 10-year hold, a QOZB that owns IT equipment will buy at least one new generation. - Replacement equipment must be acquired by purchase from an unrelated party and be original use in the zone to count as Qualified Opportunity Zone business property for the 70% test.[^9] - New equipment acquired after January 19, 2025 is eligible for 100% bonus depreciation in the year placed in service, which supports refresh cycles.[^1] - Old equipment sold or scrapped produces recapture at the QOZB level. After the 10-year mark, the asset-sale election can exclude that gain; before it, the gain is taxable.[^6] - In a lease to a hyperscaler or colocation customer, the tenant usually owns the servers, so the depreciation, and the equipment, are the tenant's, not the QOZB's. For the property rules on equipment, see [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules) and [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test). ## Do states follow federal bonus depreciation for Opportunity Zone projects? Not all of them. Many states decouple from bonus depreciation and require their own schedules. California, for example, does not conform to federal bonus depreciation, increased §179 expensing or the Opportunity Zone provisions.[^13] For investors, that means state losses are smaller in early years and state gain at exit is not excluded. See [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ## Common questions **Is depreciation recapture taxed when I sell a QOF investment after 10 years?** No, if you make the 10-year election on a sale of the QOF interest: basis is set to fair market value, and for a QOF partnership the regulations adjust the fund's asset bases too, which generally eliminates recapture. For asset sales by a QOF partnership, investors can elect to exclude the gain other than inventory gain; practitioners read that to include recapture and §1231 gain, but confirm a specific sale with your adviser. **Can I use bonus depreciation losses from a QOF against my other income?** Only within limits. Your basis starts at zero and grows mainly with your share of fund debt, and most investors are passive, so losses generally offset passive income only. Suspended losses carry forward. **Does a data center qualify for 100% bonus depreciation?** Parts of it do. Equipment and many electrical, mechanical and site components with recovery periods of 20 years or less qualify if acquired after January 19, 2025. The 39-year building shell does not. **Should a data center QOF commission a cost segregation study?** Usually yes, if investors can use the losses. Data centers carry a large share of cost in 5-, 7- and 15-year property, and a 10-year hold means the deductions are not recaptured. In an all-equity fund with little basis, the benefit is smaller. **Is a QOF taxed as a corporation able to pass depreciation to investors?** No. Losses stay inside a C corporation QOF. Investors still get the 10-year exclusion on sale of the stock, but they do not use the deductions personally. ## Sources [^1]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^2]: JMCO, "OBBBA's Bonus Depreciation Rules: What Capital-Intensive Industries Need to Know" (2025). https://www.jmco.com/articles/tax/obbba-bonus-depreciation-rules/ [^3]: CBIZ, "Cost segregation bonus depreciation benefits under the OBBBA" (2025). https://www.cbiz.com/insights/article/cost-segregation-bonus-depreciation-benefits-under-the-obbba [^4]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^5]: Kilpatrick Townsend, "Final IRS Rules Spur Development of New Opportunity Zone Funds" (2020). https://ktslaw.com/insights/alert/2020/4/final-irs-rules-spur-development-of-new-opportunity-zone-funds [^6]: Greenberg Glusker, "Final Regulations on Opportunity Zones: An In-Depth Guide" (2020). https://www.greenbergglusker.com/publications/final-regulations-on-opportunity-zones-an-in-depth-guide/ [^7]: Tax Notes, "Making Subchapter K Play Nice in O-Zones" (n.d.). https://www.taxnotes.com/tax-reform/making-subchapter-k-play-nice-o-zones [^8]: KBKG, "Opportunity zones and cost segregation" (n.d.). https://www.kbkg.com/tax-insight/opportunity-zones-and-cost-segregation [^9]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^10]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^11]: The Register, "Hardware quality problems and server supply chain kinks slow Amazon's $100 billion AI build" (2025). https://www.theregister.com/2025/02/07/amazon_q4_fy_2024/ [^12]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^13]: EY Tax News, "California updates general date of conformity to Internal Revenue Code while continuing to decouple from significant federal provisions" (2025). https://taxnews.ey.com/news/2025-2032-california-updates-general-date-conformity-to-internal-revenue-code-while-continuing-to-decouple-from-significant-federal-provisions [^14]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^15]: Congress.gov, "Text, H.R. 1, 119th Congress (Public Law 119-21)" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text --- # Opportunity Zone exit strategies after 10 years URL: https://ozdatacenters.com/guides/opportunity-zone-exit-strategies Last reviewed: 2026-10-20 Once a Qualified Opportunity Fund investment has been held at least 10 years, the investor can elect to set basis equal to fair market value on sale, so appreciation and depreciation recapture are not taxed. The two main exits are selling the QOF interest and, for partnership and S corporation funds, having the fund or its business sell assets and electing to exclude the investor's share of gain. The window runs from year 10 through year 30; appreciation after the 30th anniversary is taxable. ## Key takeaways - The 10-year election under §1400Z-2(c) sets the basis of a QOF interest equal to its fair market value on sale or exchange. - Investors in QOF partnerships and S corporations can also elect to exclude their share of gain when the fund sells assets, other than gain from inventory sales; practitioners read this to include recapture. - The deferred gain itself is taxed at year five regardless of exit timing; the exit strategy protects the appreciation. - For appreciation after the 30th anniversary, basis is fixed at fair market value on that date; the valuation mechanics are pending Treasury guidance. - A sale between year five and year ten is fully taxable on appreciation, so the earliest tax-efficient exit is just after the 10th anniversary of each investment date. ## What are the exit options for an Opportunity Zone investment? There are four practical exits: sell the QOF interest, have the fund sell its assets, refinance and keep holding, or hold until death. The first two use the 10-year election to exclude gain; the third defers the decision; the fourth passes the investment to heirs with its holding period intact.[^1][^2] **Opportunity Zone exit paths after the 10-year mark** | Exit path | How gain is excluded | Best suited to | | --- | --- | --- | | Sell the QOF interest | Investor elects basis equal to fair market value on the sale | Single-asset funds; buyers willing to buy fund interests | | QOF or QOZB sells assets | Partnership or S corporation investor elects to exclude its share of gain reported on the K-1 | Multi-asset funds; buyers who want the real estate, not the entity | | Refinance and continue holding | No sale yet; distributions limited to basis to avoid taxable gain | Stabilized assets with long-term value growth | | Hold until death | Heir keeps the holding period and can make the election on a later sale[^11] | Estate planning; the deferred gain has already been taxed at year five | The exit strategy concerns the appreciation, not the original gain. Under the current rules, deferred gain invested after December 31, 2026 is included at the earlier of an inclusion event or five years after the investment date, with a 10% basis step-up (30% for a Qualified Rural Opportunity Fund).[^5][^12] By year 10, that tax has already been paid. See [how the five-year deferral works](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ## How does the 10-year election work? On a sale or exchange of a qualifying investment held at least 10 years, the investor elects to treat the basis of the investment as its fair market value on the date of sale, so the sale produces no gain.[^1] The election is made on the investor's return for the year of sale, with the sale reported on Form 8949 and the investment tracked on Form 8997.[^10] The final regulations, T.D. 9889, made the election broader than the statute's text alone suggests.[^2] For a partnership interest, the basis adjustment accounts for the investor's share of fund liabilities, so debt relief on the sale does not create gain. And the investor can exclude all gain realized on the sale of the interest, not just capital gain.[^3][^4] **Figure: The exit window for one QOF investment** - Year 0: Investment date (Basis in the QOF interest starts at zero) - Year 5: Deferred gain taxed (Less the 10% or 30% step-up) - Years 5 to 10: No exclusion yet (A sale taxes all appreciation) - Year 10: Exclusion available (Elect fair market value basis on sale) - Year 30: Value fixed (Basis set at fair market value on the 30th anniversary) *Each investment date has its own clock. Appreciation is excludable on a sale from year 10 onward; for a sale after year 30, basis is fixed at the year 30 fair market value and later appreciation is taxed.[^1][^5][^6]* ## Should the investor sell the fund interest or should the fund sell assets? Both work for partnership and S corporation funds; the choice usually depends on what the buyer wants. Under the final regulations, when a QOF partnership or S corporation, or a lower-tier partnership it owns, sells property after the investor's 10-year mark, the investor can elect to exclude its share of the gain, other than gain from sales of inventory in the ordinary course of business. Practitioner summaries describe the election as covering capital gain, §1231 gain and depreciation recapture; confirm the treatment of a specific sale with your tax adviser.[^3][^4] **Figure: Selling the QOF interest vs. selling the assets** - Sell the QOF interest - Investor-level election sets basis to fair market value - Works for partnership, S corporation and C corporation funds - Buyer inherits the fund entity and its history - Each investor can time its own exit - Fund or QOZB sells assets - Investor elects to exclude its share of K-1 gain - Read by practitioners to cover capital gain, §1231 gain and recapture; not inventory - Buyer gets a clean asset with stepped-up basis - All investors must have passed their 10-year mark for full exclusion *Asset-sale exclusion is available to investors in QOF partnerships and S corporations. Investors in a QOF taxed as a C corporation exit by selling stock.[^2][^3]* Buyers of data centers, such as REITs, infrastructure funds and hyperscalers, generally prefer to buy assets or the property-owning entity rather than an interest in a fund with many investors. A single-asset QOF that owns one QOZB can often sell the QOZB interest directly, which keeps the transaction simple. See [single-asset vs. multi-asset Opportunity Zone funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). ## Worked example: selling in year nine vs. year eleven Illustrative assumptions: an investor defers $10,000,000 of long-term gain into a standard QOF in 2027. Federal rate 23.8% on capital gain. No state tax. Ignore recapture for simplicity. - Year five: $9,000,000 is included after the $1,000,000 step-up, so $2,142,000 of tax is paid. Basis rises to $10,000,000 (the $1,000,000 step-up plus the $9,000,000 included). - The interest is worth $25,000,000 at exit in either year nine or year eleven. - Year nine sale: gain is $25,000,000 minus $10,000,000 basis, or $15,000,000, taxed at 23.8%: $3,570,000. - Year eleven sale with the election: basis equals $25,000,000, so no gain and no tax. **Figure: Federal tax on exit, year nine vs. year eleven** (illustrative) - Sale in year nine: $3,570,000 - Sale in year eleven, election made: $0 *Illustrative, using the assumptions above. Waiting past the 10th anniversary saves $3,570,000 on $15,000,000 of appreciation. With depreciation recapture, the difference would be larger.* The same arithmetic is why sponsors set fund terms with hold periods of at least 10 years and plan sales for the 11th or 12th year, which leaves room for market timing. See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) for the election itself. ## Can I take money out without selling after 10 years? Yes, through refinancing distributions, but only up to the investor's basis without creating gain. After year five, basis includes the deferred gain that was taxed plus the step-up, and in a partnership it also includes the investor's share of fund debt.[^1][^9] A refinancing that returns capital within that basis is not taxable. Distributions above basis produce gain under the partnership rules, and whether the 10-year election covers that gain is a fact-specific question; confirm with your tax adviser before distributing above basis. Refinancing suits assets expected to keep growing in value, such as a data center campus with long leases and room to add capacity. The investor keeps the option to sell later in the window and exclude the gain. For financing mechanics, see [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing). ## What does the 30-year limit mean for exit planning? It caps the exclusion, not the holding period. Under the amended §1400Z-2(c), if a qualifying investment is sold after its 30th anniversary, basis is set at fair market value as of that anniversary, so appreciation after year 30 is taxed.[^1][^6] Investors can still hold longer; they simply stop accruing tax-free appreciation. The mechanics are unsettled. Notice 2026-55 asks how the year 30 election and valuation should work when no sale occurs at year 30, with comments due November 23, 2026.[^7][^8] Until guidance arrives, a long-hold fund should plan to document fair market value near the 30th anniversary of each investment date. See [the 30-year limit on Opportunity Zone gains](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). ## How do data center Opportunity Zone funds plan their exit? A data center fund plans its exit around three things: the 10-year date of its last investor, the lease profile at that date, and the condition of short-lived equipment. Data center leases to hyperscalers and colocation customers drive value, and a buyer pays for the remaining contracted income.[^13] **Figure: Exit readiness checklist for a data center QOF** - [watch] Every investor past its 10-year date: Late capital calls create later investment dates; check each tranche - [pass] QOF and QOZB tests met every year: Annual Form 8996 filings and 70% test records support qualification at exit - [watch] Active trade or business documented: A single-tenant triple-net lease is not an active business under the regulations - [pass] Equipment ownership clear: Tenant-owned servers are outside the sale; QOZB-owned systems transfer - [watch] Sale structure chosen: Interest sale vs. asset sale, and buyer preference - [pass] Approaching the 30th anniversary: Rarely relevant for a data center fund planning a year 10 to 15 exit *Use at least two years before the planned sale. Watch items most often delay a tax-free exit.* The active business point matters at exit because the exclusion depends on the fund having qualified throughout the hold. Commentators flag single-tenant powered-shell leases to hyperscalers as the main risk; there is no guidance specific to data center leases.[^13][^2] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). OZ Data Centers sponsors data center funds of this kind. ## Common questions **When is the earliest I can exit an Opportunity Zone investment tax-free?** On a sale on or after the 10th anniversary of your investment date. The deferred gain itself is taxed at year five; the 10-year election excludes appreciation and recapture on the later sale. **Can the fund sell the property instead of me selling my interest?** Yes, for partnership and S corporation QOFs. The final regulations let investors who have held at least 10 years elect to exclude their share of gain from the fund's asset sales, other than inventory sales. **What happens if I sell in year eight?** You pay tax on all appreciation, and on recapture, at normal rates. The deferred gain was already taxed at year five. There is no partial exclusion before year 10. **Is there a deadline to sell after 10 years?** No hard deadline, but appreciation after the 30th anniversary of the investment is taxable because basis is fixed at the fair market value on that date. **Do my heirs keep the 10-year benefit?** Yes. Death is not an inclusion event, and heirs keep the decedent's holding period, so they can sell after the 10-year mark and make the election. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^3]: Kilpatrick Townsend, "Final IRS Rules Spur Development of New Opportunity Zone Funds" (2020). https://ktslaw.com/insights/alert/2020/4/final-irs-rules-spur-development-of-new-opportunity-zone-funds [^4]: Greenberg Glusker, "Final Regulations on Opportunity Zones: An In-Depth Guide" (2020). https://www.greenbergglusker.com/publications/final-regulations-on-opportunity-zones-an-in-depth-guide/ [^5]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^6]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^7]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^8]: Current Federal Tax Developments, "IRS Solicits Technical Comments on Opportunity Zone Regulations Post-OBBBA (Notice 2026-55)" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/22/irs-solicits-technical-comments-on-opportunity-zone-regulations-post-obbba-administrative-focus-on-interim-gains-single-family-housing-and-working-capital-safe-harbors [^9]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(b)-1: Inclusion of gain that has been deferred under section 1400Z-2(a)" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(b)-1 [^10]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^11]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^12]: PwC, "Enhanced and permanent opportunity zones as part of the OBBBA" (2025). https://www.pwc.com/us/en/services/tax/library/enhanced-and-permanent-opportunity-zones-as-part-of-the-obba.html [^13]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers # Section: Fund & business rules The tests a Qualified Opportunity Fund and its businesses must pass, and how to stay compliant. --- # The QOF 90% asset test URL: https://ozdatacenters.com/guides/qof-90-percent-asset-test Last reviewed: 2026-10-20 A Qualified Opportunity Fund must hold at least 90% of its assets in Qualified Opportunity Zone property, measured as the average of two testing dates each year: the last day of the first six-month period of its taxable year and the last day of the taxable year. If it falls short, it owes a penalty for each month equal to the shortfall below 90% times the federal underpayment rate, divided by 12 on Form 8996. For a $100 million fund that is $10 million short all year at a 7% rate, that is $700,000. ## Key takeaways - The 90% investment standard is in §1400Z-2(d)(1); Qualified Opportunity Zone property is QOZ stock, QOZ partnership interests and QOZ business property. - Calendar-year QOFs test on June 30 and December 31, and the two percentages are averaged. - Assets are valued using the fund's applicable financial statement or, if it has none or so chooses, the alternative (generally cost) method, applied consistently for the year. - Newly contributed cash held for up to six months, and sale proceeds reinvested within 12 months, can be excluded from or treated as qualifying for the test. - The penalty under §1400Z-2(f) is the monthly shortfall times the §6621(a)(2) underpayment rate, with no penalty if the failure is due to reasonable cause. - A QOF cannot use the 31-month working capital safe harbor; only a QOZB can, which is why most funds invest through a QOZB. ## What is the QOF 90% asset test? The 90% asset test, also called the 90% investment standard, requires a Qualified Opportunity Fund (QOF) to hold at least 90% of its assets in Qualified Opportunity Zone property (QOZP). A QOF is a corporation or partnership organized to invest in QOZP that self-certifies on Form 8996.[^1][^4] The test in §1400Z-2(d)(1) is the fund's core ongoing requirement: an investor's deferral and 10-year exclusion depend on investing in an entity that qualifies as a QOF. QOZP has three forms. The fund can hold Qualified Opportunity Zone business property directly, or it can hold stock or a partnership interest in a Qualified Opportunity Zone Business (QOZB), acquired for cash at original issue, where the entity qualifies as a QOZB during substantially all of the fund's holding period.[^1][^2] Most funds use a QOZB, which faces its own tests. **Figure: The two layers of Opportunity Zone asset testing** - QOF assets in QOZ property: at least 90% (Average of two testing dates) - QOZB tangible property that is QOZ business property: at least 70% (Substantially all test) - QOZB gross income from active business in the zone: at least 50% - QOZB nonqualified financial property: less than 5% (Working capital within the safe harbor excluded) *The QOF tests its own balance sheet against 90%. Its QOZB interests count only if the QOZB passes its separate tests, including the 70% tangible property test.[^1][^2]* ## When is the 90% test measured? Twice a year: on the last day of the first six-month period of the fund's taxable year and on the last day of the taxable year. For a calendar-year fund, those are June 30 and December 31.[^1][^6] The fund's compliance percentage for the year is the average of the two. The first year has special rules. A fund chooses the first month it is a QOF on its initial Form 8996. Under the regulations, if that month is after the sixth month of its taxable year, the year-end date is the only testing date for that year; otherwise the first six-month period is measured starting with the month the fund became a QOF.[^2][^3] Choosing a later start month can give a new fund time to deploy capital, but investors can only make qualifying investments in an entity once it is a QOF. **Testing dates for a calendar-year QOF, by first QOF month** | First month as a QOF | First testing date | Second testing date | | --- | --- | --- | | January | June 30 | December 31 | | April | September 30 | December 31 | | July or later | None | December 31 (only test that year) | | Later years | June 30 | December 31 | ## How are QOF assets valued for the 90% test? The fund values its assets using one of two methods, chosen each year and applied to all assets consistently for that year.[^2][^10] - Applicable financial statement method: values reported on an applicable financial statement, such as audited GAAP financial statements. Available only if the fund has one. - Alternative valuation method: owned property is generally valued at its unadjusted cost basis; leased property is valued at the present value of the lease payments, fixed at the start of the lease.[^10][^12] Cost-based valuation means appreciation does not help or hurt the test, and it keeps the numbers stable between testing dates. Leased property is included in both the numerator and denominator when it qualifies, which matters for funds that lease land or equipment.[^10] The same valuation methods apply to the QOZB's 70% test.[^12] ## How does a QOF handle new cash and sale proceeds? Two relief rules keep cash from failing the test, but neither is the 31-month working capital safe harbor, which is available only to QOZBs.[^3][^14] - Six-month rule for new capital: a QOF may exclude from the test property received as a contribution or for stock or partnership interests within the six months before the testing date, if it is held in cash, cash equivalents or short-term debt of 18 months or less.[^3][^6] - 12-month reinvestment rule: proceeds from the return of capital or sale of QOZP count as QOZP for the test if reinvested in QOZP within 12 months and held in cash, cash equivalents or short-term debt in the meantime. Extensions are available for federally declared disasters and certain government delays.[^11][^3] The 12-month rule protects the fund's status only. It does not defer tax on the gain from the sale, which flows to the partners unless the 10-year election applies. Notice 2026-55 asks whether interim gains should get more relief; until rules change, plan for the gain to be taxable.[^15] ## What is the penalty for failing the 90% test? The penalty under §1400Z-2(f) is, for each month the fund fails, the amount by which 90% of its aggregate assets exceeds its QOZP, multiplied by the underpayment rate under §6621(a)(2) for that month, which is the federal short-term rate plus three percentage points.[^1][^6] Form 8996 computes it month by month using month-end values, divides the annual rate by 12, and treats a negative shortfall as zero.[^5] For a QOF partnership, the penalty is taken into account proportionately as part of each partner's distributive share.[^6] No penalty applies if the failure is due to reasonable cause. COVID-era notices treated failures on testing dates from April 1, 2020 through June 30, 2021 as reasonable cause, and that relief has expired.[^8][^9] Practitioners note that reasonable cause depends on facts and documentation, and that holding uninvested cash because no deal was found is a common way to fail.[^7] **Figure: How the 90% test penalty is computed** (illustrative) 1. Month-end total assets: $100,000,000 2. Required: 90% of assets: $90,000,000 3. Less QOZ property held: Shortfall of $10,000,000 4. Times 7% divided by 12: About $58,333 for the month 5. Sum of 12 months: $700,000 for the year *Illustrative. A QOF holds $80,000,000 of QOZ property out of $100,000,000 of total assets at every month end, and the underpayment rate is assumed to be 7% a year. Form 8996 applies the same arithmetic to each month and adds the results.* > This penalty is separate from the new information-reporting penalty under §6726 for failing to file required QOF returns, which runs at $500 per day up to $10,000 per return ($50,000 for funds with gross assets over $10 million). Proposed regulations on that regime were published September 11, 2026 and are not final.[^13] ## How do data center QOFs manage the 90% test? By moving cash to the QOZB quickly and letting the QOZB's working capital safe harbor carry the construction period. A data center campus can take years to energize; Dominion Energy has said connections for loads above 100 MW could take up to seven years in total in its territory.[^16] A QOF holding that cash itself would fail. A QOZB can hold it for up to 31 months per plan, or 62 months with multiple plans, under a written schedule.[^2] **Figure: 90% test checklist for a data center QOF** - [pass] Investor cash contributed to the QOZB within six months: Six-month rule covers the gap - [pass] QOZB has a written working capital plan and schedule: Keeps QOZB cash from failing the QOZB tests - [watch] QOZB meets the 70% tangible property test: Count only QOZB-owned or leased property; tenant servers do not count - [watch] Active trade or business, not a bare triple-net lease: A single-tenant NNN lease is not an active business - [fail] Sale proceeds held more than 12 months: Proceeds stop counting as QOZP after 12 months - [pass] Form 8996 filed on time each year: Required to report the test and any penalty *Run before each testing date. A QOZB interest counts only while the QOZB itself qualifies.* Capital-call timing matters too. Investors have 180 days from their gain to invest in the QOF; the fund then has the six-month window before cash counts against it. Matching calls to the QOZB's spending schedule keeps both tests clean. See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor), [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## How is the 90% test reported? On Form 8996, filed with the fund's return every year, including the year it decertifies. The form reports QOZP and total assets on each testing date, the resulting percentage and any penalty.[^4][^5] Under proposed regulations, Form 8996 would become a separate information return with census-tract-level data; those rules are not final.[^13] See [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained) and [Opportunity Zone reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## Common questions **What are the testing dates for the QOF 90% test?** The last day of the first six-month period of the fund's taxable year and the last day of the taxable year: June 30 and December 31 for a calendar-year fund. The two percentages are averaged. **Does failing the 90% test end the investors' deferral?** Not by itself. A failure triggers the monthly penalty, unless due to reasonable cause. Persistent failure or decertification can end QOF status, and decertification is an inclusion event for investors. **Can a QOF use the 31-month working capital safe harbor?** No. The safe harbor applies only to QOZBs. A QOF relies on the six-month rule for new cash and the 12-month rule for reinvesting proceeds. **How is the 90% penalty calculated?** For each month, take 90% of total assets minus QOZ property held, treat any negative result as zero, and multiply by the §6621(a)(2) underpayment rate divided by 12. Sum the months on Form 8996. **Do QOZB shares count toward the 90% test if the QOZB is still building?** Yes, if the QOZB qualifies. During a valid working capital safe harbor, the QOZB's cash and property under construction are treated as meeting its tests, so the QOF's interest in it counts as QOZ property. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^4]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^5]: Internal Revenue Service, "Form 8996, Qualified Opportunity Fund (accessible version)" (n.d.). https://www.IRS.GOV/pub/irs-access/f8996_accessible.pdf [^6]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^7]: The Tax Adviser (AICPA), "Opportunity zone penalties: What constitutes reasonable cause?" (2024). https://www.thetaxadviser.com/issues/2024/oct/opportunity-zone-penalties-what-constitutes-reasonable-cause.html [^8]: Cherry Bekaert, "Expiration of IRS Relief Provisions for Qualified Opportunity Funds" (n.d.). https://www.cbh.com/insights/alerts/expiration-of-irs-relief-provisions-for-qualified-opportunity-funds/ [^9]: Internal Revenue Service, "Notice 2021-10, Extension of Relief for Qualified Opportunity Funds and Investors" (2021). https://www.irs.gov/pub/irs-drop/n-21-10.pdf [^10]: Mayer Brown, "Qualified Opportunity Fund Update" (2020). https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2020/04/qualified-opportunity-fund-update.pdf [^11]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^12]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^13]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^14]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (n.d.). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^15]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^16]: Data Center Knowledge, "Data Centers Face Seven-Year Wait for Power Hookups in Virginia" (2024). https://www.datacenterknowledge.com/energy-power-supply/data-centers-face-seven-year-wait-for-power-hookups-in-virginia --- # The QOZB 70% tangible property test URL: https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test Last reviewed: 2026-10-20 A Qualified Opportunity Zone Business must have at least 70% of the tangible property it owns or leases qualify as Qualified Opportunity Zone business property. Property qualifies if it was acquired by purchase from an unrelated party (or leased on market terms), meets the original use or substantial improvement requirement, and is used at least 70% in a zone for at least 90% of the holding period. For a data center, new buildings and equipment usually qualify; tenant-owned servers do not count, and property outside the zone counts against the business. ## Key takeaways - “Substantially all” of a QOZB's tangible property means at least 70%, under Treas. Reg. §1.1400Z2(d)-1. - QOZ business property must be purchased from an unrelated party, be original use or substantially improved, and be used in a zone during substantially all of the holding period. - Within that definition, substantially all of the use means at least 70% in the zone, and substantially all of the holding period means at least 90%. - Owned and leased property are both counted, valued on an applicable financial statement or by the alternative method (cost for owned, present value of payments for leased). - A QOZB that fails the test gets a one-time six-month period to cure. - Property under construction under a valid working capital plan is treated as qualifying during the safe harbor period. ## What is the QOZB 70% tangible property test? It is the requirement that at least 70% of the tangible property owned or leased by a Qualified Opportunity Zone Business (QOZB) be Qualified Opportunity Zone business property (QOZBP). The statute, §1400Z-2(d)(3), requires that “substantially all” of a QOZB's tangible property be QOZBP, and the regulations set that at 70%.[^1][^2] A QOZB is a corporation or partnership in which a Qualified Opportunity Fund (QOF) holds stock or a partnership interest, and which meets the tangible property test plus four others: at least 50% of gross income from the active conduct of a business in the zone, at least 40% of intangible property used in that business, less than 5% of property in nonqualified financial property, and no excluded sin business.[^1][^5] The 70% test is why most funds invest through a QOZB: a QOF holding property directly must meet 90%, while a QOZB needs 70%.[^6] **Figure: The three “substantially all” thresholds in the tangible property test** - QOZB tangible property that is QOZBP: at least 70% - Use of each asset inside a zone: at least 70% (Substantially all of the use) - Share of the holding period the asset qualifies: at least 90% (Substantially all of the holding period) *The same phrase means different percentages in different places. The QOZB needs 70% of its property to qualify, and each asset must be used 70% in the zone for 90% of the time it is held.[^2][^5]* ## What counts as Qualified Opportunity Zone business property? Owned tangible property is QOZBP if it meets three requirements under §1400Z-2(d)(2)(D) and the regulations.[^1][^2] 1. Acquired by purchase, as defined in §179(d)(2), after the statutory cutoff date, from a person that is not related (using a 20% relatedness threshold). Self-constructed property counts as purchased if the QOZB builds it. 2. Original use in the zone begins with the QOZB, or the QOZB substantially improves the property within 30 months (additions to basis above the starting basis, or 50% for property in a wholly rural zone). 3. During substantially all (90%) of the QOZB's holding period, substantially all (70%) of the property's use is in a Qualified Opportunity Zone. Leased tangible property is QOZBP if the lease was entered into after the statutory cutoff date, the terms are market rate (arm's length) at the time the lease is signed, and the 70% use and 90% holding-period requirements are met. Leased property does not need to be original use or substantially improved, and it need not be leased from an unrelated party, although related-party leases carry extra limits.[^9][^2] See [leased property rules](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). **Owned vs. leased property under the tangible property test** | Requirement | Owned property | Leased property | | --- | --- | --- | | Acquisition | Purchase from an unrelated party | Lease entered after the statutory cutoff date | | Original use or substantial improvement | Required | Not required | | Market terms | Price paid | Lease must be arm's length when signed | | Related parties | Not allowed (20% test) | Allowed, but no prepayment over 12 months; extra rules for previously used property | | Use in zone | 70% of use for 90% of holding period | 70% of use for 90% of lease term held | ## How is the 70% test calculated? Divide the value of the QOZB's tangible property that is QOZBP by the value of all its tangible property, owned and leased. Values come from the QOZB's applicable financial statement if it has one, or from the alternative valuation method: unadjusted cost for owned property and the present value of lease payments for leased property.[^3][^7] The same methods are used for the QOF's 90% test, and the QOZB must apply one method to all its assets for a given year.[^7] Because cost rather than market value is used under the alternative method, appreciation in a building does not change the result; new purchases and dispositions do. Land counts as tangible property in both numerator and denominator. Land used in the trade or business can be QOZBP without separate improvement, subject to an anti-abuse rule for land held mainly for speculation.[^4][^6] ## Worked example: a data center QOZB Illustrative assumptions: a QOZB develops a single-building data center using the alternative valuation method. It buys land and builds new; it also buys some used equipment from an affiliate and owns a switching station that sits in the neighboring census tract outside the zone. **Figure: Tangible property of an illustrative data center QOZB ($ millions)** (illustrative) - New building (original use): $60M, qualifies - Electrical and mechanical systems (new): $70M, qualifies - Land purchased from unrelated seller: $5M, qualifies - Leased generators (present value): $5M, qualifies - Used equipment bought from an affiliate: $10M, fails - Switching station outside the zone: $15M, fails *Illustrative. Qualifying property totals $140 million of $165 million, or 84.8%, which clears 70%. The used equipment from an affiliate fails the unrelated-purchase rule, and the switching station fails the use-in-zone rule.* The cushion is 14.8 percentage points. If the QOZB later added $40 million of out-of-zone or non-qualifying property, it would fall to 68.3% and fail. Tracking new purchases against the test before closing them is the main compliance task. Equipment is often the swing factor because it is the largest share of cost: Cushman & Wakefield's 2026 cost guide puts power infrastructure at about 21% of a greenfield build, the largest single component, and reports average per-MW costs up 21% since its previous edition.[^14] ## How is property under construction treated, and can a failure be cured? Property being built or improved under a valid working capital safe harbor plan is treated as QOZBP during the safe harbor period, if it is expected to qualify when completed.[^15][^4] That is how a QOZB passes the test while its building is a hole in the ground. See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). If a QOZB fails the 70% test, the regulations give it a one-time six-month period to cure the defect, during which the QOF's interest in it still counts as QOZ property.[^8][^4] A second failure has no cure. Failure flows up: if the QOZB stops qualifying, the QOF's interest in it is no longer QOZ property, which can push the fund below its 90% test. See [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). ## What are the 70% test issues for data centers? Data centers concentrate value in equipment, and the test counts only what the QOZB owns or leases, so ownership boundaries decide the result. Commentators note the program's appeal for data center projects and the structuring issues it raises.[^12] **Figure: Data center property and the 70% test** - [pass] New shell and core on purchased zone land: Self-constructed property is purchased and original use - [pass] New electrical, cooling and generators bought from vendors: Purchased, original use, used in the zone - [pass] Tenant-owned servers and racks: Not QOZB property, so neither helps nor hurts the test - [watch] Substation, fiber or pipelines outside the zone: Owned property used mainly outside the zone fails the use test - [fail] Used equipment bought from an affiliate: Fails the unrelated-purchase requirement - [watch] Equipment refresh in years 5 to 10: Each new asset must qualify; buy new from unrelated vendors *Common data center assets and how they usually fare. The answer for any asset depends on how it was acquired and where it sits.* Equipment refresh is a live issue. Hyperscalers depreciate servers over roughly five to six years, and Amazon shortened some lives to five years in 2025, so a 10-year hold usually includes replacements.[^13] Replacements bought new from unrelated vendors qualify; replacements bought from affiliates or used from inside the zone may not. See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). Passing the 70% test does not settle whether the QOZB is conducting an active trade or business. A QOZB that owns a building and leases it to one tenant on a triple-net basis is not engaged in an active trade or business under the regulations, even if all its property qualifies.[^10][^11] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## Common questions **What does “substantially all” mean for a QOZB?** At least 70% of the QOZB's tangible property, owned and leased, must be QOZ business property. Within the property definition, at least 70% of each asset's use must be in a zone during at least 90% of the holding period. **Does leased property count toward the 70% test?** Yes. Leased property is in both the numerator and denominator. It qualifies if the lease was entered after the statutory cutoff date on market terms and the property is used in the zone; it does not need to be original use. **Do servers owned by a data center tenant count?** No. Only property the QOZB owns or leases is counted. Tenant-owned servers are outside the test entirely. **What happens if a QOZB fails the 70% test?** It has a one-time six-month cure period. If it does not cure, it stops being a QOZB, and the QOF's interest no longer counts toward the fund's 90% test. **How is the 70% test met during construction?** Under a valid written working capital plan, property being built or improved is treated as QOZ business property during the safe harbor period if it is expected to qualify when complete. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^4]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^5]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^6]: Ballard Spahr, "Treasury Releases Final Regulations on Qualified Opportunity Zone Program" (2020). https://www.ballardspahr.com/insights/alerts-and-articles/2020/01/qualified-opportunity-zones-final-regulations [^7]: Mayer Brown, "Qualified Opportunity Fund Update" (2020). https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2020/04/qualified-opportunity-fund-update.pdf [^8]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^9]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^10]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^11]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^12]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^13]: The Register, "Hardware quality problems and server supply chain kinks slow Amazon's $100 billion AI build" (2025). https://www.theregister.com/2025/02/07/amazon_q4_fy_2024/ [^14]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^15]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same --- # QOZB gross income, intangibles and financial property tests URL: https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests Last reviewed: 2026-10-20 Beyond the 70% tangible property test, a Qualified Opportunity Zone Business must earn at least 50% of its gross income from the active conduct of a trade or business in the zone, use at least 40% of its intangible property in that business, and hold less than 5% of its property (by average unadjusted basis) in nonqualified financial property. The 50% test has three safe harbors based on hours, payments for services, and the location of property and management, plus a facts-and-circumstances test. Working capital held under the safe harbor does not count as financial property. ## Key takeaways - The 50% gross income, 40% intangibles and 5% nonqualified financial property tests come from §1400Z-2(d)(3), which incorporates §1397C(b)(2), (4) and (8). - The 50% gross income test can be met by hours of services, amounts paid for services, or in-zone tangible property and management each being necessary to generate 50% of gross income, or on the facts and circumstances. - A “substantial portion” of intangible property means at least 40%, under the final regulations. - Nonqualified financial property must be less than 5% of the average of the aggregate unadjusted bases of the QOZB's property; reasonable working capital and ordinary-course receivables are excluded. - Merely entering into a triple-net lease is not the active conduct of a trade or business, which is the main gross-income risk for single-tenant data centers. ## What tests besides the 70% test does a QOZB have to meet? A Qualified Opportunity Zone Business (QOZB) must meet four more requirements, set by §1400Z-2(d)(3), which borrows three of them from the empowerment zone rules in §1397C.[^1][^2] **Figure: QOZB operating tests beyond tangible property** - Gross income from active business in the zone: at least 50% (Three safe harbors or facts and circumstances) - Intangible property used in the active business in the zone: at least 40% (“Substantial portion”) - Nonqualified financial property, by average unadjusted basis: less than 5% (Must be less than 5%) *These tests apply alongside the 70% tangible property test. The 5% limit is a ceiling; the others are minimums.[^2][^3]* The fourth requirement is that the business not be a sin business: a private or commercial golf course, country club, massage parlor, hot tub or suntan facility, racetrack or other gambling facility, or a store whose principal business is selling alcohol for off-premises consumption.[^1] See [businesses excluded from Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-excluded-businesses). For the property test, see [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test). ## How does a QOZB meet the 50% gross income test? By showing that at least 50% of its gross income comes from the active conduct of a trade or business in a Qualified Opportunity Zone, using any one of three safe harbors or, failing those, the facts and circumstances.[^2][^4] The safe harbors test where the work happens, not where customers are. **The 50% gross income safe harbors under Treas. Reg. §1.1400Z2(d)-1** | Safe harbor | What must be in the zone | Fits | | --- | --- | --- | | Hours of services | At least 50% of the hours of services performed for the business by employees and independent contractors (and their employees) | Labor-heavy operations with in-zone staff | | Amounts paid for services | At least 50% of the amounts paid for services performed for the business by employees and contractors | Businesses with higher-paid in-zone roles | | Tangible property and management | In-zone tangible property and in-zone management or operational functions are each necessary to generate 50% of gross income | Asset-heavy businesses such as data centers | | Facts and circumstances | At least 50% of gross income is derived from the active conduct of a business in the zone, on all the facts | Anything that misses the safe harbors | Illustrative example of the hours safe harbor: a QOZB's employees and contractors log 40,000 hours of services in a year. Operations, security and maintenance staff at the zone facility account for 26,000 hours, and a finance and sales team in another state accounts for 14,000. In-zone hours are 65%, so the hours safe harbor is met even though a third of the work happens elsewhere. A QOZB may use whichever safe harbor it meets for a year.[^4][^16] Income earned on working capital during a valid working capital safe harbor period is treated as income from the active conduct of the business, so a QOZB under construction is not failed by its interest income.[^8][^9] ## What counts as the active conduct of a trade or business? The regulations use the §162 definition of a trade or business, and they treat ownership and operation, including leasing, of real property as an active trade or business. The exception is a triple-net lease: merely entering into a triple-net lease with respect to real property owned by the business is not the active conduct of a trade or business.[^3][^10] The regulations illustrate the line. A landlord that leases an entire building to one tenant on a triple-net basis is not engaged in an active business, even with an on-site office handling lease issues. A landlord that leases part of a building on a triple-net basis and actively manages and operates the rest through on-site employees is.[^10][^11] > No guidance addresses data center leases to hyperscalers specifically. A single-tenant powered-shell or NNN lease is the highest-risk structure; multi-tenant colocation, operator-provided power, cooling, security and remote-hands services, or the QOZB operating the facility itself present stronger facts. This is analysis, not settled law.[^12][^10] ## What is the 40% intangible property test? A QOZB must use a “substantial portion” of its intangible property in the active conduct of its trade or business in the zone, and the final regulations define substantial portion as at least 40%.[^5][^3] Intangible property includes software licenses, customer contracts, trademarks, patents and similar rights. For most real estate and infrastructure QOZBs, intangibles are small and the test is easy. It matters more for operating businesses that own valuable intellectual property used outside the zone, such as a software company with development teams elsewhere. During a working capital safe harbor period, intangibles purchased or developed with covered working capital are treated as used in the active conduct of the business.[^8][^6] ## What is the 5% nonqualified financial property limit? Less than 5% of the average of the aggregate unadjusted bases of a QOZB's property may be nonqualified financial property (NQFP).[^1][^7] NQFP means debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and similar property. Two exclusions make the limit workable. Reasonable amounts of working capital held in cash, cash equivalents or debt instruments with a term of 18 months or less are not NQFP, and working capital covered by the safe harbor is treated as reasonable. Accounts or notes receivable acquired in the ordinary course of business for services or property sold are also excluded.[^1][^2][^9] **Figure: NQFP as a share of an illustrative $150 million QOZB** (illustrative) - Debt service reserve only: 4.0%, passes - Reserve plus equity securities: 6.0%, fails - Reference line: 5% limit (must stay below) *Illustrative. A $6 million debt service reserve held in short-term Treasuries outside a working capital plan is 4.0% and passes. Adding $3 million of listed equity securities brings NQFP to 6.0% and fails the limit.* Whether a reserve is working capital or NQFP depends on what it is held for and how it is invested. Lender-required reserves in short-term instruments are often treated as working capital, but this is worth confirming with counsel for each financing. ## How do data center QOZBs pass these tests? An operating data center usually meets the 50% test through the tangible property and management safe harbor, because its revenue depends on the halls, power and cooling in the zone and on the operations team that runs them.[^4][^16] The harder question is upstream: whether a leasing structure is an active trade or business at all. **Figure: Gross income, intangibles and NQFP checks for a data center QOZB** - [pass] Revenue from customers using in-zone halls and power: Tangible property and management safe harbor - [pass] Operations staff, security and remote hands on site: Supports the hours and payments safe harbors too - [fail] Single-tenant triple-net lease of the whole building: Not an active trade or business under the regulations - [pass] Software and customer contracts: Used in the in-zone business; 40% test met - [watch] Lender reserves and cash outside a working capital plan: Keep NQFP below 5% of average unadjusted basis - [pass] Construction-period interest income: Treated as active income during the safe harbor *Typical results for a QOZB that owns and operates a colocation or build-to-suit facility in the zone.* Notice 2026-55 asks for comments on rules for operating businesses, with comments due November 23, 2026; any changes would come through new proposed regulations.[^13][^14] For structure choices, see [data center lease structures in Opportunity Zones](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones), [colocation data centers in Opportunity Zones](https://ozdatacenters.com/guides/colocation-data-centers-opportunity-zones) and [managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers). The QOZB cure period is a one-time, six-month relief, so monitor these tests at every testing date rather than relying on it.[^15] ## Common questions **Does a QOZB's customer have to be in the Opportunity Zone?** No. The safe harbors look at where services are performed, where tangible property sits and where management functions happen, not where customers are located. **Is interest on construction cash bad income for the 50% test?** Not during a valid working capital safe harbor. Income earned on covered working capital is treated as derived from the active conduct of the business. **Is a triple-net leased data center an active trade or business?** Merely entering into a triple-net lease is not, under the regulations. A single-tenant NNN lease of the whole building fails; operating responsibilities and services improve the facts. **What counts as nonqualified financial property?** Debt, stock, partnership interests, options, futures, forwards, warrants, notional principal contracts and annuities, other than reasonable working capital in short-term instruments and ordinary-course receivables. **How is the 5% NQFP limit measured?** As a share of the average of the aggregate unadjusted bases of all the QOZB's property. It must be less than 5%. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^4]: Duane Morris, "Opportunity Knocks: 2nd Set of Opportunity Zone Regulations Issued by Treasury" (2019). https://blogs.duanemorris.com/opportunityzones/tag/50-test/ [^5]: Orrick, "Final Tax Regulations Offer More Certainty to Opportunity Zone Fund Managers and Investors" (2020). https://www.orrick.com/en/Insights/2020/02/Final-Tax-Regulations-Offer-More-Certainty-to-Opportunity-Zone-Fund-Managers-and-Investors [^6]: Ballard Spahr, "Treasury Releases Final Regulations on Qualified Opportunity Zone Program" (2020). https://www.ballardspahr.com/insights/alerts-and-articles/2020/01/qualified-opportunity-zones-final-regulations [^7]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^8]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^9]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^10]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^11]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^12]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^13]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^14]: EY Tax News, "IRS requests comments on expanding Opportunity Zone incentives for homebuilding and operating businesses" (2026). https://taxnews.ey.com/news/2026-2049-irs-requests-comments-on-expanding-opportunity-zone-incentives-for-homebuilding-and-operating-businesses [^15]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^16]: Akerman, "Treasury Releases Second Round of Proposed Opportunity Zone Regulations" (2019). https://www.akerman.com/en/perspectives/treasury-releases-second-round-of-proposed-opportunity-zone-regulations.html --- # The Opportunity Zone working capital safe harbor URL: https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor Last reviewed: 2026-10-20 The working capital safe harbor lets a Qualified Opportunity Zone Business hold cash for up to 31 months while it acquires, builds or substantially improves property in a zone, as long as the cash is designated in a written plan, covered by a written schedule, and spent substantially as planned. Sequential or overlapping plans can extend the period to a maximum of 62 months from the first cash infusion, and government permitting delays can toll the clock. For data centers, whose power can take four to seven years to arrive in constrained markets, the 62-month limit is the binding constraint on how early capital can be raised. ## Key takeaways - The safe harbor is in Treas. Reg. §1.1400Z2(d)-1 and applies to QOZBs only, not to QOFs. - Three requirements: a written designation of the cash for property in a zone, a written schedule of up to 31 months, and actual use substantially consistent with the plan. - Multiple plans with multiple non-de minimis cash infusions can extend coverage to a maximum of 62 months from the first infusion. - During a valid plan, the cash is not nonqualified financial property, property under construction counts as QOZ business property, and income on the cash counts as active. - Delay from government action on a completed application tolls the period; a federally declared disaster can add up to 24 months. - Notice 2026-55 asks whether QOZBs should be allowed to modify an existing plan; that relief is not yet available. ## What is the working capital safe harbor? It is a rule in the Treasury regulations that lets a Qualified Opportunity Zone Business (QOZB) treat cash, cash equivalents and debt instruments with a term of 18 months or less as reasonable working capital for up to 31 months while it builds or buys the property its business needs.[^2][^3] Without it, a startup QOZB holding investor cash would fail the 5% limit on nonqualified financial property, which §1400Z-2(d)(3) imports from §1397C(b)(8), on day one, and it would have no completed property to count toward the 70% tangible property test.[^1] The safe harbor belongs to the QOZB. A Qualified Opportunity Fund (QOF) cannot use it; the regulations make it available only to QOZBs.[^4] That is why almost every development fund invests through a QOZB. See [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). **Figure: The three requirements of a working capital safe harbor plan** 1. Written designation: Cash is designated for acquiring, constructing or substantially improving tangible property in a zone 2. Written schedule: Spending within 31 months of receipt, consistent with ordinary start-up of a business 3. Consistent use: Cash is actually used in a manner substantially consistent with the plan and schedule *All three must be met for each plan. The written documents must exist when the cash is designated, not reconstructed later.[^2][^4]* ## Which QOZB tests does the safe harbor protect? During a valid plan period, the safe harbor protects every QOZB test that idle cash and unfinished property would otherwise fail.[^4][^5] **How a valid working capital plan affects each QOZB test** | QOZB test | Effect of a valid plan | | --- | --- | | Under 5% nonqualified financial property | Covered cash is reasonable working capital, not NQFP | | 70% tangible property | Property being built or improved is treated as QOZ business property if expected to qualify when complete | | 50% gross income | Income earned on covered working capital counts as income from the active business | | 40% intangibles | Intangibles bought or developed with covered cash are treated as used in the business | The plan can cover development of the trade or business itself, not just a building: the regulations allow the written designation to include developing a trade or business in the zone as well as acquiring, constructing or substantially improving tangible property.[^4][^3] ## How does the 62-month extension work? A QOZB can string together overlapping or sequential safe harbor plans for a total of up to 62 months, if it receives multiple non-de minimis cash infusions and each later infusion is part of a consistent plan covered by the first safe harbor.[^4][^6] The 62 months run from the first covered infusion, and later infusions do not extend that outer limit.[^14] **Figure: Two overlapping working capital plans on a data center project** (illustrative) - Plan 1 (first infusion): 0 to 31 months - Plan 2 (second infusion): 24 to 55 months - Outer limit from first infusion: 0 to 62 months - Utility interconnection (assumed): 0 to 60 months - Long-lead electrical equipment: 6 to 32 months - Shell and fit-out construction: 18 to 54 months *Illustrative. A first infusion at month 0 starts a 31-month plan. A second infusion at month 24 starts a second plan to month 55. No plan can run past month 62. The utility interconnection, here assumed at 60 months, barely fits.* The extension is designed for multi-phase projects and startups that raise money in stages. It does not let a single infusion sit for 62 months: each plan still needs its own written designation and schedule, and each must be spent substantially as planned.[^4][^5] ## What happens if government permitting delays the project? Delay caused by a government's action on a completed application tolls the safe harbor period, but only where no other action could reasonably be taken to improve the property during the delay. Tolling is not automatic and applies only if the application was completed during the 31-month period.[^4][^5] If the QOZB is located in a federally declared disaster area, it can receive up to 24 additional months to spend the working capital.[^5][^12] Market downturns, financing delays and contractor problems are not grounds for tolling. > Whether delays in a utility's interconnection study count as government action has not been addressed. Many utilities are investor-owned companies rather than government bodies, so a sponsor should not assume utility queue delays toll the clock. This is our analysis; confirm with tax counsel. ## What if the money is not spent according to the plan? If cash is not used substantially as the written plan and schedule describe, the safe harbor is lost for that cash, and the QOZB must meet the 5% NQFP limit and the 70% test without it. That can disqualify the QOZB, which in turn removes the QOF's interest from QOZ property for the fund's 90% test.[^2][^13] Current rules do not provide a general procedure for modifying a plan. Notice 2026-55 asks whether QOZBs should be permitted to modify an existing working capital safe harbor plan, with comments due November 23, 2026.[^7][^8] Until rules change, draft plans with realistic schedules and enough description to cover foreseeable changes in design or sequencing. ## Is 31 or 62 months long enough for a data center? Often not, if the clock starts before power is secured. In Dominion Energy's Virginia territory, connections for data centers above 100 MW were reported to face additional delays of one to three years, for total waits of up to seven years.[^9] Equipment adds its own lead times, and costs are rising: Cushman & Wakefield's 2026 cost guide puts all-in greenfield costs at $8.9 million to $23.3 million per MW, up an average of 21% per MW since its previous edition.[^10] **Figure: Data center timelines against the safe harbor** - 31 months: Basic working capital safe harbor per plan - 62 months: Maximum with multiple plans, from the first infusion - Up to 7 years: Reported total wait for large loads in Dominion's territory *Long power and equipment timelines are why data center QOZBs sequence capital carefully.[^2][^9][^10]* Practical responses include acquiring land and securing an interconnection agreement with non-QOF capital before the first QOF infusion, phasing a campus so each phase's plan covers a realistic build, ordering long-lead equipment early in each plan, and choosing sites where capacity is already available. Demand is not the constraint: federal researchers estimated U.S. data centers used about 4.4% of U.S. electricity in 2023 and could use 6.7% to 12% by 2028.[^11] The schedule is. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines), [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers) and [the data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## What should a working capital plan include? A plan should read like a construction budget tied to a calendar. Sponsors typically include the items below; the regulations require the written designation and schedule, and the rest is evidence that use was consistent.[^2][^4] **Figure: Working capital plan documentation checklist** - [pass] Dated written designation before or when cash is received: Names the property and the zone - [pass] Month-by-month spending schedule within 31 months: Consistent with ordinary start-up - [watch] Link from each cash infusion to a plan: Needed to use the 62-month extension - [watch] Permit applications and dates of completeness: Needed to support any tolling claim - [pass] Quarterly variance reports against the schedule: Shows use substantially consistent with the plan - [watch] Power and equipment milestones in the schedule: Data center schedules slip most on these items *Items marked watch are the ones most often missing when plans are reviewed later.* Plans are reviewed under the QOZB's tests and the QOF's Form 8996 reporting. See [managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers). ## Common questions **How long can a QOZB hold cash under the working capital safe harbor?** Up to 31 months per plan. With multiple non-de minimis cash infusions under consistent sequential or overlapping plans, up to 62 months from the first infusion. **Can a Qualified Opportunity Fund use the working capital safe harbor?** No. It applies only to QOZBs. A QOF relies on the six-month rule for newly contributed cash. **Does a permitting delay extend the 31 months?** It can. Delay caused by a government's action on a completed application tolls the period if no other action could reasonably be taken in the meantime. Tolling is not automatic. **Do construction improvements have to be finished within 31 months?** The cash must be spent substantially according to the schedule. Property under construction is treated as QOZ business property during the plan period if it is expected to qualify when complete. **Can I change a working capital plan after it is adopted?** There is no general modification procedure under current rules. Notice 2026-55 asks for comments on allowing modifications, but no relief has been issued. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^4]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^5]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^6]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^7]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^8]: Current Federal Tax Developments, "IRS Solicits Technical Comments on Opportunity Zone Regulations Post-OBBBA (Notice 2026-55)" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/22/irs-solicits-technical-comments-on-opportunity-zone-regulations-post-obbba-administrative-focus-on-interim-gains-single-family-housing-and-working-capital-safe-harbors [^9]: Data Center Knowledge, "Data Centers Face Seven-Year Wait for Power Hookups in Virginia" (2024). https://www.datacenterknowledge.com/energy-power-supply/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^10]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^11]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^12]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^13]: Ballard Spahr, "Treasury Releases Final Regulations on Qualified Opportunity Zone Program" (2020). https://www.ballardspahr.com/insights/alerts-and-articles/2020/01/qualified-opportunity-zones-final-regulations [^14]: REjournals, "Final opportunity zone regulations released" (2019). https://rejournals.com/final-opportunity-zone-regulations-released/ --- # The Opportunity Zone substantial improvement test URL: https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement Last reviewed: 2026-10-20 Property that is not original use qualifies as Opportunity Zone business property only if it is substantially improved: during any 30-month period after acquisition, additions to its basis must exceed its adjusted basis at the start of that period. Land is excluded, so the test is measured on the building's basis alone. In a zone made up entirely of rural area, the threshold is 50% instead of 100%, so a building bought for $8 million (excluding land) needs more than $4 million of improvements rather than more than $8 million. ## Key takeaways - Under §1400Z-2(d)(2)(D)(ii), property is substantially improved if additions to basis during any 30-month period after acquisition exceed its adjusted basis at the start of that period. - Land does not need to be improved, and the basis allocated to land is excluded from the test. - For property in a zone composed entirely of rural area, the threshold is 50% of adjusted basis, effective for determinations after July 4, 2025. - The final regulations allow aggregation: purchased original use assets that improve a building's functionality, and buildings on one deeded parcel or contiguous parcels, can be tested together. - During the 30-month period, property expected to be substantially improved is treated as qualifying for the QOZB's 70% test. ## What is the substantial improvement test? The substantial improvement test is the route by which existing, previously used property becomes Qualified Opportunity Zone business property (QOZBP). Tangible property qualifies only if its original use in the zone begins with the Qualified Opportunity Fund (QOF) or Qualified Opportunity Zone Business (QOZB), or if the fund or business substantially improves it.[^1][^2] The second path is how a QOZB can buy and convert an existing building. The statutory rule in §1400Z-2(d)(2)(D)(ii) is that property is substantially improved only if, during any 30-month period beginning after the date of acquisition, additions to the basis of the property in the hands of the QOF or QOZB exceed an amount equal to the adjusted basis of the property at the beginning of that 30-month period.[^1] In practice, the business must more than double its investment in the building within 30 months. **Figure: The 30-month substantial improvement clock** - Closing: Acquisition (Allocate purchase price between land and building) - Month 0: 30-month period begins (Starting adjusted basis fixed) - Months 1 to 30: Capitalized improvements (Additions to basis accumulate) - Month 30: Test date (Additions must exceed starting basis (50% if wholly rural)) *The 30-month period can start at any time after acquisition, though most projects start it at closing. During the period, the property is treated as qualifying if it is expected to meet the test.[^1][^3]* ## Does land have to be substantially improved? No. Land is not required to be substantially improved, and the basis attributable to land is not counted in the test. Revenue Ruling 2018-29 and the final regulations both provide this rule: when a QOZB buys a building and the land under it, only the building's basis must be doubled.[^4][^3] Land still has to be used in a trade or business. The regulations include an anti-abuse rule for land that is bought and held mainly for speculation, or improved only insubstantially, with a significant purpose of achieving a tax result inconsistent with the program.[^5][^3] Raw land that a QOZB develops into a data center campus is not in that category. See [buying land for an Opportunity Zone data center](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center). ## What is the 50% substantial improvement threshold for rural zones? For property in a Qualified Opportunity Zone composed entirely of rural area, additions to basis over the 30-month period need only exceed 50% of the adjusted basis at the start of the period, rather than 100%.[^9][^10] Public Law 119-21 made the change, and it applies to determinations after July 4, 2025.[^15][^17] A rural area is any area other than a city or town with a population greater than 50,000 and any urbanized area contiguous and adjacent to such a city or town.[^14][^9] The IRS identified 3,309 currently designated zones that consist entirely of rural areas and qualify for the lower threshold.[^11] Practitioners note that the change roughly halves the capital required: one example has a $1.5 million requirement falling to $750,000.[^13][^12] **Figure: Substantial improvement thresholds by zone type** - Zone not entirely rural: more than 100% (Additions must exceed 100% of starting basis) - Zone composed entirely of rural area: more than 50% (Additions must exceed 50% of starting basis) *Additions to basis within 30 months must exceed the stated share of the building's adjusted basis at the start of the period. Land is excluded in both cases.[^1][^9]* The lower threshold applies only where the whole zone is rural. A zone that includes part of an urbanized area does not qualify, even if the specific site is in open country. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones) and [what a Qualified Rural Opportunity Fund is](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). ## Worked example: how much must be spent? Illustrative assumptions: a QOZB buys an industrial building and its site for $12,000,000. An appraisal allocates $4,000,000 to land and $8,000,000 to the building. The 30-month period starts at closing. **Figure: Minimum improvement for a $12 million purchase in a rural zone** (illustrative) - Purchase price: 12000000 $ - Less basis allocated to land: -4000000 $ - Less 50% reduction for a wholly rural zone: -4000000 $ - Rural threshold: additions above $4,000,000: 4000000 $ *Illustrative. Land is excluded, leaving $8,000,000 of building basis. Outside a wholly rural zone, additions must exceed $8,000,000 within 30 months; in a wholly rural zone, the 50% threshold means they must exceed $4,000,000.* Two cautions. The land and building allocation must be supportable, because a high building allocation raises the required spend and a low one invites challenge. And the additions must be capitalized to the building's basis, or qualify under the aggregation rules below; repairs and expenses do not count.[^4][^6] What generally counts: capitalized hard construction costs, capitalized soft costs such as architecture, engineering and permitting fees that are added to the building's basis, and other costs that must be capitalized under the normal tax accounting rules. What does not: deductible repairs, operating expenses, the cost of land, and costs added to the basis of separate assets that are not aggregated with the building. The test is applied property by property, so a QOZB that buys two buildings on unrelated parcels must pass it for each one. ## Can assets or buildings be combined for the test? Yes. The final regulations allow two kinds of aggregation.[^6][^7] - Asset aggregation: purchased original use assets count toward improving a non-original use building if they would otherwise be QOZBP, are used in the same trade or business, and improve the functionality of the building in the same or a contiguous zone.[^6][^8] - Building aggregation: buildings located entirely within one parcel described in a single deed, or on contiguous parcels described in separate deeds, can be treated as a single property for the test.[^6][^7] Aggregation does not remove the need for real physical work. Non-original use property must still be improved by more than an insubstantial amount, and the improvements must be part of the same business.[^6] The final regulations also confirm that the improvements do not have to be completed by month 30, so long as the additions to basis made during the period exceed the threshold.[^4][^5] ## What does the test mean for converting a building into a data center? Data center conversions usually clear the test easily, because power and cooling cost far more than the shell. Cushman & Wakefield puts all-in greenfield data center costs at $8.9 million to $23.3 million per MW, with power infrastructure the largest component.[^16] A converted warehouse bought for $8 million of building basis and fitted for 10 MW will normally spend many times that amount. **Figure: Substantial improvement checks for a data center conversion** - [watch] Land and building allocation supported by appraisal: Sets the building basis to be exceeded - [pass] Electrical, cooling and structural work capitalized to the building: Counts directly as additions to basis - [pass] Separately purchased switchgear, UPS and chillers: Count through asset aggregation if they improve the building's functionality - [watch] Spending schedule fits within 30 months: Long-lead equipment can push capitalized costs past month 30 - [watch] Wholly rural zone confirmed: Needed for the 50% threshold - [pass] Building vacant three years or more: May qualify as original use instead, avoiding the test *What to confirm before closing on an existing building in a zone.* The timing risk is real. If transformers and generators have lead times near two years, the capitalized cost may land late in the window. Front-load structural and electrical work that can be capitalized early. A long-vacant building may avoid the test entirely by qualifying as original use; see [the original use requirement](https://ozdatacenters.com/guides/opportunity-zone-original-use) and [converting industrial buildings into data centers](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones). ## Common questions **How long do you have to substantially improve Opportunity Zone property?** Any 30-month period beginning after acquisition. Additions to basis during that period must exceed the property's adjusted basis at the start of the period. **Does the cost of the land count toward the substantial improvement test?** No. Land is not required to be improved and its basis is excluded. Only the building's adjusted basis must be exceeded. **What is the substantial improvement threshold in rural Opportunity Zones?** 50% of adjusted basis, for property in a zone composed entirely of rural area. It applies to determinations after July 4, 2025. **Do improvements have to be finished within 30 months?** No. The test looks at additions to basis made during the 30-month period. The project can be finished later if the additions during the period exceed the threshold. **Can equipment purchases count toward substantially improving a building?** Yes, through asset aggregation, if the equipment is purchased original use property used in the same business that improves the building's functionality. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^4]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^5]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^6]: CohnReznick, "Treasury releases final opportunity zone regulations" (2019). https://cohnreznick.com/insights/treasury-releases-final-opportunity-zones-regulations [^7]: Withers, "What you need to know about the final QOZ regulations" (2020). https://www.withersworldwide.com/en-gb/insight/what-you-need-to-know-about-the-final-qoz-regulations [^8]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^9]: Internal Revenue Service, "Notice 2025-50 (rural areas and substantial improvement)" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^10]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^11]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^12]: EY Tax News, "IRS clarifies rural areas and substantial improvement for purposes of current Opportunity Zones" (2025). https://taxnews.ey.com/news/2025-2020-irs-clarifies-rural-areas-and-substantial-improvement-for-purposes-of-current-opportunity-zones [^13]: Aldrich Advisors, "IRS Guidance Lowers Investment Threshold for Rural Opportunity Zones" (2025). https://aldrichadvisors.com/insights/real-estate/irs-guidance-lower-investment-rural-oz/ [^14]: IPA, "IRS Clarifies Rural Areas Definition for Opportunity Zones" (2025). https://www.ipa.com/articles/irs-clarifies-rural-areas-definition-for-opportunity-zones [^15]: Congress.gov, "Text, H.R. 1, 119th Congress (Public Law 119-21)" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^16]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^17]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes --- # The Opportunity Zone original use requirement URL: https://ozdatacenters.com/guides/opportunity-zone-original-use Last reviewed: 2026-10-20 Tangible property meets the Opportunity Zone original use requirement if the Qualified Opportunity Fund or Qualified Opportunity Zone Business is the first to place it in service in the zone for depreciation or amortization purposes. New construction and new equipment qualify, as does used property brought into the zone for the first time, and a building that has been vacant (more than 80% unused) for at least three years. Property that does not qualify as original use must instead be substantially improved within 30 months. ## Key takeaways - Original use under §1400Z-2(d)(2)(D)(i)(II) begins when a QOF or QOZB first places property in service in the zone for depreciation or amortization purposes. - Used property that was never previously placed in service in the zone, such as equipment moved in from elsewhere, can be original use. - A building vacant for at least three years, or vacant from at least one year before the zone's designation through the purchase date, is treated as original use. - Property is vacant if more than 80% of its usable square footage is not in use. - Leased property does not need to be original use; land cannot be original use but does not need to be improved. ## What does original use mean in an Opportunity Zone? Original use is one of two ways owned tangible property becomes Qualified Opportunity Zone business property (QOZBP). Under §1400Z-2(d)(2)(D)(i)(II), the original use of the property in the zone must commence with the Qualified Opportunity Fund (QOF) or Qualified Opportunity Zone Business (QOZB), unless the fund or business substantially improves it.[^1] The final regulations define the moment: original use begins on the date the property is first placed in service in the zone for purposes of depreciation or amortization, or first used in the zone in a manner that would allow depreciation or amortization if the user were the owner.[^2][^3] The test is about the property's history in the zone, not its history everywhere. A machine that ran for years in another state can be original use in the zone, and a building that was occupied last year cannot, however new it looks.[^10][^11] The other requirements of QOZBP still apply: the property must be purchased from an unrelated party after the statutory cutoff date and used in the zone; see [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test). Original use is tested asset by asset at acquisition, so the purchase file for each significant asset should record where, and by whom, it was previously placed in service. ## Which property qualifies as original use? Most new property qualifies, and some used property does. The table summarizes the final regulations.[^3][^8][^11] **Original use under the final regulations** | Property | Original use? | Notes | | --- | --- | --- | | New construction by the QOZB | Yes | Self-constructed property is first placed in service by the QOZB | | New equipment bought from a vendor | Yes | First placed in service in the zone by the QOZB | | Used property never before placed in service in the zone | Yes | Must not have been previously used in the zone; related-party purchase rules still apply | | Building vacant at least three years | Yes | Vacancy means more than 80% of usable square footage unused | | Building vacant one year before designation and through purchase | Yes | Shorter period tied to the zone's designation date | | Occupied or recently used building | No | Must be substantially improved within 30 months | | Used property previously placed in service in the zone | No | Must be substantially improved | | Land | Not applicable | Cannot be original use; need not be improved if used in a business | | Leased property | Not required | Original use does not apply to leased property | **Figure: Original use or substantial improvement?** - Vacant 3+ years (over 80% unused) Vacancy, Never used in the zone Prior use in the zone: Original use (New to the zone, and vacant) - Vacant 3+ years (over 80% unused) Vacancy, Used in the zone before Prior use in the zone: Original use under the vacancy rule (Prior use is reset by long vacancy) - Occupied or recently used Vacancy, Never used in the zone Prior use in the zone: Original use (New or imported property) - Occupied or recently used Vacancy, Used in the zone before Prior use in the zone: Not original use (Must be substantially improved) *Property never used in the zone, or a long-vacant building, is original use. Previously used, recently occupied property needs substantial improvement within 30 months.[^3][^4]* ## When does a vacant building qualify as original use? A building or other structure that has been vacant for an uninterrupted period of at least three years before the QOZB acquires it is treated as original use. A shorter one-year rule applies if the property was vacant for at least one year before the zone was designated and remained vacant through the date of purchase.[^4][^7] Real property is vacant if more than 80% of the building or land, measured by square footage of usable space, is not currently being used.[^5][^6] A building with a single small tenant in a corner can therefore still be vacant. The vacancy periods are three years, or one year in the pre-designation case.[^7][^4] > New zones take effect January 1, 2027. How the one-year pre-designation vacancy rule applies to property in a newly designated zone has not been addressed in guidance issued so far; the three-year rule does not depend on the designation date. Treat the one-year route as unconfirmed for new zones until Treasury addresses it.[^12][^13] **Figure: The two vacancy routes to original use** - 3 years before purchase: Vacancy begins (Over 80% of usable space unused) - 1 year before designation: Alternative start (Building already vacant) - Designation date: Zone takes effect (Building still vacant) - Purchase date: QOZB acquires (Vacancy must continue through this date) - Placed in service: Original use begins (With the QOZB) *Either route works. The three-year route is independent of when the zone was designated.[^4][^5]* ## Can used equipment be original use? Yes, if it has never been placed in service in the zone. Used equipment bought from an unrelated seller outside the zone and moved into the zone is original use for the QOZB.[^10][^11] The seller must not be related, because QOZBP must be acquired by purchase from an unrelated person, using a 20% relatedness threshold.[^2] Used equipment bought from a seller inside the zone, or equipment the business already used there, is not original use and would have to be substantially improved, which is rarely practical for equipment. For data centers, that means refurbished gear sourced from another facility in the same zone is a problem, while new gear or gear from out of the zone is not. See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). ## How do land, leased property and leasehold improvements fit? - Land cannot have original use. It qualifies if it is used in the QOZB's trade or business, without a separate improvement requirement, subject to an anti-abuse rule for land held mainly for speculation.[^8][^3] - Leased property does not need to be original use. It qualifies if the lease is on market terms and was entered into after the statutory cutoff date, with extra limits for leases from related parties.[^9][^8] See [leased property rules](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). - Improvements a QOZB makes to property it leases are treated as purchased property and are original use, so a tenant's fit-out of a leased building can count as QOZBP.[^9][^3] - Under the final regulations, real property on a brownfield site, including land and structures, is treated as original use if the QOF or QOZB makes investments to bring the site up to basic safety standards.[^3][^15] Leasing is sometimes chosen precisely because it avoids the original use and substantial improvement questions, but a lease from a related party for previously used property brings its own requirements. See [related-party rules](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## How does original use apply to data center projects? A greenfield data center is original use from the ground up: the QOZB buys land, builds the shell and installs new equipment, all first placed in service in the zone by the QOZB. Conversions of existing buildings depend on vacancy. A closed factory or warehouse that has been more than 80% empty for three years is original use; an occupied one must be substantially improved, which a data center fit-out usually achieves.[^4][^14] **Figure: Original use checks for data center assets** - [pass] New building on purchased land: Self-constructed; original use - [pass] New switchgear, UPS, chillers and generators: Purchased from vendors; first placed in service in the zone - [pass] Former factory vacant for 4 years: Vacancy rule; document occupancy history - [watch] Warehouse occupied until last year: Not original use; plan to substantially improve within 30 months - [fail] Refurbished equipment from another site in the same zone: Previously placed in service in the zone - [pass] Leasehold improvements in a leased powered shell: Treated as purchased, original use property *How common data center assets usually fare. Confirm the facts for each asset before closing.* Document vacancy carefully: utility bills, occupancy records, tax filings and photographs that show usable square footage was more than 80% unused for the full period. See [converting industrial buildings into data centers](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones) and [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## Common questions **What is original use in an Opportunity Zone?** Property has original use with a QOF or QOZB if the fund or business is the first to place it in service in the zone for depreciation or amortization purposes. **Does a vacant building count as original use?** Yes, if more than 80% of its usable space has been unused for at least three years before purchase, or for at least one year before the zone was designated and through the purchase date. **Can I buy used equipment for an Opportunity Zone business?** Yes, if the equipment was never previously placed in service in the zone and is bought from an unrelated seller. Used equipment previously used in the zone is not original use. **Does leased property have to be original use?** No. Leased property qualifies without an original use or substantial improvement requirement, if it is leased on market terms and used in the zone. **Is land original use?** Land cannot be original use, but it does not need to be improved. It qualifies if used in the business and not held mainly for speculation. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Federal Register, "Investing in Qualified Opportunity Funds (T.D. 9889), 85 FR 1866" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^4]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^5]: CohnReznick, "Treasury releases final opportunity zone regulations" (2019). https://cohnreznick.com/insights/treasury-releases-final-opportunity-zones-regulations [^6]: Withers, "What you need to know about the final QOZ regulations" (2020). https://www.withersworldwide.com/en-gb/insight/what-you-need-to-know-about-the-final-qoz-regulations [^7]: REjournals, "Final opportunity zone regulations released" (2019). https://rejournals.com/final-opportunity-zone-regulations-released/ [^8]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^9]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^10]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^11]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^12]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^13]: Internal Revenue Service, "Opportunity Zones" (n.d.). https://www.irs.gov/credits-deductions/businesses/opportunity-zones [^14]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^15]: Internal Revenue Service, "IRS and Treasury finalize Opportunity Zone guidance" (2019). https://www.irs.gov/newsroom/irs-and-treasury-finalize-opportunity-zone-guidance --- # Businesses excluded from Opportunity Zones (the sin business list) URL: https://ozdatacenters.com/guides/opportunity-zone-excluded-businesses Last reviewed: 2026-10-20 A Qualified Opportunity Zone Business (QOZB) cannot be a private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or a store whose principal business is selling alcohol for off-premises consumption. The list comes from IRC §144(c)(6)(B) and is written into §1400Z-2(d)(3)(A)(iii). The regulations add two 5% de minimis rules, one for incidental sin-business income and one for leasing space to sin-business tenants. ## Key takeaways - The excluded list has seven entries, borrowed word for word from §144(c)(6)(B): private or commercial golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks or other gambling facilities, and off-premises liquor stores. - The exclusion is part of the statutory definition of a QOZB in §1400Z-2(d)(3)(A)(iii), so a business on the list fails QOZB status no matter how well it meets the 70%, 50%, 40% and 5% tests. - Under the final regulations, a business is not treated as a sin business if less than 5% of its gross income comes from sin-business activity, which protects incidental uses such as a hotel spa. - A QOZB may lease no more than a de minimis amount of its property to sin-business tenants, which commentators describe as 5% of net rentable square footage for real property and 5% of value for other tangible property. - Data centers, hotels, restaurants, bars that serve on premises, grocery stores and manufacturing are not on the list. - Proposed reporting rules published September 11, 2026 would require each QOZB's industry (NAICS) code to be reported, which makes the business type visible to the IRS every year. ## What businesses are excluded from Opportunity Zones? Seven types of business cannot qualify as a Qualified Opportunity Zone Business, regardless of where they are located or how much they invest. A Qualified Opportunity Zone Business (QOZB) is an operating company, usually a partnership or corporation owned by a fund, that holds and uses property inside a designated zone. A Qualified Opportunity Fund (QOF) is the investment vehicle that investors put their capital gains into; most QOFs invest through one or more QOZBs. The statute defines a QOZB in §1400Z-2(d)(3) and, in clause (A)(iii), says the business may not be described in §144(c)(6)(B).[^1] That cross-reference is to the qualified small issue bond rules, which bar bond proceeds from financing the same seven facilities.[^2] **The seven excluded business types under §144(c)(6)(B), as applied by §1400Z-2(d)(3)(A)(iii)** | Excluded business | What the statute says | Common edge cases | | --- | --- | --- | | Golf course | Any private or commercial golf course | Driving ranges and golf entertainment venues are not separately addressed; get advice | | Country club | Any country club | Membership-based social and recreation clubs | | Massage parlor | Massage parlor | A hotel or gym that earns incidental massage revenue may fit the 5% gross-income de minimis rule | | Hot tub facility | Hot tub facility | Spa amenities inside a larger business | | Suntan facility | Suntan facility | Tanning services offered inside a salon or gym | | Gambling | Racetrack or other facility used for gambling | Casinos, card rooms, sports wagering venues | | Liquor store | Store whose principal business is selling alcoholic beverages for consumption off premises | A grocery that sells beer and wine is not a liquor store if alcohol is not its principal business | The list is short and specific. Anything not on it is permitted, subject to the other QOZB tests. State guidance repeats the same seven categories.[^3] ## Does the sin business rule apply to the fund or the operating business? The rule is part of the QOZB definition, so it governs the operating business that a QOF owns. A QOF meets its 90% asset test either by holding qualified opportunity zone business property directly or by holding stock or partnership interests in a QOZB. When the fund invests through a QOZB, the QOZB must satisfy every element of §1400Z-2(d)(3), including the sin business exclusion.[^1] The final regulations at 26 CFR 1.1400Z2(d)-1 implement those elements.[^4] If the QOZB fails, its stock or partnership interest is not qualified opportunity zone stock or interest, and the fund's 90% test is put at risk. See [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). **Figure: Where the sin business test sits in the QOZB requirements** 1. Trade or business in a designated zone: The business must actively conduct a trade or business 2. 70% tangible property test: Substantially all owned or leased tangible property is QOZ business property 3. 50% gross income, 40% intangibles, under 5% financial property: The §1397C(b) tests as modified for QOZBs 4. Not a sin business: Not described in §144(c)(6)(B), subject to the 5% de minimis rules *A QOZB must clear every layer. Failing the sin business test disqualifies the business even if the percentage tests are met.[^1][^4]* Most data center and real estate funds use the two-tier structure, so the practical question is whether the QOZB's own business, and its tenants, fall on the list. Read [what a QOZB is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business) for the full set of tests. ## Can a QOZB earn any income from a sin business? Yes, a small amount: the final regulations treat a business as not a sin business if less than 5% of its gross income comes from sin-business activity. Practitioner summaries of the final regulations describe this gross-income de minimis rule with a hotel example: a hotel QOZB with a spa that offers massage or tanning services does not become a sin business because of that incidental revenue.[^5][^6] Commentary on the final rules confirms that the rule was added to keep mixed-use and hospitality projects from failing over minor amenities.[^7] ### The leasing de minimis rule A second rule covers landlords. A QOZB that leases property to tenants may not lease more than a de minimis amount of that property to a sin business. O'Melveny's summary of the final regulations describes the limit as 5% of net rentable square footage for real property and 5% of value for other tangible property.[^5] Other summaries describe the rules as prohibiting more than a de minimis lease to sin businesses while allowing de minimis sin-business income.[^6][^8] **Figure: The 5% de minimis limits for sin businesses** - Gross income from sin-business activity: less than 5% (Less than 5% of the QOZB's gross income) - Real property leased to sin-business tenants: no more than 5% (By net rentable square footage) - Other tangible property leased to sin-business tenants: no more than 5% (By value) *Stay below both limits. They are separate tests: one for the QOZB's own revenue, one for space or property leased to sin-business tenants.[^5][^6]* > Two summaries describe the 5% rules with slightly different emphasis (gross income versus property leased). Both rules appear in commentary on the final regulations. Confirm the exact wording in 26 CFR 1.1400Z2(d)-1 before relying on either for a specific structure.[^4] ## How does the leasing limit work in a mixed-use project? Measure the sin-business tenant's space against total net rentable square footage and keep it under 5%. Illustrative example. Assumptions: a QOZB owns a 200,000-square-foot mixed-use building in a zone. It has three prospective ground-floor tenants: a grocery store, a restaurant with a full bar, and a stand-alone liquor store. **Illustrative: testing a tenant mix against the 5% leasing limit** | Tenant | Square feet | Sin business? | Counts toward 5% limit | | --- | --- | --- | --- | | Grocery store selling beer and wine | 30,000 | No, alcohol is not its principal business | 0 | | Restaurant with on-premises bar | 8,000 | No, on-premises consumption is not listed | 0 | | Liquor store (off-premises sales) | 12,000 | Yes | 12,000 | | Total net rentable area | 200,000 | | 12,000 = 6.0% | At 12,000 square feet the liquor store is 6.0% of net rentable area, above the 5% ceiling of 10,000 square feet. Cutting the liquor store to 9,500 square feet (4.75%) or adding rentable area would bring the building within the limit. Write tenant-use restrictions into every lease so a later assignment or change of use does not push the QOZB over the line. ## Which businesses are allowed in Opportunity Zones? Every business not on the seven-item list is allowed, as long as it meets the other QOZB tests. - Data centers, colocation facilities and digital infrastructure - Hotels, including hotels with spas within the 5% de minimis rule - Restaurants and bars that serve alcohol for on-premises consumption - Grocery and convenience stores whose principal business is not alcohol - Manufacturing, logistics, warehouses and industrial facilities - Multifamily and other residential rental property - Operating companies in technology, health care, energy and services Being allowed is not the same as qualifying. A permitted business still needs an active trade or business, at least 70% qualifying tangible property, at least 50% of gross income from the zone, at least 40% of intangibles used in the zone, and less than 5% nonqualified financial property. See [the 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [the gross income and intangibles tests](https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests). Gambling deserves a note. The statute excludes a racetrack "or other facility used for gambling."[^2] There is no guidance on online gambling. A QOZB that only hosts servers for a tenant is not obviously a gambling facility, but a tenant or business line whose core activity is gambling should be reviewed by counsel before closing. ## Can a data center be a sin business? No. A data center is not on the list, so the sin business rule is rarely the obstacle for a data center QOZB. The harder question for data centers is the active trade or business requirement. Under the regulations, merely entering into a triple-net lease is not the active conduct of a trade or business, so a single-tenant powered shell leased to one hyperscaler carries more risk than the sin business list ever will.[^9][^10] Recent commentary on data center OZ projects focuses on lease structure and operations, not on excluded business types.[^11] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). The sin list matters for data center campuses in two narrower ways. First, mixed-use campus plans that include amenity retail or hospitality must keep any sin-business tenant within the 5% leasing limit. Second, a QOZB that leases capacity to a gambling operator should confirm the tenant's use does not turn the facility into one "used for gambling." No authority addresses that case specifically. **Figure: Sin business screen for common data center campus uses** - [pass] Wholesale or colocation data halls: Not a listed business - [pass] Office, NOC and security buildings: Support functions for a permitted business - [pass] On-site substation and power assets: Not a listed business - [watch] Campus hotel with spa: Keep sin-business income under 5% of gross income - [watch] Retail pad leased to a liquor store: Keep within the 5% leasing limit - [watch] Capacity leased to a casino or betting operator: No direct guidance; review tenant use with counsel *Most data center uses pass. Watch items are amenity leases and gambling-related tenants, where facts and lease terms decide the result.[^2][^5]* ## How does the IRS find out what business a QOZB is in? Through annual reporting, which will become more detailed once the proposed reporting regulations are final. Public Law 119-21 added §6039K (QOF returns) and §6039L (QOZB information) to the Code.[^12] Proposed regulations published September 11, 2026 would require funds to report information about each QOZB they hold, and commentary on the proposal lists industry (NAICS) codes and census tracts among the data items.[^13][^14] These rules are proposed, not final. Once they apply, a QOZB's line of business will be visible on the fund's return every year. See [Opportunity Zone reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). 1. Confirm at acquisition that the QOZB's own business is not on the list. 2. Add use restrictions to every lease that bar listed uses beyond the 5% leasing limit. 3. Track any sin-business revenue line, such as spa services, against total gross income each year. 4. Re-test after any tenant assignment, sublease or change of use. 5. Keep a memo in the compliance file supporting the conclusion for each testing year. If a QOZB inadvertently fails, the consequence flows up to the fund's 90% test, where the §1400Z-2(f) penalty applies for each month of shortfall unless reasonable cause is shown.[^1] Early tenant screening is cheaper than a cure. ## Common questions **Is a hotel a sin business for Opportunity Zone purposes?** No. Hotels are not on the §144(c)(6)(B) list. A hotel with a spa that offers massage or tanning is still allowed if less than 5% of its gross income comes from those sin-business activities. **Can an Opportunity Zone business own a bar or brewery?** Yes, if alcohol is served for on-premises consumption. The list excludes only stores whose principal business is selling alcohol for consumption off premises. **Can a QOZB lease space to a liquor store?** Only a de minimis amount. Commentary on the final regulations describes the limit as 5% of net rentable square footage for real property and 5% of value for other tangible property. **Are casinos allowed in Opportunity Zones?** No. A racetrack or other facility used for gambling is on the excluded list, so a casino cannot be a QOZB. **Is cryptocurrency mining or a data center excluded?** No. Neither is on the list. They must still meet the active trade or business requirement and the other QOZB tests. **What happens if a QOZB becomes a sin business after the fund invests?** It stops qualifying as a QOZB, so the fund's interest in it no longer counts toward the 90% asset test. The fund may owe the monthly §1400Z-2(f) penalty for any shortfall unless it shows reasonable cause. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Legal Information Institute, Cornell Law School, "26 U.S. Code 144: Qualified small issue bond; qualified student loan bond; qualified redevelopment bond" (n.d.). https://www.law.cornell.edu/uscode/text/26/144 [^3]: Idaho Department of Commerce, "Idaho Opportunity Zones FAQ" (2026). https://commerce.idaho.gov/content/uploads/2026/03/Idaho-OZ-FAQ.pdf [^4]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^5]: O'Melveny & Myers, "Final Regulations Expand Prospects for Businesses and Investors in Qualified Opportunity Zones" (2019). https://www.omm.com/resources/alerts-and-publications/alerts/final-regulations-expand-prospects-for-businesses-and-investors-in-qualified-opportunity-zones [^6]: National Law Review, "Final Regulations on Opportunity Zones" (2019). https://natlawreview.com/article/final-regulations-opportunity-zones [^7]: K&L Gates, "Opportunity Zone Final Regulations: First Impressions" (2019). https://www.klgates.com/thought-leadership/Opportunity-Zone-Final-Regulations-First-Impressions-12-20-2019 [^8]: Duane Morris, "From the Land of OZ: Final OZ Regulations Issued by the IRS/Treasury" (2019). https://blogs.duanemorris.com/opportunityzones/2019/12/19/from-the-land-of-oz-final-oz-regulations-issued-by-the-irs-treasury/ [^9]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^10]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^11]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^12]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^13]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^14]: Current Federal Tax Developments, "Treasury Proposes Comprehensive QOZ Information Reporting and QOF Certification Regulations" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/10/treasury-proposes-comprehensive-qualified-opportunity-zone-information-reporting-and-qof-certification-regulations-a-technical-analysis-for-tax-practitioners --- # Form 8996 and Form 8997, explained URL: https://ozdatacenters.com/guides/form-8996-form-8997-explained Last reviewed: 2026-10-20 Form 8996 is filed by the fund: a corporation or partnership uses it to self-certify as a Qualified Opportunity Fund and to report every year whether it met the 90% asset test, computing any penalty. Form 8997 is filed by each investor every year they hold a QOF investment, listing investments and deferred gain at the start and end of the year, new deferrals and inclusion events. The deferral election itself is made on Form 8949, and both forms are filed with a timely return, including extensions. ## Key takeaways - Form 8996 is filed by the QOF with its federal income tax return for the first year it certifies and every year after, including the year it decertifies. - Form 8996 reports the fund's QOZ property and total assets on its two semiannual testing dates and computes the monthly penalty if the 90% average is missed. - Form 8997 is filed by every investor holding a QOF investment at any time during the year, in four parts: holdings at the start of the year, current-year deferrals, inclusion events and dispositions, and holdings at the end of the year. - The election to defer a gain is made on Form 8949, using the fund's EIN and investment date and showing the deferred amount as a negative adjustment. - Proposed regulations published September 11, 2026 would turn Form 8996 into a separate annual information return and require self-certification only in the first year. Those rules are not yet final. ## What is Form 8996? Form 8996, Qualified Opportunity Fund, is the form a corporation or partnership files to certify that it is a QOF and to report each year whether it met the 90% investment standard. A Qualified Opportunity Fund (QOF) is an entity organized as a corporation or partnership for the purpose of investing in qualified opportunity zone property. There is no application or IRS approval. The fund self-certifies by filing Form 8996 with its timely filed federal income tax return, including extensions, for the first year it wants to be a QOF.[^1][^2] It then files Form 8996 every year after, including the year it decertifies.[^1] The 90% investment standard comes from §1400Z-2(d)(1): a QOF must hold at least 90% of its assets in qualified opportunity zone property, measured as the average of two testing dates, generally the last day of the first six months of the taxable year and the last day of the taxable year.[^3][^4] For how that average works, see [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). ## What does Form 8996 ask for? Form 8996 collects identifying information, the certification, asset values on each testing date, the 90% calculation, a penalty computation and the zones where the fund's property is located. **Structure of Form 8996 (part numbers and line numbers have shifted between revisions; use the current form and instructions)** | Part | What it covers | Notes | | --- | --- | --- | | Part I | General information and certification that the entity is organized to invest in QOZ property | Also identifies the first taxable year and first month the entity is a QOF | | Part II | QOZ property and total assets on the first six-month testing date | Values use the fund's applicable financial statement or its cost basis method | | Part III | Year-end values and the 90% investment standard calculation | Averages the two testing-date percentages | | Part IV | Penalty computation by month if the fund fails the test | Shortfall times the underpayment rate under §6621(a)(2) | | Parts V and VI | Census tracts (zones) where directly held QOZ business property is located, and QOZB stock or partnership interests held | Lists each zone and each QOZB, with values on the testing dates | Practitioner summaries of the form describe the same sequence: certification, asset values at the six-month and year-end dates, the 90% computation, the monthly penalty, and tract-level detail on property and QOZB interests.[^5][^6] The tract-level and QOZB-level detail came in a revision of the form that added more detailed reporting requirements for funds, and line numbers have moved between revisions, so work from the current form and instructions.[^7] > The penalty for failing the 90% test is computed on the form itself. It equals the amount by which 90% of the fund's aggregate assets exceeds its QOZ property, times the underpayment rate, for each month of failure. No penalty applies if the failure is due to reasonable cause.[^3][^8] ## What is Form 8997? Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, is the investor's yearly report of every QOF investment they hold and the gain deferred in each. Any taxpayer that held a QOF investment at any point in the year files Form 8997 with their return, including individuals, partnerships, S corporations, C corporations, estates and trusts.[^9][^5] The form tracks each investment from the year it is made until it is fully disposed of. **The four parts of Form 8997** | Part | What the investor reports | | --- | --- | | Part I | QOF investments held at the beginning of the year: fund EIN, date acquired, description, and deferred gain invested | | Part II | Gains deferred during the current year by investing in a QOF | | Part III | Inclusion events and dispositions during the year, such as a sale of the QOF interest or a distribution in excess of basis | | Part IV | QOF investments held at the end of the year, with the remaining deferred gain | Part IV of one year should match Part I of the next. Mismatches are a common reason the IRS sends letters to QOF investors. Inclusion events that trigger the deferred gain early are covered in [Opportunity Zone inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). **Figure: Form 8996 versus Form 8997** - Form 8996 (Filed by the fund) - Filed by a corporation or partnership that is a QOF - Self-certifies QOF status in the first year - Reports the 90% asset test on two testing dates - Computes any monthly penalty - Lists zones and QOZB interests held - Form 8997 (Filed by the investor) - Filed by any taxpayer holding a QOF investment - Lists holdings at the start and end of the year - Reports gains deferred this year - Reports inclusion events and dispositions - Supports the five-year inclusion and later basis step-ups *The fund files Form 8996; each investor files Form 8997. Both go in with a timely return every year the fund or investment exists.[^1][^9]* ## Where does an investor make the election to defer a gain? On Form 8949, filed with the return for the year the gain is realized, not on Form 8997. The investor reports the sale that produced the gain as usual on Form 8949, then adds a separate line showing the deferral: the QOF's EIN in the description, the date of the QOF investment, code "Z" in the adjustment column, and the deferred amount as a negative adjustment.[^5] Form 8997 then picks up the investment in Part II. If the gain came from a partnership or S corporation and the entity did not defer it, the partner or shareholder makes the election on their own return within their own 180-day window. See [the 180-day investment rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule) and [investing partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains). **Figure: How an investor reports a QOF deferral** 1. Realize the gain: Sale reported on Form 8949 and Schedule D 2. Invest within 180 days: Cash into a QOF for an equity interest 3. Elect on Form 8949: QOF EIN, investment date, code Z, negative adjustment 4. File Form 8997: Part II for the new deferral 5. Repeat each year: Parts I and IV until the investment is fully disposed of *The election lives on Form 8949; Form 8997 tracks the investment every year after. Filing late can cost the election, so file a timely return or extension.[^5][^9]* ## What do the forms look like over a full investment? Each year produces a predictable set of filings for the fund and the investor. Illustrative example. Assumptions: an individual sells stock in February 2027 for a $1,000,000 long-term capital gain and invests $1,000,000 in a calendar-year QOF on April 15, 2027. The QOF invests through a QOZB building a data center. Federal long-term capital gains rate 20% plus 3.8% net investment income tax (23.8%); no state tax. **Illustrative: filings over the life of a $1,000,000 QOF investment made April 15, 2027** | Tax year | Investor files | Fund files | What happens | | --- | --- | --- | --- | | 2027 | Form 8949 election (negative $1,000,000 adjustment, code Z); Form 8997 Part II and Part IV | Form 8996 (first-year certification and 90% test) | $1,000,000 of gain deferred | | 2028 to 2031 | Form 8997 Parts I and IV each year | Form 8996 each year | Deferral continues | | 2032 | Form 8997 Part III reports the five-year inclusion on April 15, 2032 | Form 8996 | 10% step-up ($100,000); $900,000 included, tax of $214,200 at 23.8% | | 2033 to 2036 | Form 8997 each year while the interest is held | Form 8996 each year | Investment held toward 10 years | | 2037 or later | Report the sale; elect fair-market-value basis after 10 years | Form 8996 through the year of decertification | Appreciation excluded from tax | The $900,000 inclusion assumes the investment's value is at least the deferred gain. If the investment is worth less at the inclusion date, the amount included is lower. The mechanics are covered in [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) and [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains). ## Is Form 8996 changing? Yes, under proposed regulations, but nothing has changed yet: the new rules are proposed, not final, and apply only once finalized. Public Law 119-21 added §6039K, which requires each QOF to file an annual information return, and §6039L, which requires QOZB-level information, backed by daily penalties under §6726.[^10] Proposed regulations (REG-116506-25) published in the Federal Register on September 11, 2026 would implement those sections.[^11] As summarized by practitioners, the proposal would: - make Form 8996 a separate information return, filed apart from the fund's income tax return;[^12] - require self-certification only in the first year, while Form 8996 is still filed every year;[^13] - require census-tract-level reporting and data on each applicable QOZB;[^12][^14] - create a single procedure for a QOF to decertify;[^13] - let a late or corrected Form 8996 stop the per-day penalty from running.[^14] Until the rules are final, funds file Form 8996 under the current instructions. The full statutory and proposed regime, including penalty amounts, is in [Opportunity Zone reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What are the most common Form 8996 and 8997 mistakes? Most problems come from timing, missing years and numbers that do not tie out between the fund, the investor and the prior year. 1. Missing the first-year Form 8996, which leaves the entity without QOF status for that year. 2. Choosing a first QOF month that falls after investors' cash came in, so early contributions are not qualifying investments. 3. Skipping Form 8997 in a year with no new deferral; it is still required every year the investment is held. 4. Part I of this year's Form 8997 not matching Part IV of last year's. 5. Leaving the fund's EIN or the investment date off Form 8949. 6. For data center QOZBs spanning more than one tract, reporting property in only one tract on Form 8996. Fund managers should send investors the fund's EIN, investment dates and any inclusion-event information early enough for them to file. The IRS describes the certification and annual maintenance steps on its QOF page.[^2] Expectations for investor packages are covered in [what investors should expect in fund reporting](https://ozdatacenters.com/guides/opportunity-zone-fund-investor-reporting). ## Common questions **Who files Form 8996?** The Qualified Opportunity Fund itself: a corporation or partnership that self-certifies as a QOF. It files Form 8996 with its timely return, including extensions, for the first year and every year after, including the year it decertifies. **Who files Form 8997?** Every taxpayer that holds a QOF investment at any time during the tax year, including individuals, partnerships, corporations, estates and trusts. It is filed every year until the investment is fully disposed of. **Is the deferral election made on Form 8997?** No. The election is made on Form 8949 for the year the gain is realized, using the QOF's EIN, the investment date, code Z and a negative adjustment for the deferred amount. Form 8997 reports the investment. **Does a QOF need IRS approval?** No. A QOF self-certifies by filing Form 8996. The IRS does not issue approval letters. **Does a QOZB file Form 8996?** No. The QOF files Form 8996 and lists its QOZB interests on it. Under the proposed §6039L rules, QOZBs would also have to furnish information to their funds, but those rules are not final. **What if a fund files Form 8996 late?** Late filing can jeopardize QOF status for that year, and under the statute added by Public Law 119-21, failures to file required QOF returns carry per-day penalties. Confirm the remedy with your tax adviser, since the proposed rules on late filing are not final. ## Sources [^1]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (2026). https://www.irs.gov/forms-pubs/about-form-8996 [^2]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (2026). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^3]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^4]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^5]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^6]: EisnerAmper, "Revised QOF Reporting Requirements" (2019). https://www.eisneramper.com/insights/blogs/real-estate-blog/revised-qof-reporting-requirements-re-blog-1119/ [^7]: Buchanan Ingersoll & Rooney, "IRS Releases New Draft Form 8996, Adding More Detailed Reporting Requirements for Qualified Opportunity Funds" (n.d.). https://www.bipc.com/irs-releases-new-draft-form-8996,-adding-more-detailed-reporting-requirements-for-qualified-opportunity-funds [^8]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^9]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^10]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^11]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^12]: EY Tax News, "Proposed regulations would expand Opportunity Zone reporting requirements and establish QOF decertification procedures" (2026). https://taxnews.ey.com/news/2026-2003-proposed-regulations-would-expand-opportunity-zone-reporting-requirements-and-establish-qof-decertification-procedures [^13]: KPMG, "Report: Proposed QOF information reporting and certification" (2026). https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2026/09/kpmg-report-proposed-qof-information-reporting-certification-september-2026.pdf [^14]: Current Federal Tax Developments, "Treasury Proposes Comprehensive QOZ Information Reporting and QOF Certification Regulations" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/10/treasury-proposes-comprehensive-qualified-opportunity-zone-information-reporting-and-qof-certification-regulations-a-technical-analysis-for-tax-practitioners --- # Opportunity Zone reporting requirements and penalties URL: https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements Last reviewed: 2026-10-20 The statute now requires every Qualified Opportunity Fund to file an annual information return under IRC §6039K and requires QOZB-level information under §6039L, enforced by a §6726 penalty of $500 per day, capped at $10,000 per return or $50,000 for a fund with more than $10 million of gross assets. The detailed rules for how to comply, including a redesigned Form 8996 and census-tract data, are only in proposed regulations published September 11, 2026, which are not final. Until they are, funds file Form 8996 and investors file Form 8997 under the current instructions. ## Key takeaways - Public Law 119-21 added three Code sections: §6039K (annual QOF information return), §6039L (QOZB information) and §6726 (penalty for failures). - The §6726 penalty is $500 per day while a failure continues, capped at $10,000 per return, or $50,000 for a QOF with gross assets over $10 million; intentional disregard raises it to $2,500 per day, with caps of $50,000 and $250,000. - Proposed regulations REG-116506-25 (91 FR 57968, September 11, 2026) would make Form 8996 a stand-alone information return, require census-tract-level data and create a formal decertification procedure. They are not final. - A telephone public hearing on the proposal is scheduled for November 5, 2026, and the rules would apply prospectively once finalized. - Existing obligations continue: QOFs file Form 8996 every year and investors file Form 8997 every year they hold a QOF investment. - Separately, the 90% asset test penalty under §1400Z-2(f) still applies for each month a fund falls short. ## What reporting do Opportunity Zone funds have to do? Every QOF must file an annual information return with the IRS, and the statute now attaches a daily penalty to failures. Public Law 119-21, signed July 4, 2025, added §6039K, which requires each Qualified Opportunity Fund, including a Qualified Rural Opportunity Fund, to file an annual return, and §6039L, which requires information about each Qualified Opportunity Zone Business (QOZB) the fund holds.[^1][^2] The new §6726 imposes a penalty for failing to file complete and correct returns.[^3] These obligations sit on top of the long-standing forms. A fund files Form 8996 to self-certify and report its 90% asset test each year. Each investor files Form 8997 to report QOF holdings and deferred gain.[^4][^5] See [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained). **What is law today versus what is only proposed (status as of October 20, 2026)** | Requirement | Where it comes from | Status | | --- | --- | --- | | QOF annual information return | IRC §6039K | Statute, in force | | QOZB information for the fund's return | IRC §6039L | Statute, in force | | Penalty: $500/day, $10,000 or $50,000 cap | IRC §6726 | Statute; effective date reported as taxable years beginning after July 4, 2025 | | Form 8996 annual certification and 90% test | Treas. Reg. 1.1400Z2(d)-1 and form instructions | Current rules | | Form 8997 investor statement | Form instructions | Current rules | | Stand-alone Form 8996 information return | Proposed Reg. 1.6039K-1 | Proposed, not final | | Census-tract, NAICS, employee and housing-unit data | Proposed Reg. 1.6039K-1(d) | Proposed, not final | | First-year-only self-certification and single decertification procedure | Proposed regulations | Proposed, not final | ## What does the new QOF information return have to include? The statute requires identifying information, asset values, QOZ property held, investor and investment data, and impact data, and the proposed rules would specify each data item. Practitioner analyses of §6039K describe the return as covering the fund's name, address and taxpayer identification number; the value of its total assets and of the qualified opportunity zone property it holds; information on investments and investors, including dispositions during the year; and impact data such as employee counts.[^2][^6] The proposal also covers statements that funds furnish to investors who dispose of their interests, and statements that QOZBs furnish to their funds.[^7] Under §6039L, the information comes from the fund's applicable QOZBs. Proposed §1.6039K-1(d) collects data about each applicable QOZB, and commentary lists industry (NAICS) codes, census tracts, employee counts and residential units among the items.[^8][^6] The final list of data items is still pending, and the proposed-rule text is the place to confirm it.[^1] > Treasury also has its own statutory reporting duty. The law directs Treasury to report to Congress on the number of QOFs and their investments and, every five years, on the impacts and outcomes of designations, as summarized by GAO.[^9] ## What is the penalty for not filing Opportunity Zone returns? Under §6726, the penalty is $500 for each day a failure continues, capped at $10,000 per return, or $50,000 for a fund with gross assets over $10 million. Intentional disregard of the filing requirement raises the daily amount to $2,500, with caps of $50,000 per return, or $250,000 for a large fund, as described in the proposed rule.[^1][^3] RSM reports that the penalty applies to taxable years beginning after the date of enactment, July 4, 2025; check the statute for the exact effective date before relying on it.[^3] **Figure: Maximum §6726 penalty per return** - Fund with gross assets of $10 million or less: $10,000 - Fund with gross assets over $10 million: $50,000 - Intentional disregard, smaller fund: $50,000 - Intentional disregard, larger fund: $250,000 *Caps under §6726 as described in the statute summaries and the proposed rule. A small fund reaches its cap after 20 days; a large fund after 100 days.[^1][^3]* Illustrative example. Assumptions: a data center QOF with $180 million of gross assets files its information return 45 days late, and the failure is not intentional. The penalty is 45 x $500 = $22,500, below the $50,000 cap. Had it been 120 days late, the penalty would stop at $50,000 (the cap is reached on day 100). Under the proposal, filing the late return would stop the per-day penalty from running.[^10] This penalty is separate from the 90% asset test penalty under §1400Z-2(f), which is computed monthly on the shortfall below 90% at the underpayment rate, with a reasonable-cause exception.[^11] For the asset test, see [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). ## What do the proposed Opportunity Zone reporting regulations say? The proposal, REG-116506-25, would redesign Form 8996 as a separate information return, require tract-level reporting and set formal certification and decertification procedures. Treasury and the IRS published the proposed regulations in the Federal Register on September 11, 2026, at 91 FR 57968.[^1] Summaries from EY, KPMG and others describe these main features:[^6][^10][^12][^13] - Form 8996 becomes a stand-alone annual information return, filed separately from the fund's income tax return. - Funds report qualified opportunity zone property by census tract. - Self-certification is required only in the first year; Form 8996 is still filed every year. - A single procedure governs voluntary decertification of a QOF. - Filing a late or corrected Form 8996 stops the daily §6726 penalty from continuing to run. - The rules apply prospectively, once published as final regulations. Novogradac reports that written comments were due October 26, 2026 and that a telephone public hearing is set for November 5, 2026, with requests to attend due by November 3.[^14] One law firm alert gave an earlier comment date, so confirm the deadline against the Federal Register notice if you plan to comment.[^15] **Figure: Reporting rules: where things stand** - Jul 4, 2025: Statute enacted (§§6039K, 6039L and 6726 added) - Sep 11, 2026: Proposed rules published (REG-116506-25, 91 FR 57968) - Oct 2026: Comment period closes (Reported as October 26) - Nov 5, 2026: Public hearing (By telephone) - Pending: Final regulations (Apply prospectively once final) *The statute is in force; the detailed rules are still proposed. Final regulations, and their applicability date, are pending.[^1][^14]* ## What do investors have to report? Investors make the deferral election on Form 8949 and file Form 8997 every year they hold a QOF investment. Form 8997 lists QOF investments held at the start of the year, gains deferred during the year, inclusion events and dispositions, and investments held at year-end.[^5][^16] The new statute adds a fund-side obligation to furnish statements to investors who dispose of QOF interests, which should make investor reporting easier to reconcile once final rules apply.[^7] For investments made after December 31, 2026, the deferred gain is included on the earlier of a sale or other inclusion event, or five years after the investment date, so Form 8997 Part III will show a scheduled inclusion for every investment held five years. See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) and [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). ## What does the new reporting mean for a data center fund? Data center funds will report large asset values against small headcounts, often across more than one census tract, and should build the data collection into QOZB operations now. A data center campus can cost hundreds of millions of dollars yet employ relatively few permanent staff, so impact data will look different from a housing or operating-business fund. Large campuses can also straddle tract lines, which matters once property must be reported by census tract. Funds should map every parcel and building to its tract at acquisition and keep that map current. **Figure: Reporting readiness checklist for a data center QOF** - [pass] Form 8996 filed every year with the return: Current rule; required for QOF status - [pass] Investor EINs, dates and amounts tracked for Form 8997: Send investors data before their filing deadline - [watch] Parcel-to-census-tract map for the campus: Proposed tract-level reporting - [watch] QOZB NAICS code and employee counts: Proposed QOZB data items - [watch] Disposition statements to exiting investors: Statutory obligation; mechanics in proposed rules - [watch] Calendar for §6726 deadlines: Daily penalty begins once a return is late *Items marked watch depend on the final regulations. Build the systems now so the first year under final rules is routine.[^1][^6]* Operators also face the long build schedules that make the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) central to data center deals. Reporting the safe harbor's cash and spending accurately on each testing date is part of the same discipline. [Managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers) covers the operating side. ## What should funds do before the regulations are final? Keep filing under the current forms, and prepare for the proposed data items now. 1. File Form 8996 with every annual return, on time, including extensions. 2. Confirm the fund's gross assets against the $10 million line that sets the §6726 cap. 3. Collect QOZB data by census tract, industry code and headcount each year. 4. Set up a process to furnish statements to investors who dispose of interests. 5. Watch for the final regulations and any new Form 8996 revision and instructions on IRS.gov. 6. Track Notice 2026-55, which asks for comments on other §1400Z-2 rules, with comments due November 23, 2026.[^17] If a filing has been missed, act quickly: under the statute the penalty grows daily until the cap. Confirm the best remedy with your tax adviser. Investors comparing sponsors can use [the fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) to ask how a sponsor handles compliance. ## Common questions **Are the new Opportunity Zone reporting rules final?** The statutory requirements in §§6039K, 6039L and 6726 are law. The regulations that spell out the data items and the new Form 8996 were proposed September 11, 2026 and are not final. **How much is the penalty for not filing a QOF return?** $500 per day while the failure continues, capped at $10,000 per return, or $50,000 if the fund's gross assets exceed $10 million. Intentional disregard raises it to $2,500 per day, with caps of $50,000 and $250,000. **Do QOZBs file their own returns?** The statute requires QOZB-level information under §6039L, and the proposal would have QOZBs furnish statements to their funds. The fund remains the filer of the QOF information return. **Does Form 8996 still need to be filed?** Yes. Under current rules, a QOF files Form 8996 with its return every year. Under the proposal, it would become a separate information return, still filed annually. **When is the public hearing on the proposed reporting rules?** Novogradac reports a telephone hearing on November 5, 2026, with requests to attend due by November 3, 2026. **Is the 90% asset test penalty affected?** No. The §1400Z-2(f) monthly penalty for failing the 90% test is separate and still applies, with a reasonable-cause exception. ## Sources [^1]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^2]: Current Federal Tax Developments, "Treasury Proposes Comprehensive QOZ Information Reporting and QOF Certification Regulations" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/10/treasury-proposes-comprehensive-qualified-opportunity-zone-information-reporting-and-qof-certification-regulations-a-technical-analysis-for-tax-practitioners [^3]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^4]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (2026). https://www.irs.gov/forms-pubs/about-form-8996 [^5]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^6]: EY Tax News, "Proposed regulations would expand Opportunity Zone reporting requirements and establish QOF decertification procedures" (2026). https://taxnews.ey.com/news/2026-2003-proposed-regulations-would-expand-opportunity-zone-reporting-requirements-and-establish-qof-decertification-procedures [^7]: Novogradac (hosted copy), "Federal Register document 2026-18574 (proposed QOZ information reporting regulations)" (2026). https://www.novoco.com/public-media/documents/irs-federal-register-2026-18574-09102026.pdf [^8]: Cherry Bekaert, "New Opportunity Zone Reporting and QOF Certification Regulations" (2026). https://www.cbh.com/insights/alerts/new-opportunity-zone-reporting-qof-certification-regulations/ [^9]: U.S. Government Accountability Office, "Opportunity Zones (GAO-26-108132)" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^10]: KPMG, "Report: Proposed QOF information reporting and certification" (2026). https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2026/09/kpmg-report-proposed-qof-information-reporting-certification-september-2026.pdf [^11]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^12]: Vinson & Elkins, "QOZ compliance just got teeth: Treasury proposes daily penalties and mandatory reporting for qualified opportunity funds" (2026). https://www.velaw.com/insights/qoz-compliance-just-got-teeth-treasury-proposes-daily-penalties-and-mandatory-reporting-for-qualified-opportunity-funds/ [^13]: PwC, "Proposed regulations address expanded OZ reporting and updated QOF certification procedures" (2026). https://www.pwc.com/us/en/tax-services/publications/insights/assets/pwc-prop-regs-address-expanded-oz-reporting-and-updated-qof-cert-proc.pdf [^14]: Novogradac, "Treasury Proposes OZ Reporting Requirements, Sets Public Hearing for November" (2026). https://www.novoco.com/news/treasury-proposes-oz-reporting-requirements-sets-public-hearing-for-november [^15]: Baker McKenzie, "United States: Treasury releases proposed QOZ regulations" (2026). https://www.bakermckenzie.com/en/insight/publications/2026/10/united-states-treasury-releases-proposed-qoz-regulations [^16]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^17]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf --- # How to set up a Qualified Opportunity Fund URL: https://ozdatacenters.com/guides/how-to-set-up-a-qualified-opportunity-fund Last reviewed: 2026-10-20 A Qualified Opportunity Fund is set up by organizing a corporation or an entity taxed as a partnership for the purpose of investing in qualified opportunity zone property, then self-certifying on Form 8996 filed with its timely federal return. There is no IRS application or approval. From its first month as a QOF, the fund must hold at least 90% of its assets in qualified opportunity zone property, averaged over two semiannual testing dates, and it files Form 8996 every year. ## Key takeaways - A QOF must be a corporation (including a REIT) or an entity classified as a partnership for federal tax purposes; a disregarded single-member LLC cannot be a QOF. - The fund self-certifies by filing Form 8996 with its timely filed return, including extensions, and names the first month it is a QOF; investments made before that month do not qualify. - The 90% asset test is measured on two dates, generally the last day of the first six months and the last day of the tax year, and new cash received in the prior six months can be excluded if held in cash or short-term debt. - Most funds invest through a subsidiary Qualified Opportunity Zone Business, because the 31-month working capital safe harbor, extendable to 62 months, is available only at the QOZB level. - Investors must receive equity for cash or property; loans to the fund are not qualifying investments. - Proposed regulations published September 11, 2026 would require self-certification only in the first year and would make Form 8996 a separate information return; they are not final. ## What does it take to set up a Qualified Opportunity Fund? An eligible entity, a purpose of investing in zone property, and a timely Form 8996. There is no application and no IRS approval letter. A Qualified Opportunity Fund (QOF) is defined in §1400Z-2(d)(1) as an investment vehicle organized as a corporation or partnership for the purpose of investing in qualified opportunity zone property, that holds at least 90% of its assets in that property.[^1] The IRS says an eligible corporation or partnership self-certifies by filing Form 8996 with its federal income tax return, filed on time including extensions.[^2][^3] The regulations at 26 CFR 1.1400Z2(d)-1 supply the operating rules.[^4] Qualified opportunity zone property means qualified opportunity zone stock, partnership interests in a Qualified Opportunity Zone Business (QOZB), and qualified opportunity zone business property the fund holds directly.[^1] If those terms are new, start with [what a QOF is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund) and [what a QOZB is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business). ## What type of entity can be a QOF? A corporation or an entity classified as a partnership for federal tax purposes, organized in the United States; most funds are LLCs taxed as partnerships. **Entity choices for a QOF** | Entity | Can it be a QOF? | Practical notes | | --- | --- | --- | | LLC or limited partnership taxed as a partnership | Yes | Most common. Depreciation and losses flow through to investors. Debt-financed distributions need care to avoid inclusion events. | | C corporation | Yes | Entity-level tax on operating income; investors receive stock. | | REIT | Yes, as a corporation | Used for some real estate funds; REIT tests apply in addition to QOF rules. | | Single-member LLC disregarded for tax | No | Must elect corporate status or add a second member so it is a partnership. | | Existing operating entity | Yes, if it meets the rules | Pre-existing assets usually fail the purchase and original-use rules, so new entities are typical. | The final regulations require a QOF to be classified as a corporation or partnership for federal tax purposes and to be organized in one of the 50 states, the District of Columbia or a U.S. possession; an entity organized in a possession must be organized to invest in zones in that possession.[^5][^6] Fund structures are compared in [Opportunity Zone fund structures](https://ozdatacenters.com/guides/opportunity-zone-fund-structures). ## What are the steps to set up a QOF? Form the entity, write the purpose into its documents, pick the first QOF month, take equity investments, deploy into zone property and file Form 8996. **Figure: Setting up a Qualified Opportunity Fund** 1. Form the entity: Corporation or partnership; obtain an EIN 2. State the purpose: Governing documents say it is organized to invest in QOZ property 3. Pick the first QOF month: Investments before that month do not qualify 4. Accept equity for cash: Each investor within their own 180-day window 5. Deploy capital: Usually into one or more QOZBs, for newly issued interests 6. Test and file: 90% test on two dates; Form 8996 with the return each year *Each step has a timing consequence. The first QOF month and the semiannual testing dates control which investments qualify and when the 90% test bites.[^2][^4]* ### Governing documents The operating agreement or charter should state that the entity is organized to invest in qualified opportunity zone property and describe the qualified business it will conduct, directly or through QOZBs.[^5] Fund documents usually also cover compliance covenants, the manager's duty to run the 90% test, information delivery for investors' Form 8997, and restrictions that keep the fund and its QOZBs out of [excluded businesses](https://ozdatacenters.com/guides/opportunity-zone-excluded-businesses). ### Investor eligibility Each investor elects deferral on their own return. The investment must be equity, made within the investor's 180-day period after the gain, and recorded with the fund's EIN and investment date. See [who can invest](https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund) and [why investments must be equity](https://ozdatacenters.com/guides/opportunity-zone-equity-requirement). ## When does the 90% asset test start for a new fund? On the first testing date after the fund's chosen first month as a QOF; if that month falls after the sixth month of the tax year, the only testing date that year is the last day of the year. On Form 8996 the entity identifies the first taxable year and first month it is a QOF.[^3] The regulations measure the 90% test on the last day of the first six-month period of the taxable year and the last day of the taxable year, with both dates measured from the first month the entity is a QOF in its first year.[^4][^7] An investor's cash that arrives before the first QOF month is not a qualifying investment, so the month must be set before the first closing. Two further rules help a new fund. First, cash received in the six months before a testing date can be excluded from the test if it is held in cash, cash equivalents or debt with a term of 18 months or less.[^7][^8] Second, proceeds from a sale of qualifying property or a return of capital count as qualifying for 12 months if reinvested in zone property.[^9] The details are in [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). **Illustrative: a calendar-year fund that raises $50 million in two closings** | Testing date | Total assets | Excludable new cash | QOZ property | Percentage | | --- | --- | --- | --- | --- | | June 30, 2027 | $30.0M | $0 | $28.0M | 93.3% | | Dec 31, 2027 (with six-month exclusion) | $50.0M | $20.0M received Dec 10, held in cash | $29.0M of $30.0M | 96.7% | | Average | | | | 95.0%: passes | | Dec 31, 2027 (if the exclusion were not used) | $50.0M | | $29.0M | 58.0%; average 75.7%: fails | Assumptions: the fund certifies as of January 2027, closes $30 million in January and $20 million on December 10, 2027, and keeps the late cash in a money market account. Failing the test triggers a monthly penalty under §1400Z-2(f) on the shortfall below 90%, at the underpayment rate, unless the failure is due to reasonable cause.[^1][^10] ## Should a QOF own property directly or through a QOZB? Almost every development fund uses a two-tier structure, because the working capital safe harbor and the 70% test only exist at the QOZB level. **Figure: Direct ownership versus a two-tier QOF** - QOF owns property directly (One tier) - QOF itself must hold 90% QOZ business property - No working capital safe harbor for cash - Only the six-month new-cash exclusion helps - Simpler, suits a completed or quickly improved asset - QOF owns a QOZB (Two tier) - QOF holds QOZB interests, which count toward 90% - QOZB needs only 70% qualifying tangible property - 31-month working capital safe harbor, up to 62 months - Separate QOZBs can hold separate projects - More entities, more compliance *The two-tier structure gives a fund room to hold construction cash for 31 months, or up to 62 with sequential plans, without failing the 90% test.[^4][^11]* The QOF must acquire its QOZB interest directly from the QOZB, generally for cash, after the business is organized for zone purposes; buying an existing owner's interest does not qualify.[^1][^6] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) for how to write a qualifying written plan and schedule. ## What does a QOF have to do every year? File Form 8996, run the 90% test on both dates, monitor each QOZB's tests and give investors what they need for Form 8997. **Figure: A QOF's first compliance year (calendar-year fund)** - Jan 2027: First QOF month (Named on Form 8996) - Jan to Jun: Closings and deployment (Cash into QOZBs; QOZB adopts safe harbor plans) - Jun 30: First testing date (90% test, first half) - Dec 31: Second testing date (90% test, year-end) - Early 2028: Investor data (EIN, dates and amounts for each investor's Form 8997) - Mar to Sep 2028: Return and Form 8996 (Due with the return, including extensions) *The fund's calendar is driven by the testing dates and the return due date. Filing late can cost QOF status for the year and now carries statutory penalties.[^3][^12]* Public Law 119-21 added an annual QOF information return under §6039K and a daily penalty under §6726: $500 per day, capped at $10,000 per return, or $50,000 for a fund with gross assets over $10 million.[^12] Proposed regulations published September 11, 2026 would make Form 8996 a separate information return, require self-certification only in the first year, add census-tract data and create a formal decertification procedure.[^13][^14] They are proposed, not final. See [reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## How are data center QOFs usually set up? Typically as a partnership QOF that owns one QOZB per campus or phase, with working capital plans matched to construction and power schedules. Data centers take years to build and energize. A QOZB can hold cash under a written plan for 31 months and extend to 62 months with sequential plans and new infusions, and delays caused by government action on a completed application can toll the period; whether utility interconnection delays count is unsettled.[^11][^15] Separate QOZBs for separate phases keep one delayed phase from putting the whole fund at risk. The partnership form lets investors receive the large depreciation deductions from short-lived electrical, mechanical and IT-related property, subject to the basis and at-risk rules.[^16] Data center sponsors also need to settle lease structure early, because a single-tenant triple-net lease is not an active trade or business for QOZB purposes. That analysis is in [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones), and the fund mechanics are in [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). OZ Data Centers sponsors and manages funds structured this way. ## Common questions **Do I need IRS approval to start a QOF?** No. A QOF self-certifies by filing Form 8996 with its timely federal income tax return, including extensions. The IRS does not issue approval letters. **Can a single-member LLC be a Qualified Opportunity Fund?** Not if it is disregarded for tax purposes. A QOF must be classified as a corporation or a partnership, so the LLC needs a second member or a corporate election. **Can an existing company become a QOF?** Yes, if it is a corporation or partnership and meets the 90% test from its first QOF month. In practice, existing assets rarely qualify, so most sponsors form a new entity. **How soon must a new QOF invest its cash?** Cash received within six months before a testing date can be excluded from the 90% test if held in cash, cash equivalents or short-term debt. After that, it must be deployed into QOZ property, often a QOZB that can use the 31-month working capital safe harbor. **Can investors lend money to a QOF instead of buying equity?** No. Only equity interests qualify for deferral. A loan to a fund is not a qualifying investment, although the fund or its QOZB may borrow from lenders. **Will the self-certification rules change?** Proposed regulations published September 11, 2026 would require self-certification only in the first year, with Form 8996 still filed annually as a separate information return. The rules are not final. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (2026). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^3]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (2026). https://www.irs.gov/forms-pubs/about-form-8996 [^4]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1: Qualified opportunity funds and qualified opportunity zone businesses" (2026). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^5]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^6]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^7]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^8]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^9]: Orrick, "Final Tax Regulations Offer More Certainty to Opportunity Zone Fund Managers and Investors" (2020). https://www.orrick.com/en/Insights/2020/02/Final-Tax-Regulations-Offer-More-Certainty-to-Opportunity-Zone-Fund-Managers-and-Investors [^10]: Cherry Bekaert, "Expiration of IRS Relief Provisions for Qualified Opportunity Funds" (n.d.). https://www.cbh.com/insights/alerts/expiration-of-irs-relief-provisions-for-qualified-opportunity-funds/ [^11]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^12]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^13]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^14]: KPMG, "Report: Proposed QOF information reporting and certification" (2026). https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2026/09/kpmg-report-proposed-qof-information-reporting-certification-september-2026.pdf [^15]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^16]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html --- # Leased property rules for Opportunity Zone businesses URL: https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules Last reviewed: 2026-10-20 Tangible property that a Qualified Opportunity Zone Business leases, rather than buys, counts as qualified opportunity zone business property if the lease is on market-rate terms and substantially all of the property's use is in the zone. Leased property does not have to meet the original use or substantial improvement tests and does not have to be acquired from an unrelated party. Related-party leases carry extra limits, including a ban on prepaying more than 12 months of rent. ## Key takeaways - Leased tangible property is qualified opportunity zone business property if the lease was entered into after the statutory start date, its terms are market rate, and substantially all (70%) of its use is in a zone for substantially all (90%) of the lease term. - Leased property is exempt from the original use and substantial improvement requirements, and the lessor can be a related party, subject to extra rules. - In a related-party lease, the tenant may not prepay more than 12 months of rent, and leased tangible personal property that is not original use requires the tenant to acquire equivalent qualifying property. - Leased real property fails if, when the lease is signed, there is a plan, intent or expectation that the business will buy it for other than fair market value. - For the 70% and 90% tests, leased property is valued from the applicable financial statement or, alternatively, at the present value of the lease payments using the applicable federal rate. - Leasing property in is different from leasing property out: a QOZB that only leases its building to one tenant on a triple-net basis is not conducting an active trade or business. ## Can leased property count toward the Opportunity Zone tests? Yes. Leased tangible property counts as qualified opportunity zone business property if the lease meets two main conditions: market-rate terms and use in the zone. A Qualified Opportunity Zone Business (QOZB) must have at least 70% of the tangible property it owns or leases qualify as qualified opportunity zone business property (QOZBP).[^1][^2] The statute's QOZBP definition speaks of property "acquired by purchase," but the regulations at §1.1400Z2(d)-2 extend qualifying status to leased property that meets their own set of tests.[^3][^4] **Conditions for leased tangible property to be QOZB property** | Condition | What it means | | --- | --- | | Lease date | The lease must be entered into after the start date fixed in the statute and regulations | | Market-rate terms | The lease terms must be arm's length, judged under the §482 standards; leases between unrelated parties are generally treated as market rate | | Use in the zone | Substantially all (70%) of the property's use must be in a zone during substantially all (90%) of the period it is leased | | No original use test | The property does not need to be first placed in service by the tenant | | No substantial improvement test | The tenant does not need to double the basis of a leased building | | Related-party limits | Extra rules apply if lessor and tenant are related at the 20% level | These rules come from the final regulations, which kept the leasing framework of the second set of proposed regulations with modest changes.[^5][^6][^7] ## Why is leasing attractive for an Opportunity Zone business? Because a lease avoids the two hardest requirements for existing buildings: original use and substantial improvement. A QOZB that buys an existing building must substantially improve it, adding more than its adjusted basis (excluding land) within 30 months, or 50% in a zone made up entirely of rural area.[^8] A QOZB that leases the same building has no improvement requirement at all. Improvements the tenant makes to leased property are its own purchased property, and they are treated as original use, so they qualify too.[^4][^9] **Figure: Owned versus leased property for a QOZB** - Owned property (Purchased) - Must be acquired by purchase from an unrelated party - Must meet original use or substantial improvement - Valued at cost or on the financial statement - QOZB keeps appreciation and depreciation - Leased property (Leased in) - Lease must be at market rate - No original use or substantial improvement test - Lessor may be related, with extra limits - Valued from the financial statement or present value of payments - Tenant improvements count as original-use property *Leasing trades ownership upside for relief from the purchase, original use and substantial improvement rules. Both count toward the 70% test if their own conditions are met.[^3][^4]* The original use and substantial improvement tests are covered in [the original use requirement](https://ozdatacenters.com/guides/opportunity-zone-original-use) and [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## What extra rules apply to related-party leases? Two: no prepayment of more than 12 months of rent, and a requirement to acquire matching qualifying property when leased personal property is not original use. Parties are related under §1400Z-2(e)(2) if they fall within §267(b) or §707(b)(1), with 20% substituted for 50%.[^1][^10] When the lessor and the QOZB are related: - The tenant may not make a prepayment of rent for a period of use of more than 12 months.[^5][^11] - If leased tangible personal property is not original use in the tenant's hands, the tenant must become the owner of QOZBP of at least equal value. Summaries of the regulations describe that period as ending at the earlier of the end of the lease or 30 months after the tenant takes possession.[^4][^12] - The market-rate requirement still applies and gets more scrutiny, because related parties can set rent off market.[^5] **Figure: Which leasing rules apply** - Real property Property, Unrelated Lessor: Unrelated, real property (Market rate; no plan to buy below fair market value) - Real property Property, Related (20% test) Lessor: Related, real property (Market rate; 12-month prepayment limit; no below-market purchase plan) - Personal property Property, Unrelated Lessor: Unrelated, personal property (Market rate presumed; use in the zone) - Personal property Property, Related (20% test) Lessor: Related, personal property (12-month prepayment limit; acquire equal-value QOZBP if not original use) *The rules tighten as the lessor becomes related and when real property could be bought later at a non-market price. Summaries of the final regulations describe each cell.[^3][^5][^11]* For the full related-party definition and family attribution, see [related-party rules in Opportunity Zone deals](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## Can a QOZB lease property and buy it later? Yes, but if there is a plan when the lease is signed to buy the real property for other than fair market value, the leased property does not qualify. The regulations include an anti-abuse rule for real property: leased real property (other than unimproved land) is not QOZBP if, at the time the lease is entered into, there was a plan, intent or expectation that the QOZB would purchase it for an amount other than its fair market value at the time of purchase.[^4][^12] A purchase option at a price fixed at fair market value on the exercise date is the safer form. A purchase at a bargain price set years earlier invites challenge. > A later purchase of property that was previously leased is a new acquisition. To be QOZBP at that point, it must meet the purchase rules for owned property, including the original use or substantial improvement test.[^4] ## How is leased property valued for the 70% and 90% tests? Using the applicable financial statement value, or under an alternative method, the present value of the lease payments. If the business has an applicable financial statement (an audited GAAP statement, for example), it may use the value of the leased asset shown there, such as a right-of-use asset. Otherwise, or by choice, it can use the alternative valuation method: the sum of the present values of the payments under the lease, discounted at the applicable federal rate under §1274(d)(1), determined when the lease is entered into.[^12][^13] Commentary on the final regulations notes that the alternative method value is fixed at the start of the lease and used for later testing dates.[^7] **Figure: The 70% test with a ground lease and an owned building** (illustrative) - Owned new building and equipment (QOZBP): 60 $ millions - Plus: present value of land lease payments (QOZBP): +8.65 $ millions - Plus: nonqualifying tangible property: +4 $ millions - Total tangible property: $72.65M; QOZBP 94.5%: 72.65 $ millions *Illustrative only. Assumes a 30-year land lease at $500,000 a year paid at year-end, a 4% applicable federal rate, an owned new building and equipment at $60 million, and $4 million of nonqualifying tangible property.* The present value is $500,000 x 17.292 (the 30-year annuity factor at 4%) = about $8.65 million. QOZBP is $68.65 million of $72.65 million, or 94.5%, well above 70%. The test itself is explained in [the 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test). ## Is leasing property out to a tenant an active business? It can be, but merely entering into a triple-net lease is not the active conduct of a trade or business for QOZB purposes. This is a separate question from the leased-property rules above, which concern property a QOZB leases in. A QOZB that owns a building and leases it out must still be engaged in an active trade or business. The regulations say that merely entering into a triple-net lease does not count, and their examples treat a landlord that leases a whole building to one tenant on a triple-net basis as not active, even with an on-site office.[^14][^15] A landlord that actively manages and operates other, non-triple-net space through its own employees is active.[^14] A triple-net lease, as described in IRS guidance, is one where the tenant pays taxes, fees and insurance and is responsible for maintenance, in addition to rent and utilities.[^14] Data center leases are written in many forms, which is why the structure needs early tax review. See [data center lease structures](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones). ## How do the leasing rules apply to a data center? They help on the tenant side, such as ground leases and leased equipment, and they sit next to the separate triple-net issue on the landlord side. **Figure: Data center leasing situations under the QOZB rules** - [pass] QOZB ground-leases land and builds a new data center: Market-rate land lease qualifies; new building is original use - [pass] QOZB leases an existing powered shell and fits it out: No substantial improvement needed for the leased shell; fit-out is original-use property - [pass] QOZB leases generators or cooling equipment: Market-rate equipment lease; use in the zone - [watch] Related landowner leases the site to the QOZB: 12-month prepayment limit; market rent; no below-market purchase plan - [fail] Purchase option at a fixed bargain price: Plan to buy real property below fair market value - [watch] QOZB leases the entire facility to one hyperscaler, triple-net: Not an active trade or business on those facts alone *Leasing in is generally favorable; leasing a whole facility out to one tenant on triple-net terms is the main risk. No authority addresses hyperscaler leases specifically.[^15][^16]* Servers and network gear owned by a tenant in a leased hall are the tenant's property, not the QOZB's, so they do not count toward the QOZB's 70% test. A QOZB that provides power, cooling, security and remote-hands services, or runs multi-tenant colocation, has more defensible facts than a single-tenant shell.[^16] This is analysis, not settled law, so structure decisions should be reviewed by tax counsel. For the landlord-side analysis, see [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones) and [colocation data centers](https://ozdatacenters.com/guides/colocation-data-centers-opportunity-zones). ## Common questions **Does leased property have to be substantially improved?** No. Leased tangible property is not subject to the original use or substantial improvement requirements. Improvements the tenant makes are treated as its own original-use property. **Can a QOZB lease property from a related party?** Yes. Unlike purchased property, leased property can come from a related lessor. The lease must be at market rate, the tenant cannot prepay more than 12 months of rent, and non-original-use personal property requires the tenant to acquire equal-value qualifying property. **How is a lease valued for the 70% test?** From the applicable financial statement, or under the alternative method as the present value of the lease payments discounted at the applicable federal rate, determined when the lease is entered into. **Does land leased by a QOZB count?** Yes. Leased land used in the business in the zone can be QOZB property if the lease is at market rate. Land also does not have to be improved separately. **Is a triple-net lease to a single tenant allowed?** The QOZB can sign one, but merely entering into a triple-net lease is not the active conduct of a trade or business. A QOZB whose only activity is a single-tenant triple-net lease risks failing QOZB status. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^3]: Tax Notes, "26 CFR 1.1400Z2(d)-2: Qualified opportunity zone business property" (n.d.). https://taxnotes.com/research/federal/cfr26/1.1400Z2d-2 [^4]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^5]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^6]: Ballard Spahr, "Treasury Releases Final Regulations on Qualified Opportunity Zone Program" (2020). https://www.ballardspahr.com/insights/alerts-and-articles/2020/01/qualified-opportunity-zones-final-regulations [^7]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^8]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^9]: Gibbons P.C., "New Qualified Opportunity Zone Regulations Provide Clarity for the Development of Real Property" (2019). https://www.gibbonslaw.com/resources/publications/new-qualified-opportunity-zone-regulations-provide-clarity-for-the-development-of-real-property [^10]: Legal Information Institute, Cornell Law School, "26 U.S. Code 267: Losses, expenses, and interest with respect to transactions between related taxpayers" (n.d.). https://www.law.cornell.edu/uscode/text/26/267 [^11]: Brownstein Hyatt Farber Schreck, "16 Takeaways from the Second Round of Opportunity Zone Regulations" (2019). https://bhfs.com/insights/alerts-articles/2019/16-takeaways-from-the-second-round-of-opportunity-zone-regulations [^12]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^13]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^14]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^15]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^16]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers --- # Related-party rules in Opportunity Zone deals URL: https://ozdatacenters.com/guides/opportunity-zone-related-party-rules Last reviewed: 2026-10-20 For Opportunity Zone purposes, two parties are related if they fall within IRC §267(b) or §707(b)(1) with 20% substituted for 50%, under §1400Z-2(e)(2). The 20% test decides whether a gain is eligible for deferral (it must not come from a sale to a related person), whether property counts as acquired by purchase for a QOZB, and which extra limits apply to leases. Family and entity attribution count, so a sponsor or landowner can be related to a fund without owning 20% directly. ## Key takeaways - Section 1400Z-2(e)(2) defines related persons by reference to §267(b) and §707(b)(1), lowering the ownership threshold from more than 50% to more than 20%. - A gain is not eligible for deferral if it arises from a sale or exchange with a related person under that 20% test. - Qualified opportunity zone business property must be acquired by purchase, which under §179(d)(2) excludes acquisitions from related persons, from members of the same controlled group and with carryover basis. - For the purchase rule, family attribution reaches only spouses, ancestors and lineal descendants; for other §267(b) purposes, brothers and sisters count too. - Leases from related lessors are allowed, but rent cannot be prepaid more than 12 months ahead and the terms must be market rate. - A landowner who sells a site to a QOZB owned by a fund in which the landowner's family holds more than 20% will generally fail the purchase requirement. ## What is a related party in an Opportunity Zone deal? A person or entity that bears one of the relationships in §267(b) or §707(b)(1) to another, measured at more than 20% ownership instead of more than 50%. Section 1400Z-2(e)(2) says persons are related if they are described in §267(b) or §707(b)(1), determined by substituting "20 percent" for "50 percent" each place it appears.[^1] Section 267(b) lists relationships such as family members, an individual and a corporation they own, and a grantor and the fiduciary of a trust.[^2] Section 707(b)(1) covers a partnership and a person owning more than the stated share of its capital or profits, and two partnerships owned by the same persons. **Common related-party relationships, with the 20% Opportunity Zone threshold** | Relationship | Related for OZ purposes when | | --- | --- | | Individual and corporation | The individual owns, directly or indirectly, more than 20% of the stock by value | | Person and partnership | The person owns, directly or indirectly, more than 20% of capital or profits | | Two partnerships | The same persons own, directly or indirectly, more than 20% of capital or profits of each | | Two corporations | They are members of the same controlled group, tested at 20% | | Corporation and partnership | The same persons own more than 20% of the stock and more than 20% of the partnership | | Family members | Spouse, ancestors, lineal descendants and, for §267(b) generally, brothers and sisters | | Grantor and trust fiduciary | Always related | "Directly or indirectly" brings in the constructive ownership rules of §267(c): stock or interests owned by an entity are treated as owned proportionately by its owners, and an individual is treated as owning what their family owns.[^2] ## Where do related-party rules matter in an Opportunity Zone deal? In three places: whether the investor's gain is eligible, whether the QOZB's property was acquired by purchase, and how the QOZB's leases are tested. **Figure: Related-party checkpoints from gain to zone property** - Checkpoint 1: Investor's sale (Gain must not be from a sale to a related person) - then: Invest eligible gain - QOF (Equity investment within 180 days) - then: Buy newly issued interest - QOZB (Interest acquired from the QOZB for cash) - then: Purchase or lease property - Checkpoints 2 and 3: Zone property (Purchased from an unrelated seller, or leased on related-party terms) *Each arrow is a point where a 20% relationship can disqualify part of the deal. Test every one before closing.[^1][^4][^5]* ### 1. Eligible gain Under the final regulations, a gain is eligible for deferral only if it does not arise from a sale or exchange with a related person, using the 20% test.[^4][^5] An investor who sells a building to their own 25%-owned partnership cannot defer that gain in a QOF. See [which capital gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). ### 2. Property acquired by purchase Qualified opportunity zone business property must be acquired by purchase as defined in §179(d)(2), with the 20% substitution.[^1] Treasury's §179 regulation explains that property is not acquired by purchase if it comes from a person whose relationship would disallow losses under §267 or §707(b), from another member of the same controlled group, or with a basis determined by reference to the seller's basis.[^3] ### 3. Leases Leased property can come from a related lessor, but the tenant cannot prepay more than 12 months of rent, the terms must be market rate, and leased personal property that is not original use triggers a requirement to acquire equal-value qualifying property.[^6][^7] Details are in [leased property rules](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). ## Do family members count toward the 20% test? Yes. An individual is treated as owning what their family owns, and the definition of family depends on which rule is being applied. Under §267(c)(4), an individual's family includes brothers and sisters, a spouse, ancestors and lineal descendants.[^2] For the purchase rule, §179(d)(2) narrows family to a spouse, ancestors and lineal descendants, which is why Treasury's §179 regulation treats a purchase from a brother or sister as a qualifying purchase while a purchase from a spouse is not.[^3] Siblings therefore matter for eligible-gain and lease testing but not for the QOZB's purchase test. > Constructive ownership through entities applies in every case. If a family trust owns 30% of a land company, its beneficiaries are treated as owning their proportionate share, which then counts toward their family's total. ## Can a landowner sell land to a QOZB in a fund their family invests in? Only if the landowner and the QOZB are not related at the 20% level after attribution; otherwise the land is not acquired by purchase. Illustrative example. Assumptions: two parents own 100% of LandCo LLC, which owns a 300-acre site in a zone. A data center QOF owns 100% of a QOZB that wants to buy the site. Investors in the QOF include the parents (5% combined), their daughter (10%) and their son (8%). Everyone else in the fund is unrelated. **Figure: The parents' constructive ownership of the QOF** (illustrative) - Parents, owned directly: 5% - Daughter, attributed to parents: 10% - Son, attributed to parents: 8% - Parents' constructive total: 23% *Illustrative only. For the purchase rule, children's interests are attributed to their parents. Combined, the parents are treated as owning 23% of the fund, and so of the QOZB, above the 20% line.* The parents own 100% of LandCo and are treated as owning 23% of the QOF, and through it 23% of the QOZB. Two partnerships owned more than 20% by the same persons are related, so LandCo's sale to the QOZB is not a purchase under §179(d)(2). The land would not be QOZB property.[^1][^3] Brothers and sisters are not attributed to each other under the purchase rule, but children and parents are. **Illustrative: ways to fix the land problem** | Option | Result | Trade-off | | --- | --- | --- | | Family cuts its combined fund stake to 20% or less | LandCo is unrelated; the purchase qualifies | Family gets a smaller share of the fund | | LandCo ground-leases the site to the QOZB at market rent | Leased land can qualify even from a related lessor | 12-month prepayment limit; no below-market purchase plan | | LandCo sells to an unrelated buyer who later sells to the QOZB | Risky; the anti-abuse rule can recharacterize step transactions | Get advice before attempting | | Parents sell the site and invest the gain in an unrelated QOF | Gain can be eligible if the buyer is unrelated | No interest in the data center project | The general anti-abuse rule in the regulations lets the IRS recast a transaction whose significant purpose is to achieve a result inconsistent with the purposes of §1400Z-2.[^8] Confirm any landowner structure with your tax adviser. Landowner options are covered in [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). ## Can a sponsor's affiliates do business with the fund? Yes. Fees and service contracts with affiliates are not barred, but property purchases from affiliates usually fail and every related arrangement must be at market terms. **Figure: Common sponsor-affiliate arrangements** - [pass] Affiliate provides development or property management services for a fee: Not a purchase of property; keep fees at market - [fail] QOZB buys equipment or land from a 20%-plus affiliate: Not acquired by purchase; not QOZB property - [watch] Affiliate leases land or equipment to the QOZB: Allowed with market rent and the 12-month prepayment limit - [pass] Sponsor invests its own capital gains in the QOF: Gain eligible if it did not come from a related-party sale - [watch] Sponsor receives a carried interest for services: An interest received for services is not a qualifying investment - [fail] QOF buys an existing QOZB interest from the sponsor: QOZB interests must be acquired from the QOZB itself, generally for cash *Purchases from affiliates are the main trap. Services and leases at market rates are generally workable, with documentation.[^3][^6][^9]* The requirement that a QOF acquire QOZB stock or partnership interests directly from the business, solely in exchange for cash, is in §1400Z-2(d)(2)(B) and (C).[^1] Interests received for services are excluded from qualifying investments under the regulations.[^10][^11] Fund terms that should disclose these arrangements are covered in [fund fees and terms](https://ozdatacenters.com/guides/opportunity-zone-fund-fees-and-terms). ## Where do related-party issues come up in data center projects? Most often with the land, with sponsor-owned equipment and with power or utility affiliates. - Land: developers often control sites through affiliates. If the affiliate is related at 20% to the QOZB, a sale fails the purchase rule; a market-rate ground lease is the common alternative. - Equipment: transformers, switchgear and generators bought from an affiliated supplier or a related QOZB may not be acquired by purchase. Buy new equipment from unrelated vendors. - Power assets: an on-site substation or generation plant owned by a related entity and leased to the QOZB must be at market rent, with no long prepayments. - Multiple QOZBs: two QOZBs owned by the same QOF are related, so moving equipment from one campus QOZB to another is not a purchase. - Tenants: a tenant that also invests in the fund at more than 20% raises market-rate and active-business questions on the lease. Data center budgets are large, so the stakes are too. One misclassified $20 million equipment purchase can move a QOZB's 70% tangible property percentage by several points. See [the 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [buying land for an Opportunity Zone data center](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center). Recent proposed rules add reporting at the QOZB level, which will make transactions between related entities easier for the IRS to see.[^12] Those rules are proposed, not final. ## Common questions **What ownership level makes parties related for Opportunity Zones?** More than 20%, counting direct and indirect ownership. Section 1400Z-2(e)(2) substitutes 20% for 50% in §267(b) and §707(b)(1). **Can I defer a gain from selling property to my own company?** Not if you own more than 20% of the buyer, directly or through attribution. A gain from a sale to a related person is not eligible for Opportunity Zone deferral. **Can a QOZB buy property from a sibling of the fund's sponsor?** For the purchase rule, siblings are not attributed to each other, so a sibling's sale is not automatically a related-party purchase. Entity ownership and other relationships must still be checked. **Can a QOZB lease property from a related party?** Yes. Leased property can come from a related lessor if the rent is market rate, no more than 12 months is prepaid, and the other leasing conditions are met. **Are a QOF and its QOZB related?** Yes, when the fund owns more than 20%, which is typical. That is fine for the QOF's investment in the QOZB, but property moving between them, or between two QOZBs of the same fund, is not a purchase. **Can a landowner contribute land to a QOF instead of selling it?** A landowner can contribute property, but an investment made with property rather than eligible gain cash generally produces an interest that is wholly or partly non-qualifying, and the QOZB would not acquire the land by purchase. Get advice before using this route. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Legal Information Institute, Cornell Law School, "26 U.S. Code 267: Losses, expenses, and interest with respect to transactions between related taxpayers" (n.d.). https://www.law.cornell.edu/uscode/text/26/267 [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.179-4: Definitions (including purchase)" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.179-4 [^4]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^5]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^6]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^7]: Brownstein Hyatt Farber Schreck, "16 Takeaways from the Second Round of Opportunity Zone Regulations" (2019). https://bhfs.com/insights/alerts-articles/2019/16-takeaways-from-the-second-round-of-opportunity-zone-regulations [^8]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^9]: Gibbons P.C., "New Qualified Opportunity Zone Regulations Provide Clarity for the Development of Real Property" (2019). https://www.gibbonslaw.com/resources/publications/new-qualified-opportunity-zone-regulations-provide-clarity-for-the-development-of-real-property [^10]: Orrick, "Final Tax Regulations Offer More Certainty to Opportunity Zone Fund Managers and Investors" (2020). https://www.orrick.com/en/Insights/2020/02/Final-Tax-Regulations-Offer-More-Certainty-to-Opportunity-Zone-Fund-Managers-and-Investors [^11]: K&L Gates, "Opportunity Zone Final Regulations: First Impressions" (2019). https://www.klgates.com/thought-leadership/Opportunity-Zone-Final-Regulations-First-Impressions-12-20-2019 [^12]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf # Section: Zone maps & designation How zones are chosen, what qualifies, rural zones and how to check a property. --- # How Opportunity Zones are designated URL: https://ozdatacenters.com/guides/how-opportunity-zones-are-designated Last reviewed: 2026-10-20 Opportunity Zones are designated in a two-step process under IRC §1400Z-1: each state's governor nominates census tracts that meet the low-income community test, up to 25% of the state's eligible tracts (or 25 tracts, if greater), and the Treasury Secretary certifies and designates them. The current cycle opened July 1, 2026, with nominations due within 90 days plus a 30-day extension, and Treasury certification follows within 30 days, extendable by 30. The zones designated in this cycle take effect January 1, 2027 and remain in effect through December 31, 2036. ## Key takeaways - Designation happens every 10 years; the first determination date under the current rules was July 1, 2026, and the next is July 1, 2036. - Only census tracts that meet the low-income community test can be nominated: median family income at or below 70% of the area median, or a poverty rate of at least 20% with median family income at or below 125% of the area median. - A governor may nominate up to 25% of the state's eligible tracts, or 25 tracts if that is greater. - Treasury's eligible-tract list under Rev. Proc. 2026-14 contains 25,332 tracts, 8,334 of them wholly rural. - Governors had 90 days from July 1, 2026 to nominate, with one 30-day extension to about October 28, 2026; Treasury then has 30 days to certify, extendable by 30 days. - As of October 20, 2026, nominations are still arriving, certification is in progress and Treasury has not published a national list of designated zones. ## Who designates Opportunity Zones? The governor of each state nominates census tracts, and the U.S. Treasury Secretary certifies and designates them. Section 1400Z-1 defines a qualified opportunity zone as a population census tract that is a low-income community and that is nominated by the chief executive officer of the state and certified by the Secretary of the Treasury.[^1] For this purpose, "state" includes the District of Columbia and U.S. possessions, which brings the number of jurisdictions that can nominate to 56.[^2] Governors may delegate the work to a state agency, usually the economic development or commerce department. Treasury's role is administrative. It publishes the list of eligible tracts, runs the nomination system through the CDFI Fund, checks that each nominated tract is eligible and within the state's cap, and then certifies the designations.[^3][^4] The CDFI Fund reinstated its online Opportunity Zone Nomination Tool for this cycle, which governors use to submit tracts.[^5][^6] ## What are the steps in designating an Opportunity Zone? Treasury publishes eligible tracts, governors gather input and nominate, Treasury certifies, and the designations take effect on January 1 after the nomination year. **Figure: How a census tract becomes an Opportunity Zone** 1. Determination date: July 1, 2026 opens the cycle 2. Eligible list: Treasury publishes tracts that meet the low-income community test 3. State selection: Governor gathers local input and picks tracts 4. Nomination: Submitted through the CDFI Fund tool within 90 days, plus any extension 5. Certification: Treasury certifies within 30 days, extendable by 30 6. Effective: January 1, 2027 through December 31, 2036 *Steps under §1400Z-1 and Rev. Proc. 2026-14. Eligibility is set by data; selection is the governor's choice within the 25% cap.[^1][^3]* Rev. Proc. 2026-14, released in April 2026, sets out the procedures for this cycle and includes the eligible-tract appendix.[^3][^7] Under §5.04 of the revenue procedure, a governor may also nominate a tract that is not on Treasury's list if the governor provides tract-level data showing it meets the low-income community definition.[^8][^9] ## Which census tracts can be nominated? Only tracts that qualify as low-income communities under the statute's two-prong test. **The low-income community test for nomination (§1400Z-1 as amended by Public Law 119-21)** | Prong | Requirement | | --- | --- | | Income prong | Median family income no greater than 70% of the statewide median (non-metro tracts) or of the greater of the statewide or metro-area median (metro tracts) | | Poverty prong | Poverty rate of at least 20%, and median family income no greater than 125% of the applicable area median | | No contiguous-tract option | Every nominated tract must qualify on its own data | Practitioner summaries of the amended statute describe the same structure.[^10][^11] Eligibility is measured using American Community Survey 5-year estimates; reports on this cycle point to the 2020 to 2024 estimates released in early 2026.[^6][^17] The Economic Innovation Group projected that the tighter test and the 25% cap would produce about 6,293 designations across the 50 states and the District of Columbia.[^12] The detailed test, with worked examples, is in [which census tracts qualify](https://ozdatacenters.com/guides/opportunity-zone-low-income-community-test). **Figure: The eligible pool for zones taking effect in 2027** - 25,332: Eligible low-income tracts on Treasury's list - 8,334: Of those, wholly rural tracts - ~6,293: Designations projected by EIG - 25%: Share of eligible tracts a governor may nominate *Counts from the IRS announcement of Rev. Proc. 2026-14[^3] and an Economic Innovation Group projection.[^12]* ## How many Opportunity Zones can a state have? No more than 25% of the state's eligible low-income tracts, or 25 tracts if that number is larger. The cap appears in §1400Z-1(d).[^1] Puerto Rico is subject to the same cap as the states for designations taking effect in 2027.[^14] There is no statutory rural quota; the rural incentive works through the tax benefits for rural zones, not a nomination set-aside.[^2] **Illustrative: applying the 25% cap** | Eligible tracts in the state | 25% of eligible | Maximum nominations | | --- | --- | --- | | 2,400 | 600 | 600 | | 480 | 120 | 120 | | 90 | 22.5 | 25 (the 25-tract floor applies) | | 20 | 5 | 20 (cannot exceed the eligible tracts) | Under Notice 2026-40, each designation period is evaluated on its own, so tracts that are zones today do not count against a state's cap for the period starting January 1, 2027.[^15] ## What is the timeline for the current designation round? Nominations opened July 1, 2026; most windows closed in late September or, with the extension, around October 28; certification runs into late 2026. **Figure: Designation calendar for zones effective 2027 to 2036** - Apr 2026: Rev. Proc. 2026-14 (Procedures and eligible-tract list) - Jul 1, 2026: Determination date (90-day nomination window opens) - Late Sep 2026: 90-day deadline (September 28 by most counts) - About Oct 28, 2026: Extended deadline (One 30-day extension) - Nov to Dec 2026: Treasury certification (30 days, extendable by 30) - Jan 1, 2027: Zones take effect (Run through December 31, 2036) - Jul 1, 2036: Next determination date (The 10-year cycle repeats) *Dates from Rev. Proc. 2026-14 and state and practitioner summaries. Sources differ by a day on the deadlines, and Treasury's exact certification dates depend on when each state filed.[^3][^7][^16]* Rev. Proc. 2026-14 allows a single 30-day extension of the 90-day nomination period, as Treasury's July 1 announcement of the window confirmed.[^7][^13] Counting from the extended deadline, Treasury's 30-day certification period ends about November 27, 2026, or about December 27, 2026 if Treasury takes its own 30-day extension.[^7][^16] ## How do governors decide which tracts to nominate? Each state sets its own process, usually combining data screens with applications or comments from local governments and the public. States published eligible maps, opened portals for local input and scored tracts on factors such as investment readiness, community need and existing development plans. Ohio, for example, opened a local input process for townships and counties.[^17] Texas published a 605-tract nomination list on its governor's site.[^18] Kiplinger's overview of the process notes that governors weigh need against investability, since a zone only helps if capital can reach it.[^19] The full set of selection approaches, and how communities can influence them in future cycles, is covered in [how governors choose Opportunity Zones](https://ozdatacenters.com/guides/how-governors-choose-opportunity-zones). ## Where does designation stand, and what does it mean for data center sites? As of October 20, 2026, designation is still in progress, and a data center site counts only if its tract appears on the final certified list. States could file at any point in the window, early filings are deemed received at its close, and the single extension runs to about October 28.[^13][^16] Washington's governor announced 99 nominated tracts on October 8, 2026.[^20] The Idaho Business Review reported on October 2 that Treasury had certified Idaho's slate of 25 tracts.[^21] Treasury has not published a consolidated national list; it expects to identify the designated zones in guidance after the process ends and before January 1, 2027.[^16] Current status is in [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). For data center sponsors, three points follow. First, zone status is tract-specific, and large campuses can straddle tract lines, so map every parcel. Second, wholly rural tracts often offer the large parcels near transmission that campuses need, and they carry extra benefits; see [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). Third, do not close on a site in reliance on a nomination; wait for certification or build the contingency into the contract. See [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## Common questions **Who picks Opportunity Zones?** Each state's governor nominates eligible low-income census tracts, and the Treasury Secretary certifies and designates them. In this cycle, nominations are submitted through the CDFI Fund's online nomination tool. **How often are Opportunity Zones designated?** Every 10 years. The current round began on the July 1, 2026 determination date, and the zones it produces run from January 1, 2027 through December 31, 2036. The next determination date is July 1, 2036. **How many zones can each state designate?** Up to 25% of the state's eligible low-income tracts, or 25 tracts if that is greater. Tracts that are zones today do not count against the cap for the new period. **Can a governor nominate a tract that is not on Treasury's list?** Yes. Under section 5.04 of Rev. Proc. 2026-14, a governor may nominate an off-list tract if the state provides tract-level data showing it meets the low-income community test. **Are the 2027 Opportunity Zones final yet?** Not as of October 20, 2026. Many states have nominated, at least one certification has been reported, and Treasury has not published a national list. Certification is expected to finish by late December 2026. **Can a designated zone lose its status before 2036?** The statute sets a fixed period: designations in this round remain in effect from January 1, 2027 through December 31, 2036. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1: Designation" (2026). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: Economic Innovation Group, "Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^3]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^4]: CDFI Fund, U.S. Department of the Treasury, "Opportunity Zones Resources" (2026). https://www.cdfifund.gov/opportunity-zones [^5]: Federal Register (public inspection), "CDFI Fund notice regarding the Opportunity Zone Nomination Tool, document 2026-09437" (2026). https://public-inspection.federalregister.gov/2026-09437.pdf [^6]: U.S. Department of the Treasury, "Treasury Opens the New Designation Cycle for Opportunity Zones" (2026). https://content.govdelivery.com/accounts/USTREAS/bulletins/41e8950 [^7]: EY Tax News, "IRS describes requirements for nominating population census tracts as 2027 Qualified Opportunity Zones" (2026). https://taxnews.ey.com/news/2026-0851-irs-describes-requirements-for-nominating-population-census-tracts-as-2027-qualified-opportunity-zones [^8]: ArentFox Schiff, "IRS Releases Rev. Proc. 2026-14: New Roadmap for Designations" (2026). https://www.afslaw.com/perspectives/alerts/irs-releases-rev-proc-2026-14-new-roadmap-oz-20-designations [^9]: Internal Revenue Service (copy posted by the State of Alaska), "Rev. Proc. 2026-14, Internal Revenue Bulletin Part III" (2026). https://aws.state.ak.us/OnlinePublicNotices/Notices/Attachment.aspx?id=161118 [^10]: Jackson Walker, "The One Big Beautiful Bill's New Qualified Opportunity Zones" (2025). https://www.jw.com/news/insights-obbba-qualified-opportunity-zones/ [^11]: Saul Ewing, "Opportunity Zone Regime Permanently Extended With New Benefits, Limitations, and Requirements, With a New Rural Focus" (2025). https://www.saul.com/insights/alert/opportunity-zone-regime-permanently-extended-new-benefits-limitations-and [^12]: Economic Innovation Group, "Data alert: projected Opportunity Zone designations under the new eligibility rules" (2026). https://eig.org/ozs-2-0-data-alert/ [^13]: KPMG TaxNewsFlash, "Treasury opens new QOZ designation cycle" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/07/treasury-new-qoz-designation-cycle.html [^14]: Williams Mullen, "Big, Beautiful Changes to the Qualified Opportunity Zone Program" (2025). https://www.williamsmullen.com/insights/news/legal-news/big-beautiful-changes-qualified-opportunity-zone-program [^15]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^16]: Congressional Research Service, "Opportunity Zones Round Two Selection Process: Frequently Asked Questions (R48952)" (2026). https://www.congress.gov/crs-product/R48952 [^17]: Ohio Township Association, "Opportunity Zones: Local Input Process Opens" (2026). https://www.ohiotownships.org/news/opportunity-zones-20-local-input-process-opens [^18]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (2026). https://gov.texas.gov/business/page/opportunity-zones [^19]: Kiplinger, "How Your Governor Will Pick the 2027-2036 Opportunity Zone Map" (2026). https://www.kiplinger.com/taxes/tax-planning/how-governors-pick-opportunity-zone-2-designations [^20]: Washington Governor's Office, "Governor Ferguson selects 99 Opportunity Zones to encourage private investment" (2026). https://governor.wa.gov/news/2026/governor-ferguson-selects-99-opportunity-zones-encourage-private-investment [^21]: Idaho Business Review, "US Treasury approves Idaho Opportunity Zone nominations" (2026). https://idahobusinessreview.com/2026/10/02/us-treasury-approves-idaho-opportunity-zone-2-nominations/ --- # The new Opportunity Zone maps taking effect in 2027 URL: https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027 Last reviewed: 2026-10-20 The new Opportunity Zone map takes effect January 1, 2027 and stays in effect through December 31, 2036. As of October 20, 2026, governors are finishing nominations from Treasury's list of 25,332 eligible tracts under Rev. Proc. 2026-14, with extended deadlines around October 28, and Treasury certification is in progress, so no official national list exists yet. Confirm a site against Treasury's certified list, published through the IRS and CDFI Fund, and your state's official nomination, matched by 11-digit census tract number. ## Key takeaways - Zones in the new map are effective January 1, 2027 through December 31, 2036. - Treasury's eligible pool is 25,332 low-income tracts (8,334 wholly rural) under Rev. Proc. 2026-14; each state may designate up to 25% of its eligible tracts or 25, whichever is greater. - Governors had 90 days from July 1, 2026 to nominate, with a single 30-day extension to about October 28, 2026; certification was under way as of October 2026. - Treasury certifies within 30 days of receiving nominations, extendable by 30 days, so the last certifications are expected by late December 2026. - One certification, Idaho's 25 tracts, was reported on October 2, 2026; no consolidated national list had been published as of October 20, 2026. - The Economic Innovation Group projects about 6,293 designations across the 50 states and D.C.; that is an estimate, not an official count. ## When do the new Opportunity Zone maps take effect? On January 1, 2027. The new zones remain in effect through December 31, 2036. The ten-year period follows from the decennial designation cycle in §1400Z-1, which began on the July 1, 2026 determination date.[^1][^2] Notice 2026-40 and state guidance state the January 1, 2027 start and December 31, 2036 end.[^3][^4] The rolling five-year deferral and the 10% or 30% basis step-ups apply to gains invested in a QOF after December 31, 2026, so the new map and the new investment rules start together.[^5] **Figure: The 2027 map, from nomination to expiration** - Jul 1, 2026: Window opens (Governors begin nominating) - Late Sep 2026: 90-day deadline (Early filers done; others extend) - About Oct 28, 2026: Extended deadline (Remaining jurisdictions) - By late Dec 2026: Certification complete (30 days plus a possible 30-day extension) - Jan 1, 2027: Map takes effect (New zones open for investment) - Dec 31, 2036: Map expires (Next cycle begins July 1, 2036) *Where the process stands on October 20, 2026: nominations are closing and certification is under way.[^2][^6][^9]* ## Have the 2027 Opportunity Zones been announced? Partly. Many states have published their nominations, but as of October 20, 2026 Treasury has not released a national list of certified zones. Treasury opened the 90-day window on July 1, 2026, subject to a single 30-day extension, so many states filed by late September and others used the extension.[^6][^8] State announcements and press reports show the following slates.[^9][^10][^11] **Selected state status, as reported through October 20, 2026** | Jurisdiction | Reported status | Tracts | Source | | --- | --- | --- | --- | | Idaho | Reported certified by Treasury (Oct. 2, 2026) | 25 | Idaho Business Review[^9] | | Washington | Governor announced nominations (Oct. 8, 2026) | 99 | Governor's office[^10] | | Texas | State nomination list published | 605 | Texas Governor's office[^11] | | Remaining jurisdictions | Single 30-day extension to about Oct. 28, 2026 | Pending | KPMG[^6] | > The Idaho certification was reported in the press before any consolidated Treasury list. Treat any tract as a designated zone only when it appears on Treasury's certified list. ## How many Opportunity Zones will there be in 2027? No official count exists yet; the Economic Innovation Group projects about 6,293 designations across the 50 states and the District of Columbia. **Figure: The 2027 map in numbers** - 25,332: Eligible tracts on Treasury's list - 8,334: Wholly rural eligible tracts - ~6,293: Projected designations (50 states and D.C.) - 10 years: Life of the new map, 2027 to 2036 *Eligible counts from the IRS[^12]; the 6,293 figure is an Economic Innovation Group projection, not an official count.[^7]* Three features of the test shape the pool: the income threshold is 70% of area median family income, the poverty prong is capped at 125% of area median, and contiguous non-low-income tracts cannot be nominated.[^13][^14] Novogradac notes that states are publishing resource guides as governors prepare to nominate up to 25% of their eligible low-income tracts.[^15] See [which census tracts qualify](https://ozdatacenters.com/guides/opportunity-zone-low-income-community-test). Two other features shape the map. Puerto Rico is subject to the same 25% cap as the states.[^14] And about a third of the eligible pool (8,334 of 25,332 tracts) is wholly rural, which matters because investments through a Qualified Rural Opportunity Fund in those zones get a 30% basis step-up instead of 10%, and rural buildings need only 50% substantial improvement.[^12][^5] How many rural tracts each governor chose will only be clear once the certified list is out. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## How do I confirm whether a property is in a 2027 Opportunity Zone? Match the property's 11-digit census tract number against Treasury's certified list, and use state maps only as a preview until certification. **Figure: Confirming a site against the final map** 1. Find the tract: Geocode the parcel to its 11-digit census tract (state, county, tract) 2. Check eligibility: Is the tract on Treasury's eligible list under Rev. Proc. 2026-14? 3. Check the nomination: Is it on the governor's official nomination list? 4. Check certification: Is it on Treasury's certified list (IRS and CDFI Fund)? 5. Document it: Save the list, date and tract map for the compliance file *Nominated is not designated. Rely on the certified list, and keep a dated copy in the deal file.[^12][^16]* - Treasury and the IRS announce guidance and designations on the IRS newsroom and Opportunity Zones pages.[^12][^17] - The CDFI Fund hosts Opportunity Zone resources and runs the nomination system.[^16] - State economic development agencies post their nominated tracts, as Texas, Washington, California and Florida have done.[^11][^10][^4][^18] - Research groups such as the Economic Innovation Group publish projections, which are not official counts.[^7] Multi-parcel sites need every parcel checked, because tract boundaries can split a campus. The tools and practical checks are in [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone) and [Opportunity Zone maps and data tools](https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools). ## What happens to a zone in effect today that is not on the 2027 map? Under Notice 2026-40, it generally remains a zone through December 31, 2028, but property acquired in it after December 31, 2026 generally does not qualify. Notice 2026-40 provides that zones in effect today generally expire December 31, 2028 (December 31, 2027 for Puerto Rico).[^3][^19] Property acquired after December 31, 2026 in such a tract that is not redesignated generally is not qualified opportunity zone business property. The exceptions include a working capital safe harbor plan adopted before December 31, 2026 with at least 10% of the working capital received and 5% spent by that date, and routine replacement of existing property.[^19] For new investments made after December 31, 2026, use the new map. The notice is interim guidance, and Treasury has said it intends to issue proposed regulations on these rules.[^3] Confirm the treatment of any existing project with your tax adviser. ## How should investors and developers plan before the map is final? Lock in sites and capital with contingencies, and time investments so that 180-day windows and closings fall after certification. **Figure: Pre-certification planning checklist for a data center site** - [pass] Tract on Treasury's eligible list: Necessary but not sufficient - [watch] Tract on the governor's nomination list: Await Treasury certification - [pass] Purchase contract contingent on designation: Protects against a tract that is not certified - [watch] Investor gains realized in late 2026: Invest on or after January 1, 2027, within 180 days - [pass] Wholly rural tract: Eligible for the 30% QROF step-up and 50% improvement threshold - [watch] Campus spans two tracts: Both tracts must be designated, or plan around the line *Items depend on where the tract sits in the process. Until certification, treat nomination as a strong signal, not a designation.[^6][^9]* Gains realized in 2026 but invested in a QOF on or after January 1, 2027, within a valid 180-day window, get the new rules: a five-year inclusion and a 10% or 30% step-up.[^5] See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule) and [Opportunity Zone key dates](https://ozdatacenters.com/guides/opportunity-zone-key-dates). For data center campuses, rural tracts near transmission deserve a close look; see [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). To discuss a specific site, [talk to our team](https://ozdatacenters.com/#contact). ## Common questions **When do the new Opportunity Zones start?** January 1, 2027. They remain in effect through December 31, 2036. **Is the 2027 Opportunity Zone map final?** Not as of October 20, 2026. Nominations are closing, with extended deadlines around October 28, and Treasury certification is expected to run into late December 2026. No national list of certified zones has been published. **Where will the official list of 2027 zones be published?** Treasury certifies the designations, and the IRS and CDFI Fund publish Opportunity Zone guidance and resources. State economic development agencies also post their nominated tracts. Rely on Treasury's certified list. **How many Opportunity Zones will there be?** No official number exists yet. With 25,332 eligible tracts and a 25% cap, the Economic Innovation Group projects about 6,293 designations in the 50 states and D.C., which is an estimate only. **Will a property in a current zone still qualify in 2027?** Only if its tract is redesignated. A tract that is not on the new map generally remains a zone through December 31, 2028, but property acquired there after 2026 generally does not qualify, with limited exceptions under Notice 2026-40. **Will the new map include more rural zones?** About a third of eligible tracts (8,334 of 25,332) are wholly rural, but there is no rural quota. The rural share of the final map depends on governors' choices and will be known once Treasury certifies the list. **Can I invest a 2026 gain in a new 2027 zone?** Yes, if the QOF investment is made on or after January 1, 2027 and within your 180-day window. That investment gets the five-year deferral and the 10% or 30% step-up. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1: Designation" (2026). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: Congressional Research Service, "Opportunity Zones Round Two Selection Process: Frequently Asked Questions (R48952)" (2026). https://www.congress.gov/crs-product/R48952 [^3]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^4]: California Governor's Office of Business and Economic Development, "Opportunity Zones in California" (2026). https://business.ca.gov/resources/infrastructure-development/opportunity-zones-in-california/ [^5]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^6]: KPMG TaxNewsFlash, "Treasury opens new QOZ designation cycle" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/07/treasury-new-qoz-designation-cycle.html [^7]: Economic Innovation Group, "Data alert: projected Opportunity Zone designations under the new eligibility rules" (2026). https://eig.org/ozs-2-0-data-alert/ [^8]: KPMG TaxNewsFlash, "Rev. Proc. 2026-14: State procedures for nominating census tracts to be designated as QOZs" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/04/rev-proc-2026-12-state-procedures-nominating-census-tracts-designated-qozs.html [^9]: Idaho Business Review, "US Treasury approves Idaho Opportunity Zone nominations" (2026). https://idahobusinessreview.com/2026/10/02/us-treasury-approves-idaho-opportunity-zone-2-nominations/ [^10]: Washington Governor's Office, "Governor Ferguson selects 99 Opportunity Zones to encourage private investment" (2026). https://governor.wa.gov/news/2026/governor-ferguson-selects-99-opportunity-zones-encourage-private-investment [^11]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (2026). https://gov.texas.gov/business/page/opportunity-zones [^12]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^13]: Jackson Walker, "The One Big Beautiful Bill's New Qualified Opportunity Zones" (2025). https://www.jw.com/news/insights-obbba-qualified-opportunity-zones/ [^14]: Economic Innovation Group, "Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^15]: Novogradac, "What States Are Doing to Prepare for Opportunity Zone Designations" (2026). https://www.novoco.com/notes-from-novogradac/what-states-are-doing-to-prepare-for-oz-20-designations [^16]: CDFI Fund, U.S. Department of the Treasury, "Opportunity Zones Resources" (2026). https://www.cdfifund.gov/opportunity-zones [^17]: Internal Revenue Service, "Opportunity Zones" (2026). https://www.irs.gov/credits-deductions/businesses/opportunity-zones [^18]: FloridaCommerce, "Opportunity Zones overview for the new designation cycle" (2026). https://www.floridajobs.org/docs/default-source/business-growth-and-partnerships/for-businesses-and-entrepreneurs/economic-and-workforce-development-resources/opportunity-zones-program/opportunity-zones-2-0.pdf [^19]: Holthouse Carlin & Van Trigt, "Ten Things to Know About the IRS's Recent Transition Guidance" (2026). https://www.hcvt.com/alertarticle-Transition-Guidance-OZ-1-to-2 --- # Which census tracts qualify as Opportunity Zones URL: https://ozdatacenters.com/guides/opportunity-zone-low-income-community-test Last reviewed: 2026-10-20 A census tract can be designated an Opportunity Zone only if it is a low-income community: its median family income is no more than 70% of the applicable area median, or its poverty rate is at least 20% and its median family income is no more than 125% of the area median. The area median is the statewide median for tracts outside a metro area and the greater of the statewide or metro median for tracts inside one. Treasury's list under Rev. Proc. 2026-14 identifies 25,332 qualifying tracts, of which governors may designate up to 25%. ## Key takeaways - Income prong: tract median family income no greater than 70% of the statewide median (non-metro) or of the greater of the statewide or metro median (metro). - Poverty prong: poverty rate of at least 20%, provided tract median family income is no greater than 125% of the applicable area median. - A tract meeting the income prong qualifies regardless of its poverty rate; the 125% ceiling applies only to the poverty prong. - Tracts that border low-income tracts but do not qualify on their own data cannot be designated. - Treasury's eligible list under Rev. Proc. 2026-14 has 25,332 tracts (8,334 wholly rural), and a governor may nominate an off-list tract with tract-level data showing it qualifies. - Eligibility is necessary but not sufficient: only tracts nominated by a governor and certified by Treasury become zones, effective January 1, 2027 through December 31, 2036. ## What makes a census tract eligible to be an Opportunity Zone? It must be a low-income community under one of two prongs: low median family income, or high poverty with income not above 125% of the area median. Section 1400Z-1 limits designation to population census tracts that are low-income communities, using the definition of that term in the new markets tax credit statute, §45D(e), as modified for Opportunity Zones by Public Law 119-21.[^1][^2] As amended, the test reads as follows.[^3][^4] **The low-income community test for Opportunity Zone nomination** | Prong | Tract must have | Compared with | | --- | --- | --- | | 1. Income | Median family income (MFI) at or below 70% | Statewide MFI for non-metro tracts; greater of statewide or metro-area MFI for metro tracts | | 2. Poverty | Poverty rate of at least 20%, and MFI at or below 125% | The same applicable area median | **Figure: The two numeric screens** - Tract MFI as a share of area median (income prong): no more than 70% (At or below 70% qualifies on its own) - Poverty rate (poverty prong): at least 20% (At least 20%, with MFI at or below 125% of area median) *Meet the income ceiling, or meet the poverty floor while staying under the 125% income ceiling. A tract only needs one prong.[^3][^4]* > Some summaries describe the 125% limit as excluding every tract with MFI above 125%. Read with the statute's structure, the 125% ceiling limits the poverty prong. A tract that passes the 70% income prong cannot also be above 125%, so the distinction matters only for high-poverty tracts.[^3] ## Which area median income is a tract compared with? The statewide median for a tract outside a metropolitan area, and the greater of the statewide or metropolitan median for a tract inside one. Using the greater of the two medians helps tracts in high-income metros. A metro tract with an MFI of $64,000 is 80% of an $80,000 statewide median, which fails, but 67% of a $95,000 metro median, which passes.[^5][^1] **Illustrative: testing five tracts (statewide MFI $80,000; metro MFI $95,000)** | Tract | Location | Tract MFI | MFI ratio | Poverty rate | Result | | --- | --- | --- | --- | --- | --- | | A | Non-metro | $52,000 | 65% of $80,000 | 12% | Qualifies (income prong) | | B | Metro | $64,000 | 67% of $95,000 | 15% | Qualifies (income prong) | | C | Metro | $85,000 | 89% of $95,000 | 24% | Qualifies (poverty prong; MFI under 125%) | | D | Metro | $125,000 | 132% of $95,000 | 28% | Does not qualify (poverty prong capped at 125%) | | E | Metro | $76,000 | 80% of $95,000 | 14% | Does not qualify (neither prong) | Tract D is the kind of tract the 125% ceiling is meant to exclude: high measured poverty, for example from a large student population, alongside high family incomes. Tract E shows that a moderate-income tract with low poverty does not qualify under either prong. ## Can a tract next to a low-income tract be designated? No. Every tract nominated for the new designation period must qualify as a low-income community on its own data. The statute as amended by Public Law 119-21 has no option to designate non-low-income tracts that are contiguous with low-income tracts.[^4][^6] The result is a map made up only of tracts that meet the test directly. Economic Innovation Group's summary of the law notes that this, together with the 70% income threshold, targets the eligible pool.[^7] ## What data is used to decide whether a tract qualifies? Census Bureau American Community Survey 5-year estimates at the census tract level, reflected in Treasury's eligible-tract list. A census tract is a small, relatively stable statistical area defined by the Census Bureau, generally with 1,200 to 8,000 residents and an optimum of about 4,000.[^8] Tracts are identified by an 11-digit code made of the state, county and tract numbers. Reports on this cycle indicate eligibility uses the 2020 to 2024 ACS 5-year estimates released in January 2026.[^9][^10] **Figure: Treasury's eligible-tract list** - 25,332: Low-income tracts eligible for nomination - 8,334: Of those, made up entirely of rural area *From the IRS announcement of Rev. Proc. 2026-14.[^11]* Rev. Proc. 2026-14 contains the eligible list as an appendix.[^13] Under §5.04, a governor may nominate a tract that is not on the list by providing tract-level data showing it meets the test; Arizona's commerce authority, for example, said it would submit very few such tracts and that significant justification is required.[^14][^12] ## Is every eligible tract an Opportunity Zone? No. Eligibility only makes a tract a candidate. A governor must nominate it and Treasury must certify it. Each state may designate no more than 25% of its eligible tracts, or 25 tracts if that is greater, so most eligible tracts will not become zones.[^1][^15] With 25,332 eligible tracts, the Economic Innovation Group projects about 6,293 designations in the 50 states and D.C., an estimate rather than an official figure.[^16] The process is explained in [how Opportunity Zones are designated](https://ozdatacenters.com/guides/how-opportunity-zones-are-designated), and the status of the new map in [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). **Figure: From census tract to designated zone** - All census tracts (Every populated tract in the 56 jurisdictions) - then: Pass the 70% or 20%/125% test - Low-income communities (25,332 on Treasury's list) - then: Governor selects - Nominated tracts (Up to 25% per state) - then: Treasury certifies - Designated zones (Certified by Treasury) *Each stage narrows the pool. Only the last step makes a tract a zone for January 1, 2027 through December 31, 2036.[^11]* ## How can I tell if a specific tract qualifies? Look up the tract's 11-digit code, check it against Treasury's eligible list, then check the state's nominations and Treasury's certified list. 1. Geocode the address or parcel to its census tract. 2. Look up the tract on the Rev. Proc. 2026-14 eligible list, which also flags wholly rural tracts. 3. If it is not on the list, check whether the state nominated it as an off-list tract with supporting data. 4. Check the governor's nomination list and, once published, Treasury's certified list. 5. Save dated copies for the compliance file. State agencies, such as Ohio's local input process, posted eligible-tract maps for public review during the nomination window.[^10] Tools are compared in [Opportunity Zone maps and data tools](https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools), and the practical lookup is in [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone). More on tract geography is in [census tracts and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-census-tracts). ## What does the low-income test mean for data center sites? Large, sparsely populated tracts with low incomes often qualify, and many of them are rural, which is where large data center campuses tend to go. Data center campuses need hundreds of acres, high-voltage transmission and room for substations. Tracts with that profile are frequently rural or industrial, with low resident populations and below-median family incomes. About a third of Treasury's eligible tracts, 8,334 of 25,332, are wholly rural, and those tracts can support a Qualified Rural Opportunity Fund with a 30% basis step-up.[^11][^17] See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones) and [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). Two cautions. Industrial tracts can have very few residents, which makes ACS estimates noisy, so check the eligible list rather than computing ratios yourself. And because designation is limited to 25% of eligible tracts, a qualifying tract still needs the governor's nomination and Treasury's certification. ## Common questions **What income level makes a census tract low-income for Opportunity Zones?** Median family income at or below 70% of the statewide median for non-metro tracts, or of the greater of the statewide or metro median for metro tracts. Alternatively, a poverty rate of at least 20% with median family income at or below 125% of that median. **Does a tract with high poverty always qualify?** No. A tract with a poverty rate of 20% or more qualifies only if its median family income is no more than 125% of the applicable area median. **Can a tract qualify because it is next to a low-income tract?** No. Contiguous tracts that do not meet the test on their own cannot be designated. **What data does Treasury use?** American Community Survey 5-year estimates at the census tract level. Reports on this cycle point to the 2020 to 2024 estimates released in January 2026, reflected in the Rev. Proc. 2026-14 eligible list. **How many tracts are eligible?** 25,332 on Treasury's list under Rev. Proc. 2026-14, of which 8,334 are wholly rural. **If my tract is eligible, is it an Opportunity Zone?** Not necessarily. Only tracts nominated by the governor and certified by Treasury are zones, and each state may designate only 25% of its eligible tracts, or 25 if greater. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1: Designation" (2026). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: Congress.gov, "Text of H.R. 1, 119th Congress (Public Law 119-21)" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^3]: Jackson Walker, "The One Big Beautiful Bill's New Qualified Opportunity Zones" (2025). https://www.jw.com/news/insights-obbba-qualified-opportunity-zones/ [^4]: Saul Ewing, "Opportunity Zone Regime Permanently Extended With New Benefits, Limitations, and Requirements, With a New Rural Focus" (2025). https://www.saul.com/insights/alert/opportunity-zone-regime-permanently-extended-new-benefits-limitations-and [^5]: Internal Revenue Service (copy posted by the State of Alaska), "Rev. Proc. 2026-14, Internal Revenue Bulletin Part III" (2026). https://aws.state.ak.us/OnlinePublicNotices/Notices/Attachment.aspx?id=161118 [^6]: Venable, "The One Big Beautiful Bill Act: Impact on the Opportunity Zone Program" (2025). https://www.venable.com/insights/publications/2025/09/the-one-big-beautiful-bill-act-impact-on-the [^7]: Economic Innovation Group, "Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^8]: University of Illinois Urbana-Champaign (IECAM), "Geographic Region: Census Tracts" (n.d.). https://iecam.illinois.edu/data-descriptions/geographic-region-census-tracts [^9]: U.S. Department of the Treasury, "Treasury Opens the New Designation Cycle for Opportunity Zones" (2026). https://content.govdelivery.com/accounts/USTREAS/bulletins/41e8950 [^10]: Ohio Township Association, "Opportunity Zones: Local Input Process Opens" (2026). https://www.ohiotownships.org/news/opportunity-zones-20-local-input-process-opens [^11]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^12]: Arizona Commerce Authority, "Opportunity Zone recommendation process" (2026). https://www.azcommerce.com/arizona-opportunity-zones/oz-20-recommendation-process [^13]: KPMG TaxNewsFlash, "Rev. Proc. 2026-14: State procedures for nominating census tracts to be designated as QOZs" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/04/rev-proc-2026-12-state-procedures-nominating-census-tracts-designated-qozs.html [^14]: ArentFox Schiff, "IRS Releases Rev. Proc. 2026-14: New Roadmap for Designations" (2026). https://www.afslaw.com/perspectives/alerts/irs-releases-rev-proc-2026-14-new-roadmap-oz-20-designations [^15]: EY Tax News, "IRS describes requirements for nominating population census tracts as 2027 Qualified Opportunity Zones" (2026). https://taxnews.ey.com/news/2026-0851-irs-describes-requirements-for-nominating-population-census-tracts-as-2027-qualified-opportunity-zones [^16]: Economic Innovation Group, "Data alert: projected Opportunity Zone designations under the new eligibility rules" (2026). https://eig.org/ozs-2-0-data-alert/ [^17]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas --- # Rural Opportunity Zones, explained URL: https://ozdatacenters.com/guides/rural-opportunity-zones Last reviewed: 2026-10-20 A rural Opportunity Zone is a zone made up entirely of rural area, meaning outside any city or town of more than 50,000 people and the urbanized area next to it. Investments made after December 31, 2026 through a Qualified Rural Opportunity Fund, which holds at least 90% of its assets in such zones, get a 30% basis step-up after five years instead of 10%. Property in rural zones also needs only 50% substantial improvement instead of 100%, a rule in effect since July 4, 2025. ## Key takeaways - "Rural area" in §1400Z-2(b)(2)(C)(ii) means any area other than a city or town with more than 50,000 people and any urbanized area contiguous and adjacent to such a city or town. - A Qualified Rural Opportunity Fund (QROF) must hold at least 90% of its assets in QOZ property located in zones composed entirely of rural area. - QROF investors get a 30% basis step-up after five years, so 70% of the deferred gain is taxed; a standard QOF gives 10%, so 90% is taxed. - In a wholly rural zone, property is substantially improved if additions to basis exceed 50% of its adjusted basis within 30 months, instead of 100%. - Treasury's eligible list for zones effective January 1, 2027 includes 8,334 wholly rural tracts out of 25,332; of the 8,764 zones in effect in 2026, the IRS identified 3,309 as wholly rural. ## What is a rural Opportunity Zone? A designated zone that consists entirely of rural area, as the statute now defines it. Public Law 119-21 added a statutory definition of "rural area" to §1400Z-2(b)(2)(C)(ii): any area other than (I) a city or town with a population of more than 50,000 and (II) any urbanized area contiguous and adjacent to such a city or town.[^1][^2] The definition mirrors §343(a)(13)(A) of the Consolidated Farm and Rural Development Act, and Notice 2025-50 adopts it for zones in effect today.[^3][^4] The benefits attach only to zones "composed entirely of a rural area." A tract that is partly inside an urbanized area next to a city of more than 50,000 does not qualify. Treasury's eligible-tract list identifies which candidate tracts are wholly rural, and the IRS identified the wholly rural zones among those already in effect.[^5][^6] **Figure: Rural tracts by the numbers** - 3,309: Wholly rural zones among the 8,764 in effect in 2026 - 8,334: Wholly rural tracts eligible for the 2027 map - 25,332: All eligible tracts for the 2027 map - 50,000: Population above which a city or town is not rural *IRS counts for zones in effect in 2026[^6] and for tracts eligible for the 2027 map under Rev. Proc. 2026-14.[^5]* ## What extra tax benefits do rural Opportunity Zones get? Two: a 30% basis step-up for investments through a Qualified Rural Opportunity Fund, and a 50% substantial improvement threshold for rural property. **Rural versus standard Opportunity Zone rules** | Rule | Standard QOF and zone | Rural (QROF or wholly rural zone) | Applies from | | --- | --- | --- | --- | | Basis step-up after 5 years | 10% of deferred gain | 30% of deferred gain (QROF) | Investments after December 31, 2026 | | Share of deferred gain taxed at year 5 | 90% | 70% | Investments after December 31, 2026 | | Substantial improvement threshold | More than 100% of adjusted basis in 30 months | More than 50% of adjusted basis in 30 months | Since July 4, 2025 | | Fund asset test | 90% in QOZ property | 90% in QOZ property in wholly rural zones | Investments after December 31, 2026 | | 10-year exclusion and 30-year limit | Same | Same | Investments after December 31, 2026 | Practitioner summaries of the law describe the same package.[^7][^8][^9] For the general step-up and deferral rules, see [the basis step-up: 10% and 30%](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up) and [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ## What is a Qualified Rural Opportunity Fund? A QOF that holds at least 90% of its assets in qualified opportunity zone property located in zones made up entirely of rural area. The QROF test applies at the fund level, on top of the ordinary 90% asset test.[^10][^7] A fund that holds one urban project alongside rural ones can fall below the 90% rural threshold and lose the 30% step-up, even though it remains a QOF. Sponsors who want the rural benefit usually keep rural funds separate. Annual reporting under §6039K applies to QROFs as well as QOFs.[^11] The full definition is in [what a Qualified Rural Opportunity Fund is](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). **Figure: Year-5 tax on $1,000,000 of deferred gain in a QROF** (illustrative) - Tax on $1,000,000 at 23.8% with no step-up: 238000 $ - Saved by the first 10% of step-up (standard QOF): -23800 $ - Saved by the extra 20% for a QROF: -47600 $ - QROF tax due at year 5: $166,600 on $700,000: 166600 $ *Illustrative only. Assumes a $1,000,000 gain invested in a QROF in 2027, held five years, value at least equal to the deferred gain, a 23.8% federal rate (20% plus 3.8% net investment income tax) and no state tax.* In the same facts, a standard QOF would tax $900,000, for $214,200 of tax. The QROF saves $47,600 on the deferred gain, before any growth. Gains on the QOF investment itself can still be excluded after a 10-year hold in either case. Some mechanics are still open. Treasury has not issued regulations on how a fund demonstrates QROF status on each testing date or what happens if a QROF dips below the rural 90% threshold in one year. Notice 2026-55 asks for comments on a range of §1400Z-2 issues, with comments due November 23, 2026, and further guidance may follow.[^16] Until then, sponsors should test the rural share on the same semiannual dates as the ordinary 90% test and keep a margin above 90%. ## How does the 50% substantial improvement rule work in rural zones? Within any 30-month period after purchase, the business must add to the property's basis more than 50% of its adjusted basis at the start of that period, instead of more than 100%. The rule took effect on enactment, July 4, 2025, and Notice 2025-50 applies it to zones in effect today that are made up entirely of rural area.[^3][^12] Land is excluded from the calculation, as it is in all zones. Commentators note the change roughly halves the capital needed to redevelop an existing rural building.[^13] **Figure: Improvement spending needed for a $2 million building** (illustrative) - Standard zone: more than 100% of building basis: Over $2.0M - Wholly rural zone: more than 50% of building basis: Over $1.0M *Illustrative only. A $3 million purchase with $1 million allocated to land and $2 million to the building; the threshold is measured on the building's basis.* The test and its aggregation rules are in [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## How do I know if a zone is wholly rural? Check Treasury's eligible list, which flags wholly rural tracts, and confirm the tract is designated once Treasury certifies the new map. 1. Find the property's 11-digit census tract. 2. Check the Rev. Proc. 2026-14 list, which identifies the 8,334 eligible tracts made up entirely of rural area.[^5] 3. Confirm that the tract is on Treasury's certified list of zones effective January 1, 2027. 4. For a zone in effect today, check the IRS list of wholly rural zones issued with Notice 2025-50.[^6] 5. Document the determination for the fund's QROF and substantial improvement files. There is no rural nomination quota in the statute; how many rural zones each state has depends on the governor's choices.[^14] Status of the new map is in [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## Are rural Opportunity Zones good for data centers? Often, yes: rural tracts offer land and access to transmission, and the 30% step-up and 50% improvement rule improve the economics, but fiber, water and workforce need early diligence. Data center demand is driving large new loads. U.S. data centers used about 176 TWh in 2023, about 4.4% of U.S. electricity, and LBNL projected 325 to 580 TWh by 2028.[^15] Campuses of that scale need hundreds of acres near high-voltage lines, which points to rural tracts. A QROF that develops a new campus in a wholly rural zone can offer investors the 30% step-up, and a QOZB that acquires an existing rural industrial building for conversion needs to add only more than 50% of the building's basis. **Figure: Rural data center site screen** - [pass] Tract wholly rural and certified for 2027: Required for QROF and 50% rule - [watch] Transmission capacity and interconnection path: Often the longest lead item - [watch] Long-haul fiber within reach: Lateral builds add cost and time - [watch] Water or dry-cooling plan: Local supply and permits - [pass] Fund keeps 90% of assets in rural zones: Do not mix urban projects into a QROF - [pass] Hold period of 10 years or more: Matches long-lived shell and power infrastructure *Rural tax benefits are real, but the site must still work as a data center. Items marked watch need early diligence.[^5][^9]* See [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones), [fiber for rural data centers](https://ozdatacenters.com/guides/fiber-connectivity-rural-opportunity-zone-data-centers) and [power interconnection](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## Common questions **What counts as rural for Opportunity Zones?** Any area other than a city or town with more than 50,000 people and any urbanized area contiguous and adjacent to such a city or town. The zone must be made up entirely of rural area for the rural benefits to apply. **What is the rural Opportunity Zone step-up?** Investments made after December 31, 2026 through a Qualified Rural Opportunity Fund get a 30% basis step-up after five years, so only 70% of the deferred gain is taxed. A standard QOF gets 10%. **Does the 50% substantial improvement rule apply now?** Yes. It has applied since July 4, 2025 to property in zones made up entirely of rural area, including zones in effect today under Notice 2025-50. **Can a fund invest in both rural and urban zones and still be a QROF?** Only if at least 90% of its assets are QOZ property in wholly rural zones. Below that, it may still be a QOF but loses the 30% step-up. **How many rural Opportunity Zones will there be in 2027?** Not known until Treasury certifies the new map. The eligible list includes 8,334 wholly rural tracts out of 25,332, and governors choose which to nominate. **Is there a rural quota for Opportunity Zone nominations?** No. The statute does not require a share of rural nominations. The rural incentive works through the 30% step-up and the 50% improvement threshold. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: IPA, "IRS Clarifies Rural Areas Definition for Opportunity Zones" (2025). https://www.ipa.com/articles/irs-clarifies-rural-areas-definition-for-opportunity-zones [^3]: Internal Revenue Service, "Notice 2025-50" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^4]: EY Tax News, "IRS clarifies rural areas and substantial improvement for purposes of current Opportunity Zones" (2025). https://taxnews.ey.com/news/2025-2020-irs-clarifies-rural-areas-and-substantial-improvement-for-purposes-of-current-opportunity-zones [^5]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^6]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^7]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^8]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^9]: Venable, "The One Big Beautiful Bill Act: Impact on the Opportunity Zone Program" (2025). https://www.venable.com/insights/publications/2025/09/the-one-big-beautiful-bill-act-impact-on-the [^10]: Willkie Farr & Gallagher, "One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones" (2025). https://www.willkie.com/publications/2025/07/one-big-beautiful-bill-act-extends-tax-incentives-for-qualified-opportunity-zones [^11]: Current Federal Tax Developments, "Treasury Proposes Comprehensive QOZ Information Reporting and QOF Certification Regulations" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/10/treasury-proposes-comprehensive-qualified-opportunity-zone-information-reporting-and-qof-certification-regulations-a-technical-analysis-for-tax-practitioners [^12]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^13]: Aldrich Advisors, "IRS Guidance Lowers Investment Threshold for Rural Opportunity Zones" (2025). https://aldrichadvisors.com/insights/real-estate/irs-guidance-lower-investment-rural-oz/ [^14]: Economic Innovation Group, "Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^15]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^16]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf --- # What is a Qualified Rural Opportunity Fund (QROF)? URL: https://ozdatacenters.com/guides/qualified-rural-opportunity-fund Last reviewed: 2026-10-20 A Qualified Rural Opportunity Fund (QROF) is a Qualified Opportunity Fund that holds at least 90% of its assets in Opportunity Zone property located in zones made up entirely of rural area. Investors in a QROF who hold for five years get a 30% basis step-up on their deferred gain, three times the 10% step-up for a standard fund, so only 70% of the deferred gain is taxed. The enhanced step-up applies to gains invested on or after January 1, 2027. ## Key takeaways - A QROF must hold at least 90% of its assets in qualified opportunity zone property located in zones composed entirely of rural area, tested at the fund level. - QROF investors who hold five years increase basis by 30% of the deferred gain, so 70% of the gain is taxed, compared with 90% for a standard QOF. - A rural area is anywhere other than a city or town of more than 50,000 people and the urbanized area contiguous and adjacent to such a city or town. - Property in a wholly rural zone is substantially improved when additions to basis exceed 50% of the building's adjusted basis within 30 months, half the usual 100% threshold. - Rev. Proc. 2026-14 lists 25,332 tracts eligible for the new map, of which 8,334 are wholly rural; final designations take effect January 1, 2027. - The 10-year exclusion of appreciation works the same way for a QROF as for any QOF, capped at fair market value on the 30th anniversary. ## What is a Qualified Rural Opportunity Fund? A Qualified Rural Opportunity Fund is a Qualified Opportunity Fund that keeps at least 90% of its assets in property located in Opportunity Zones made up entirely of rural area.[^1] A Qualified Opportunity Fund (QOF) is a corporation or partnership organized to invest in Opportunity Zone property that self-certifies on IRS Form 8996. A QROF is not a separate kind of entity. It is a QOF whose portfolio clears an extra geographic test. The QROF category was added to IRC §1400Z-2 by Public Law 119-21 (the One Big Beautiful Bill Act), signed July 4, 2025.[^1][^5] Its main benefit is a larger basis step-up for investors: 30% of the deferred gain after five years, rather than 10%.[^5][^6] That step-up applies to amounts invested in a QOF on or after January 1, 2027. Two definitions drive the whole regime. The first is the zone: a qualified opportunity zone composed entirely of rural area. The second is the fund-level 90% test, which is the same percentage that applies to every QOF under the [QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test), except that for a QROF the qualifying property must sit in wholly rural zones.[^2] **Figure: Standard QOF vs. Qualified Rural Opportunity Fund** - Standard QOF - 90% of assets in QOZ property in any designated zone - 10% basis step-up after 5 years - 90% of deferred gain taxed at year 5 - Same 10-year exclusion and 30-year cap - 50% improvement rule only for property in wholly rural zones - Qualified Rural Opportunity Fund (Rural) - 90% of assets in QOZ property in wholly rural zones - 30% basis step-up after 5 years - 70% of deferred gain taxed at year 5 - Same 10-year exclusion and 30-year cap - 50% improvement rule applies to its rural buildings *The two fund types share the same operating rules. The differences are the location test and the size of the five-year step-up.[^1][^5]* ## What counts as a rural area for a QROF? A rural area is any area other than a city or town with a population greater than 50,000 and any urbanized area contiguous and adjacent to such a city or town.[^1][^10] The definition is in §1400Z-2(b)(2)(C)(ii), added by §70421(c)(2) of the Act, and it mirrors the definition in the Consolidated Farm and Rural Development Act, 7 U.S.C. 1991(a)(13)(A).[^10] The IRS adopted the same definition in Notice 2025-50 (September 30, 2025) and identified 3,309 of the 8,764 zones on the current map as composed entirely of rural area.[^2][^3] For the new map that takes effect January 1, 2027, Treasury's eligible-tract list in Rev. Proc. 2026-14 contains 25,332 low-income community tracts, 8,334 of them wholly rural.[^4] **Rural tract counts published by the IRS** | Measure | Total tracts | Wholly rural | Source | | --- | --- | --- | --- | | Zones on the current map (Notice 2025-50) | 8,764 | 3,309 | IRS | | Tracts eligible for nomination to the new map (Rev. Proc. 2026-14) | 25,332 | 8,334 | IRS | | Designated zones taking effect Jan. 1, 2027 | Pending certification | Pending | Treasury | The word that matters is entirely. A zone that is mostly rural but includes part of an urbanized area next to a city of more than 50,000 does not qualify. Governors choose which eligible tracts become zones (see [how governors choose Opportunity Zones](https://ozdatacenters.com/guides/how-governors-choose-opportunity-zones)), and the rural status of each designated tract should be confirmed against the IRS list once Treasury certifies the new map.[^4][^14] > The statute contains no rural nomination quota. The rural incentive works through the QROF step-up and the 50% improvement rule rather than a mandate on governors.[^14] ## How much more does a QROF save than a standard Opportunity Fund? A QROF investor who holds five years pays tax on 70% of the deferred gain, compared with 90% for a standard QOF, a difference of 20 percentage points of the gain.[^5][^6] The other benefits are identical: deferral until the earlier of a sale or five years after the investment date, and the option after 10 years to step basis up to fair market value so appreciation is excluded, with basis fixed at fair market value on the 30th anniversary for any later sale.[^1][^5] Illustrative example. Assume an investor sells stock and realizes a $1,000,000 long-term capital gain, invests the full amount in a QROF within 180 days in 2027, and holds for more than five years. Assume a 20% federal long-term capital gains rate plus the 3.8% net investment income tax (23.8% combined) and no state tax. **Figure: Taxable deferred gain at year 5 in a QROF** (illustrative) - Deferred gain: 1000000 $ - 10% step-up any QOF earns at year 5: -100000 $ - Extra 20% for a QROF: -200000 $ - Gain taxed at year 5: 700000 $ *Illustrative. A $1,000,000 deferred gain, a 30% step-up after five years and an investment worth at least the deferred gain at the inclusion date. A standard QOF would leave $900,000 taxable.* **Illustrative five-year tax on a $1,000,000 deferred gain (23.8% rate)** | Item | Standard QOF | QROF | | --- | --- | --- | | Basis step-up at year 5 | $100,000 (10%) | $300,000 (30%) | | Gain included at year 5 | $900,000 | $700,000 | | Federal tax at 23.8% | $214,200 | $166,600 | | Tax saved by the step-up | $23,800 | $71,400 | The QROF step-up saves $47,600 more than a standard fund in this example. That is a one-time benefit on the deferred gain. For most long-term investors the larger prize is still the 10-year exclusion of appreciation, which applies equally to both fund types. See the [Opportunity Zone basis step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up) and the [10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) for the mechanics. One limit applies to both funds: the amount included at year 5 is measured against the lesser of the deferred gain or the fair market value of the QOF investment at that date.[^1] If the investment has lost value, less gain is taxed. ## What is the 50% substantial improvement rule for rural property? For property in a zone composed entirely of rural area, a purchased used building is substantially improved when additions to its basis during any 30-month period exceed 50% of its adjusted basis at the start of that period, instead of the usual 100%.[^2][^3] This rule has applied to determinations made after July 4, 2025, the date of enactment.[^3] The rule is tied to the property's location, not to the fund's status. A standard QOF that owns a building in a wholly rural zone also gets the 50% threshold. A QROF simply holds mostly such property, so its buildings will generally benefit. Land is still excluded from the test, so only the basis allocated to the building sets the hurdle. Practical effect: if a rural building's basis is $1,500,000, the improvement spend required within 30 months falls from more than $1,500,000 to more than $750,000.[^13] For an existing industrial building converted to a data center, where power, cooling and structural work are costly, that lower hurdle is usually easy to clear. See [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement) for the full rule.[^8] **Figure: Substantial improvement thresholds by zone type** - Building in a wholly rural zone: more than 50% (Since July 4, 2025) - Building in any other zone: more than 100% (Standard rule) *Additions to the building's basis within 30 months must exceed the share shown of its adjusted basis at the start of the period. Land is excluded.[^3]* ## How does a fund qualify and stay qualified as a QROF? A fund qualifies as a QROF by meeting the 90% rural asset test on its testing dates, using the same semiannual testing framework that applies to every QOF.[^1] In practice that means the fund, and any Qualified Opportunity Zone Business (QOZB) it invests through, must own or lease property that is both qualified opportunity zone business property and located in wholly rural zones. - Choose zones carefully. Every material asset must sit in a tract listed as composed entirely of rural area. One large asset in a mixed or urban tract can break the 90% rural test. - Track the rural percentage separately from the ordinary 90% test. A fund can pass the ordinary test and still fail the rural one. - Hold cash within the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) at the QOZB level, where it is treated as qualifying while it is deployed on a written plan. - Watch the new reporting regime. Proposed regulations under §6039K (September 11, 2026) would require census-tract-level reporting on Form 8996, which is where a fund's rural footprint becomes visible to the IRS. > Pending guidance. As of October 20, 2026, Treasury had not issued final regulations dealing specifically with QROF mechanics, such as how QROF status is reported and what follows if a fund meets the ordinary 90% test but falls short of the rural one. Notice 2026-55 invited comments on several §1400Z-2 issues through November 23, 2026. Confirm current treatment with your tax adviser before relying on the 30% step-up. ## Why do QROFs matter for data centers? Large data centers need what many rural tracts have: land, proximity to high-voltage transmission or generation, and room to phase a campus over years. Law and accounting firm commentary since 2025 has pointed to the QROF step-up and the 50% improvement rule as reasons rural data center sites may become more attractive.[^7][^9] Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today.[^12] Because the step-up rewards investors with capital gains, the benefit is most relevant to independent developers and investor-funded projects, not hyperscalers building on their own balance sheets. Policy risk is real. 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, and a House bill would bar data centers from several expanded incentives.[^11] These are proposals, not law. They had not been enacted as of October 20, 2026. For the full picture, see [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones) and [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## What should an investor check before choosing a QROF? Check that the fund's assets will actually stay in wholly rural zones, that the project can deploy capital on schedule, and that the economics work without the step-up. **Figure: QROF diligence checklist** - [pass] Every site in a tract composed entirely of rural area: Confirm against the IRS list for the zone's designation period. - [watch] Site designated on the map in effect at investment: New zones take effect Jan. 1, 2027; certifications are still arriving. - [pass] Rural 90% test modeled on each testing date: Includes cash, leased property and any non-rural assets. - [watch] Power and permits fit a 31-month spending plan: Utility delays are not clearly covered by safe harbor tolling. - [watch] QOZB is an active business, not a bare triple-net landlord: Single-tenant NNN leases are the main structural risk. - [pass] Returns work without the 20-point step-up difference: The step-up is a one-time benefit; appreciation drives value. *Example statuses for a hypothetical rural data center QROF. The 30% step-up only matters if every row holds for five years.* For the wider set of questions, use the [Opportunity Zone fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and the guide to [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## Common questions **Is a QROF a different legal entity from a QOF?** No. A QROF is a Qualified Opportunity Fund, a corporation or partnership that self-certifies on Form 8996, whose assets meet an additional test: at least 90% in qualified opportunity zone property located in zones composed entirely of rural area. **When does the 30% step-up start?** It applies to amounts invested in a QOF on or after January 1, 2027, and it is earned when the investment has been held for at least five years. An investment made in March 2027 would reach the step-up in March 2032. **Can a standard QOF use the 50% rural substantial improvement rule?** Yes. The 50% threshold depends on whether the property is in a zone composed entirely of rural area, not on whether the fund is a QROF. It has applied to determinations made after July 4, 2025. **What is the population cutoff for a rural area?** A rural area excludes any city or town with more than 50,000 people and any urbanized area contiguous and adjacent to such a city or town. Everything else is rural for these purposes. **Does a QROF get a better 10-year benefit?** No. After 10 years, investors in either fund type can elect to step basis up to fair market value on a sale, which excludes appreciation. Appreciation after the 30th anniversary is taxable in both cases. **Are data centers allowed in a QROF?** Yes, under current law. Data centers are not on the excluded business list. Bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits, but they are proposals and had not been enacted as of October 20, 2026. ## Sources [^1]: U.S. Government Publishing Office, "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (2025). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^3]: Internal Revenue Service, "Notice 2025-50" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^4]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^5]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^6]: Willkie Farr & Gallagher, "One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones" (2025). https://www.willkie.com/publications/2025/07/one-big-beautiful-bill-act-extends-tax-incentives-for-qualified-opportunity-zones [^7]: Pillsbury Winthrop Shaw Pittman, "Qualified Rural Opportunity Funds Are Set to Boost U.S. Heartland" (2025). https://www.pillsburylaw.com/en/news-and-insights/qualified-rural-opportunity-funds-boost-us-heartland.html [^8]: Husch Blackwell, "What the New 50% Substantial Improvement Rule Means for Real Estate Investors in Rural Opportunity Zones" (2025). https://www.huschblackwell.com/newsandinsights/unlocking-opportunity-what-the-new-50-substantial-improvement-rule-means-for-real-estate-investors-in-rural-opportunity-zones [^9]: Forvis Mazars, "Data Centers, Rural Opportunity Zones, and Clean Energy" (2026). https://www.forvismazars.us/forsights/2026/04/data-centers-rural-opportunity-zones-clean-energy [^10]: IPA, "IRS Clarifies Rural Areas Definition for Opportunity Zones" (2025). https://www.ipa.com/articles/irs-clarifies-rural-areas-definition-for-opportunity-zones [^11]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^12]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^13]: Aldrich Advisors, "IRS Guidance Lowers Investment Threshold for Rural Opportunity Zones" (2025). https://aldrichadvisors.com/insights/real-estate/irs-guidance-lower-investment-rural-oz/ [^14]: Economic Innovation Group, "Opportunity Zones 2.0: Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ --- # How to check if a property is in an Opportunity Zone URL: https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone Last reviewed: 2026-10-20 To check whether a property is in an Opportunity Zone, find its 11-digit census tract number (for example with the free Census Geocoder) and match that number against the official list of designated tracts, which the CDFI Fund's CIMS map displays. Check the right map: the new zones take effect January 1, 2027, and as of October 20, 2026 Treasury had not yet published a consolidated list of them. ## Key takeaways - Opportunity Zones are designated census tracts, so the test is whether the property's 11-digit tract GEOID is on the designated list. - The Census Geocoder returns the tract for a street address and handles batches of up to 10,000 addresses. - The CDFI Fund's CIMS mapping tool shows designated zones; its downloadable spreadsheet is a convenience copy, and the official lists are published by the IRS. - New zones take effect January 1, 2027 and run through December 31, 2036; as of October 20, 2026 certification was still under way state by state. - Under Notice 2026-40, property acquired after 2026 in a tract that is not on the new map generally does not count as qualified property, with narrow exceptions. - Being in a zone is necessary but not sufficient: the fund and business tests, original use or substantial improvement, and purchase rules still apply. ## How do you check if a property is in an Opportunity Zone? You check by finding the census tract that contains the property and confirming that tract is on Treasury's list of designated Qualified Opportunity Zones.[^1][^2] An Opportunity Zone is a population census tract that a governor nominated and Treasury certified, so the tract number is the only thing that matters. ZIP codes, city limits and county names do not decide it. **Figure: Four steps to confirm a property's zone status** 1. Get the exact location: Street address, or parcel boundary for land 2. Find the census tract: 11-digit GEOID from the Census Geocoder 3. Match the official list: CDFI CIMS map or IRS-published list 4. Check the date: Is the tract designated when you invest and buy? *The tract GEOID is the key that links an address to the official list. Use the same tract vintage throughout.[^3][^2]* For a single building this takes a few minutes. For a large land assemblage or a data center campus, it takes a GIS overlay of the parcel boundaries on tract boundaries, because a site can cross a tract line. ## How do I find the census tract for an address? Use the U.S. Census Bureau's free Census Geocoder: choose Find Geographies, search by address, and read the census tract from the results.[^3][^4] The results list the state, county, tract and block, along with other geographies such as congressional district. - The full tract identifier (GEOID) is 11 digits: a 2-digit state code, a 3-digit county code and a 6-digit tract code.[^4] - Batch mode accepts a CSV of up to 10,000 addresses, with no header row, and returns state, county and tract codes for each.[^4] - Set the geography vintage to match the list you are checking. Tract boundaries are redrawn at each decennial census, so the same address can carry different tract numbers in different vintages. - If the Geocoder cannot match a rural address, drop a pin on a map tool or use parcel coordinates instead of the street address. **Reading an 11-digit tract GEOID (illustrative number)** | Part | Digits | Example | Meaning | | --- | --- | --- | --- | | State FIPS code | 2 | 48 | Texas | | County FIPS code | 3 | 201 | A county within the state | | Tract code | 6 | 311500 | Tract 3115.00 within that county | | Full GEOID | 11 | 48201311500 | What you match to the zone list | For more on how tracts work, see [census tracts and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-census-tracts). ## Where is the official list of Opportunity Zones? The CDFI Fund's CIMS mapping tool is the standard public map of designated zones, and the CDFI Fund also posts a spreadsheet and GIS shapefile of designated tracts.[^1][^2] The CDFI Fund describes its spreadsheet as a convenience copy. The official designations are the lists the IRS publishes.[^1] Third-party maps, such as the Novogradac mapping tool, add useful overlays (likely-eligible tracts for the new map, rural flags and investment data), but they are not official.[^12] Use them to screen, then confirm against the government source. Our guide to [Opportunity Zone maps and data tools](https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools) compares the main options. > Keep a record. Save the Geocoder output and a dated screenshot or export from CIMS for the file. Proposed reporting regulations published September 11, 2026 would require census-tract-level reporting on Form 8996, so the tract number for each property will end up on the fund's return. ## Which Opportunity Zone map applies, today's or the 2027 map? For new investments, the map that matters is the one that takes effect January 1, 2027 and runs through December 31, 2036.[^5][^6] Governors had 90 days from July 1, 2026 to nominate tracts, with a single 30-day extension to about October 28, 2026, and Treasury then certifies the nominations.[^5][^8] As of October 20, 2026 there was no consolidated national list of the new zones. Some states filed early in the window and others used the extension.[^8] Some states have published their nominations, including a 605-tract list in Texas and 99 tracts announced by Washington's governor on October 8, 2026.[^9][^10] The Idaho Business Review reported on October 2, 2026 that Treasury had certified Idaho's 25 tracts.[^11] **Figure: Dates that decide which map to check** - Jul 1, 2026: Nomination window opens (90 days for governors) - Sep 28, 2026: Base deadline (Single 30-day extension available) - About Oct 28, 2026: Extended deadline (One 30-day extension) - Late Nov to Dec 2026: Treasury certification (30 days, plus a possible 30-day extension) - Jan 1, 2027: New zones take effect (Through Dec. 31, 2036) *Nominated is not designated. Until Treasury certifies a state's list, a tract on a governor's nomination list is only a candidate.[^5][^8]* If a tract is on today's map but not on the new one, be careful. Notice 2026-40 says property acquired after 2026 in a zone that is not redesignated generally does not qualify as qualified opportunity zone business property.[^6][^7] The exceptions are narrow, such as a working capital plan adopted before December 31, 2026 with at least 10% of the working capital received and 5% spent by that date.[^7] Today's zones generally expire December 31, 2028 (December 31, 2027 in Puerto Rico).[^7] For a new 2027 project, treat a tract as usable only when it appears on the certified new list. See [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## What if a property straddles a zone boundary? A property that crosses a tract line needs a parcel-level analysis, because only the part inside a designated tract is in the zone. Download tract boundaries (TIGER/Line shapefiles) and overlay them on the county's parcel layer to see how much of the site, by area and by expected cost, falls inside. The Treasury regulations in 26 CFR 1.1400Z2(d)-1 and related sections address real property that straddles a zone boundary and, in some cases, allow a straddling parcel to be treated as located in the zone.[^13] The conditions are technical, so apply the rule with counsel before you close on a site. For a phased campus, the cleanest answer is a site that sits wholly inside one or more designated tracts. Mobile and movable assets have their own test. The IRS FAQ explains that tangible property used in a zone on at least 70% of days counts as used substantially in the zone.[^14] That rarely matters for buildings but can matter for construction equipment or mobile generation. ## How do I check if a zone is wholly rural? Check the IRS list of zones composed entirely of rural area: Notice 2025-50 identified 3,309 of the 8,764 zones on the current map, and Rev. Proc. 2026-14 flagged 8,334 of the 25,332 tracts eligible for the new map.[^15][^5] Rural status matters for two benefits: the 50% substantial improvement threshold for property in such zones and the 30% step-up for a [Qualified Rural Opportunity Fund](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). A rural area is anywhere other than a city or town of more than 50,000 people and the urbanized area next to it. A tract has to be entirely rural. Partly rural is not enough. ## Does being in an Opportunity Zone make my property qualify for the tax benefits? No. Location is the first test, not the only one. The tax benefits go to investors who put eligible capital gains into a Qualified Opportunity Fund within 180 days, and the fund or its operating business must then meet the asset, income and property rules. - The property must be acquired by purchase from an unrelated party, or leased on market terms. - It must meet the [original use requirement](https://ozdatacenters.com/guides/opportunity-zone-original-use) (new construction, or a building vacant at least three years) or be [substantially improved](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement) within 30 months. - The fund must pass the 90% asset test, and a subsidiary business must pass the 70% tangible property test and the 50% gross income test. - Selling land that sits in a zone gives the seller no Opportunity Zone benefit by itself. The benefit belongs to the buyer's investors. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). **Figure: Site check for a hypothetical data center parcel** - [pass] Tract GEOID found and saved: Geocoder output and parcel overlay in the file. - [pass] Tract on today's map: Relevant only for investments made before 2027. - [watch] Tract on the certified 2027 list: State nominated it; certification pending. - [watch] Entire parcel inside the tract: Northern edge crosses a tract line. - [pass] Wholly rural zone: Qualifies for the 50% improvement rule. - [pass] Seller is unrelated to the buyer: Required for purchased property. *Example statuses. A site can pass the location test and still face timing and structuring questions that decide whether the investment qualifies.* For data center sites, add power, fiber and permitting checks to the zone check. See [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## Common questions **Can I check Opportunity Zone status by ZIP code?** No. ZIP codes do not line up with census tracts, and a single ZIP code can contain both designated and non-designated tracts. Always use the property's 11-digit census tract number. **Is the CDFI Fund map official?** The CDFI Fund's CIMS map and data files are the standard government tools for viewing zones, but the CDFI Fund calls its spreadsheet a convenience copy. The official designations are the lists published by the IRS. **When will the 2027 zone list be final?** Treasury certifies each state's nominations within 30 days of receiving them, with a possible 30-day extension. With the extended nomination deadline of about October 28, 2026, certifications were expected between late November and late December 2026. The new zones take effect January 1, 2027. **My property is in a zone today but not on my state's new nomination list. What happens?** Under Notice 2026-40, property acquired after 2026 in a zone that is not redesignated generally will not count as qualified property, with narrow exceptions for working capital plans started before December 31, 2026. Today's zones generally expire December 31, 2028 (December 31, 2027 in Puerto Rico). **How many addresses can the Census Geocoder check at once?** Batch mode accepts up to 10,000 addresses in a CSV file without a header row. It returns state, county and tract codes for each matched address. **Does a property need to be entirely inside a zone?** Ideally, yes. The regulations address real property that crosses a zone boundary and in some cases treat it as located in the zone, but the conditions are technical. Apply the rule with counsel before buying a site that crosses a tract line. ## Sources [^1]: CDFI Fund, U.S. Department of the Treasury, "Opportunity Zones Resources" (n.d.). https://www.cdfifund.gov/opportunity-zones [^2]: CDFI Fund, U.S. Department of the Treasury, "CIMS Mapping Tool" (n.d.). https://www.cdfifund.gov/cims [^3]: U.S. Census Bureau, "How do I search by address using the Census Geocoder?" (n.d.). https://www.census.gov/data/what-is-data-census-gov/guidance-for-data-users/frequently-asked-questions/how-do-i-search-by-address-using-the-census-geocoder.html [^4]: Federal Communications Commission, "How to Use the Census Geocoder" (n.d.). https://help.bdc.fcc.gov/hc/en-us/articles/5341095744283-How-to-Use-the-Census-Geocoder [^5]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Cherry Bekaert, "IRS Notice 2026-40: New Opportunity Zone Rules" (2026). https://www.cbh.com/insights/articles/irs-notice-2026-40-new-opportunity-zone-rules/ [^8]: KPMG TaxNewsFlash, "Treasury opens new QOZ designation cycle" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/07/treasury-new-qoz-designation-cycle.html [^9]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (n.d.). https://gov.texas.gov/business/page/opportunity-zones [^10]: Washington Governor's Office, "Governor Ferguson selects 99 Opportunity Zones to encourage private investment" (2026). https://governor.wa.gov/news/2026/governor-ferguson-selects-99-opportunity-zones-encourage-private-investment [^11]: Idaho Business Review, "US Treasury approves Idaho Opportunity Zone 2.0 nominations" (2026). https://idahobusinessreview.com/2026/10/02/us-treasury-approves-idaho-opportunity-zone-2-nominations/ [^12]: Novogradac, "Novogradac Opportunity Zones 2.0 Mapping Tool" (2026). https://novoco.com/resource-centers/opportunity-zones-resource-center/novogradac-opportunity-zones-20-mapping-tool [^13]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^14]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^15]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas --- # Census tracts and Opportunity Zones URL: https://ozdatacenters.com/guides/opportunity-zone-census-tracts Last reviewed: 2026-10-20 Every Opportunity Zone is a population census tract, a small statistical area of a county that typically holds about 1,200 to 8,000 people. A tract is eligible if it is a low-income community: median family income no more than 70% of the area median, or a poverty rate of at least 20% with median family income no more than 125% of the area median. Treasury lists 25,332 eligible tracts for the zones that take effect January 1, 2027, and each governor may designate up to 25% of them. ## Key takeaways - Opportunity Zones are designated at the census tract level under IRC §1400Z-1; nothing smaller or larger can be designated. - A census tract is a statistical subdivision of a county, usually about 1,200 to 8,000 residents, with an optimum near 4,000. - A tract is a low-income community if its median family income is at most 70% of the area median, or its poverty rate is at least 20% and its median family income is at most 125% of the area median. - Rev. Proc. 2026-14 lists 25,332 eligible tracts, 8,334 of them wholly rural, using 2020 to 2024 American Community Survey data. - Governors may designate the greater of 25% of eligible tracts or 25 tracts, and neighboring non-qualifying tracts cannot be designated. ## What is a census tract? A census tract is a small, relatively permanent statistical subdivision of a county that the U.S. Census Bureau uses to report data. Tracts typically contain about 1,200 to 8,000 people, with an optimum size around 4,000.[^3] They nest inside counties, often follow visible features such as roads and rivers, and are split or merged at each decennial census as population changes.[^3] Because tracts are defined by population, their land area varies enormously. An urban tract can be a few city blocks. A rural tract can cover hundreds of square miles. That difference matters for Opportunity Zones, because the whole tract carries the designation. **Figure: Where census tracts sit in the Census geography** 1. State: 2-digit FIPS code 2. County: 3-digit FIPS code within the state 3. Census tract: 6-digit code; the unit designated as an Opportunity Zone 4. Block group: Subdivision of a tract 5. Census block: Smallest unit *Opportunity Zones are designated at the tract layer. Tract GEOIDs combine the state, county and tract codes.[^2][^3]* ## Why are Opportunity Zones designated by census tract? The statute requires it. IRC §1400Z-1 defines a qualified opportunity zone as a population census tract that is a low-income community and that has been nominated by the state's chief executive and certified by Treasury.[^1] Using tracts lets Treasury apply one uniform, published dataset, the American Community Survey (ACS), to every state. The ACS is the Census Bureau's ongoing survey of income, poverty and housing. Its five-year estimates are the only ACS product published for every tract, which is why eligibility is measured on a five-year window. For the zones taking effect January 1, 2027, eligibility uses the 2020 to 2024 ACS five-year estimates, released January 29, 2026.[^9] ## Which census tracts qualify as Opportunity Zones? A tract qualifies if it is a low-income community under one of two prongs: an income prong or a poverty prong.[^1][^4] - Income prong: the tract's median family income (MFI) is no more than 70% of the applicable area median. For a tract outside a metropolitan area, that is the statewide MFI. For a metro tract, it is the greater of the statewide or metro-area MFI.[^4][^6] - Poverty prong: the tract's poverty rate is at least 20% and its MFI is no more than 125% of the applicable area median.[^4][^6] **Figure: Low-income community tests for a census tract** - Income prong: tract MFI vs. area MFI: no more than 70% - Poverty prong: tract poverty rate: at least 20% (And tract MFI no more than 125% of area MFI) *A tract qualifies by passing the income prong alone, or by passing both parts of the poverty prong. The 125% ceiling limits only the poverty prong.[^4][^6]* > Some summaries describe the 125% figure as a blanket exclusion of higher-income tracts. Read against the statute, it caps only the poverty prong. A tract that meets the 70% income prong qualifies whatever its poverty rate. Two other rules shape the list. A tract that does not qualify on its own data cannot be designated just because it borders a low-income tract; the rules have no contiguous-tract option.[^4] And a governor may nominate a tract missing from Treasury's list only by supplying tract-level data showing it meets the definition, under Rev. Proc. 2026-14 §5.04.[^6] For a longer treatment of the tests, see [which census tracts qualify as Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-low-income-community-test). ## How many census tracts are eligible to become Opportunity Zones? Treasury's list in Rev. Proc. 2026-14 contains 25,332 eligible low-income community tracts, of which 8,334 are wholly rural.[^5] **Figure: Census tracts and the 2027 Opportunity Zone map** - 25,332: Eligible tracts on Treasury's list - 8,334: Eligible tracts that are wholly rural - 25%: Share of eligible tracts a governor may designate - ~6,293: Expected designations (EIG projection) *Eligible counts are from Rev. Proc. 2026-14 as announced by the IRS.[^5] The expected designation count is an Economic Innovation Group projection, not an official figure.[^7]* Each state may designate no more than the greater of 25% of its eligible tracts or 25 tracts.[^13] Zones on the current map do not count against that cap for the period starting January 1, 2027. Puerto Rico is subject to the same cap as the states. Governors began nominating on July 1, 2026, with 90 days to file, subject to a single 30-day extension.[^12] How governors pick from the eligible pool is covered in [how governors choose Opportunity Zones](https://ozdatacenters.com/guides/how-governors-choose-opportunity-zones). ## How do tract numbers and boundary vintages affect a zone lookup? A tract is identified by an 11-digit GEOID, and that number is only meaningful with its vintage, meaning the census whose boundaries it uses. The Census Bureau redraws tracts each decade, splitting fast-growing tracts and merging shrinking ones.[^3] A tract number from one vintage may cover different ground in another. **Practical rules for working with tract data** | Task | What to do | Tool | | --- | --- | --- | | Find an address's tract | Use Find Geographies and set the vintage to match the zone list | Census Geocoder | | Map tract boundaries | Download TIGER/Line tract shapefiles for the right year | Census TIGER/Line | | Check zone status | Match the GEOID to the designated list for that period | CDFI Fund CIMS | | Check eligibility data | Use the ACS five-year release Treasury used | Rev. Proc. 2026-14 appendix | The safest workflow is to keep the tract GEOID, its vintage and the source list together in your records. See [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone) for a step-by-step lookup, and [Opportunity Zone maps and data tools](https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools) for the main tools.[^8][^2] ## Why will the census tract appear on Opportunity Fund tax filings? Proposed regulations published September 11, 2026 (REG-116506-25) would require Qualified Opportunity Funds to report at the census tract level on an expanded Form 8996, including information about each Qualified Opportunity Zone Business they hold.[^10] The rules are proposed, not final, but the direction is clear: the tract is becoming the unit of compliance as well as designation. IRC §6726 adds a penalty of $500 per day for a failure to file a complete and correct return, capped at $10,000 per return, or $50,000 for a fund with gross assets over $10 million.[^10] Getting the tract number right is part of getting the return right. See [Opportunity Zone reporting requirements](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What do census tracts mean for a data center site? Large data center campuses are usually in rural or exurban tracts, which are big in area, so a single tract can hold a full campus with its substation. That is helpful. The risks are a parcel that crosses a tract line and a tract whose status changes between the current map and the new one. - Overlay the full campus boundary, including future phases and any on-site generation or substation land, on tract shapefiles before you sign a purchase contract. - Confirm the tract is on the certified list for the designation period in which the fund will invest and buy, not just on a nomination list. - Check whether the tract is wholly rural. That affects the 50% improvement threshold for an existing building and the 30% step-up for a [Qualified Rural Opportunity Fund](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). The Economic Innovation Group notes there is no enacted rural quota for designations, so whether rural tracts near transmission become zones depends on each governor's choices.[^11] For siting more broadly, see [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## Common questions **Can a part of a census tract be an Opportunity Zone?** No. Designation is made for whole population census tracts. If a tract is designated, all of it is in the zone; if not, none of it is. **What data decides whether a tract is low-income?** For the zones taking effect January 1, 2027, Treasury used the 2020 to 2024 American Community Survey five-year estimates, released January 29, 2026. Tracts are tested on median family income and poverty rate. **Can a tract next to a low-income tract still be designated?** Not on that basis. The rules do not allow a non-qualifying tract to be designated because it borders a low-income community. Each tract must qualify on its own data. **How many census tracts can a state designate?** A state may designate the greater of 25% of its eligible low-income community tracts or 25 tracts. Zones on the current map do not count against the cap for the new period. **Where do I download census tract boundaries?** The Census Bureau publishes TIGER/Line shapefiles, including census tract boundaries, for use in GIS software. Match the boundary year to the zone list you are checking. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1, Designation" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: U.S. Census Bureau, "Where can I download Shapefiles?" (n.d.). https://www.census.gov/data/what-is-data-census-gov/guidance-for-data-users/frequently-asked-questions/where-can-i-download-shapefiles.html [^3]: University of Illinois, IECAM, "Geographic Region: Census Tracts" (n.d.). https://iecam.illinois.edu/data-descriptions/geographic-region-census-tracts [^4]: Jackson Walker, "The One Big Beautiful Bill's New Qualified Opportunity Zones" (2025). https://www.jw.com/news/insights-obbba-qualified-opportunity-zones/ [^5]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^6]: Internal Revenue Service (copy posted by the State of Alaska), "Rev. Proc. 2026-14, Internal Revenue Bulletin Part III" (2026). https://aws.state.ak.us/OnlinePublicNotices/Notices/Attachment.aspx?id=161118 [^7]: Economic Innovation Group, "Data alert: projected Opportunity Zone designations under the new eligibility rules" (2026). https://eig.org/ozs-2-0-data-alert/ [^8]: Novogradac, "Novogradac Opportunity Zones 2.0 Mapping Tool" (2026). https://novoco.com/resource-centers/opportunity-zones-resource-center/novogradac-opportunity-zones-mapping-tool [^9]: Ohio Township Association, "Opportunity Zones 2.0: Local Input Process Opens" (2026). https://www.ohiotownships.org/news/opportunity-zones-20-local-input-process-opens [^10]: Federal Register, "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^11]: Economic Innovation Group, "Opportunity Zones 2.0: Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^12]: KPMG TaxNewsFlash, "Treasury opens new QOZ designation cycle" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/07/treasury-new-qoz-designation-cycle.html [^13]: Saul Ewing, "Opportunity Zone Regime Permanently Extended With New Benefits, Limitations, and Requirements, With a New Rural Focus" (2025). https://www.saul.com/insights/alert/opportunity-zone-regime-permanently-extended-new-benefits-limitations-and --- # How governors choose Opportunity Zones URL: https://ozdatacenters.com/guides/how-governors-choose-opportunity-zones Last reviewed: 2026-10-20 Each governor nominates Opportunity Zones from Treasury's list of eligible low-income census tracts, choosing no more than the greater of 25% of those tracts or 25 tracts, and Treasury then certifies the nominations. For the zones that take effect January 1, 2027, the 90-day nomination window opened July 1, 2026 and could be extended once, to about October 28, 2026. Within the federal limits, states set their own criteria and most ran public comment periods before deciding. ## Key takeaways - The chief executive of each state, usually the governor, nominates tracts; Treasury certifies and designates them under IRC §1400Z-1. - Only tracts that meet the low-income community test can be nominated, and a state may designate the greater of 25% of its eligible tracts or 25 tracts. - The nomination window opened July 1, 2026 for 90 days, to September 28, 2026, with one 30-day extension to about October 28, 2026. - Federal law sets no selection criteria beyond eligibility and the cap, so states weigh poverty, jobs, infrastructure, development potential and public comment. - Designated zones take effect January 1, 2027 and stay fixed through December 31, 2036; the next designation cycle begins July 1, 2036. ## Who chooses Opportunity Zones? The governor (or chief executive) of each state, the District of Columbia and each territory nominates the tracts, and the Secretary of the Treasury certifies and designates them.[^1] Treasury cannot add tracts a governor did not nominate. A governor cannot designate a tract that fails the federal eligibility test, except by proving with tract-level data that it qualifies.[^3] Governors submit nominations through the CDFI Fund's Opportunity Zone Nomination Tool, an online form in its Awards Management Information System (AMIS).[^18] Treasury announced on July 1, 2026 that the new designation cycle was open.[^16] The CDFI Fund supports the nomination and designation process. The IRS administers the tax rules. **Figure: How a census tract becomes an Opportunity Zone** - Rev. Proc. 2026-14: Treasury eligible list (25,332 low-income tracts) - then: Published list - State screening (Data, local input, criteria) - then: Shortlist - Governor nomination (Up to 25% of eligible tracts) - then: Filed in AMIS - Treasury certification (Within 30 days, extendable 30) - then: Certified - Designated zone (Jan. 1, 2027 to Dec. 31, 2036) *Treasury defines the pool, the governor chooses from it, and Treasury certifies the choice. Public comment happens at the state level before nomination.[^1][^2]* ## What limits does federal law put on a governor's choices? Federal law sets two hard limits: every nominated tract must be a low-income community, and the total cannot exceed the greater of 25% of the state's eligible tracts or 25 tracts.[^1][^17] **Federal rules that bind every governor** | Rule | What it means | Source | | --- | --- | --- | | Eligibility | Tract MFI at most 70% of area MFI, or poverty at least 20% with MFI at most 125% of area MFI | IRC §1400Z-1 | | Cap | Greater of 25% of eligible tracts or 25 tracts | IRC §1400Z-1 | | No contiguous tracts | A non-qualifying tract cannot be designated because it borders a qualifying one | IRC §1400Z-1 | | Off-list tracts | Allowed only with tract-level data proving eligibility | Rev. Proc. 2026-14 §5.04 | | Current zones | Do not count against the cap for the period starting Jan. 1, 2027 | Notice 2026-40 | | Rural share | No rural quota | Statute as enacted | The off-list route is narrow in practice. Arizona's commerce authority, for example, said it would submit very few off-list tracts and that significant justification is required.[^7] Puerto Rico now nominates under the same 25% cap as the states. Eligibility is measured with the 2020 to 2024 American Community Survey five-year data, so a governor's room to choose depends on how many tracts that data qualifies. See [which census tracts qualify](https://ozdatacenters.com/guides/opportunity-zone-low-income-community-test) for the tests in detail. North Carolina illustrates the math: the state could nominate up to 202 of its 807 eligible low-income tracts.[^11] A small state with fewer than 100 eligible tracts still gets 25, because the floor applies. ## What criteria do governors use to pick Opportunity Zones? Federal law sets no selection criteria beyond eligibility and the cap, so each state decides what to weigh. Most states publish a scoring approach or a list of factors, and most take public comment. Vermont's published factors are typical: poverty and unemployment rates, population, the number of businesses and private-sector jobs, available infrastructure, and the development potential of each tract.[^9] Other states add local government requests, alignment with existing economic development plans, and evidence of an investment pipeline. **Figure: A common way states think about candidate tracts** - Higher Economic need, Low Investment readiness: Need, little readiness (Often chosen for equity reasons; may see little capital) - Higher Economic need, High Investment readiness: Priority candidates (High need with sites, infrastructure and projects) - Lower Economic need, Low Investment readiness: Usually passed over (Eligible but low need and few prospects) - Lower Economic need, High Investment readiness: Contested (Strong deal flow; critics question the need) *States differ, but many balance need against readiness. Tracts with high need and real investment potential tend to make the final list.* - Distress data: poverty, unemployment, income and population loss. - Readiness: zoned land, utilities, broadband, transportation and identified projects. - Geographic balance across regions, including rural counties. - Local support: requests from counties, cities and tribes. - Fit with state strategy, such as industrial corridors or downtowns. ## Do states take public comment on Opportunity Zone nominations? Most did. States opened comment windows on draft lists or invited local governments to request tracts before the governor's final nomination. **Examples of 2026 state processes** | Jurisdiction | Process | Source | | --- | --- | --- | | California | Online public comment from Aug. 3 to Aug. 28, 2026; commenters pick a tract and state support or opposition | GO-Biz | | North Carolina | Public comment window extended to June 21, 2026; up to 202 of 807 eligible tracts | NC Commerce | | District of Columbia | Comments on preliminary recommendations through Aug. 7, 2026 | Holland & Knight | | Vermont | Proposed 25 tracts and sought feedback before nominating | VermontBiz | | Ohio | Local input process for townships and other local governments | Ohio Township Association | The California process asked commenters to select a single census tract and submit a comment in support or opposition.[^10] North Carolina extended its window to give communities more time.[^11] The District of Columbia released preliminary recommendations and took comments through August 7, 2026.[^12] Ohio opened a local input process for townships.[^19] ## When do governors have to nominate Opportunity Zones? Governors had 90 days from the July 1, 2026 determination date, to September 28, 2026, with one 30-day extension to about October 28, 2026.[^2][^5] The extension is a single 30-day period.[^3][^6] **Figure: The 2026 nomination cycle** - Apr 2026: Rev. Proc. 2026-14 (Procedures and eligible list) - Jul 1, 2026: Window opens (Determination date) - Sep 28, 2026: Base deadline (Single 30-day extension available) - About Oct 28, 2026: Extended deadline (30-day extension) - Jan 1, 2027: Zones take effect (Through Dec. 31, 2036) *Treasury certifies within 30 days of receiving nominations and may extend by 30 days, so the last certifications could arrive in late December 2026.[^1][^3]* After certification, the designations run for the full 10-year period; the statute provides no mid-cycle nomination window. The next determination date is July 1, 2036, and the cycle repeats every 10 years.[^1] ## Which states have nominated their Opportunity Zones so far? As of October 20, 2026, states were filing nominations on their own schedules within the extended window, Treasury had certified at least Idaho's slate, and no consolidated national list had been published.[^4][^15] **Selected publicly reported nominations (as of Oct. 20, 2026)** | State | Reported status | Tracts | | --- | --- | --- | | Idaho | Reported certified by Treasury (Oct. 2, 2026) | 25 | | Washington | Governor announced nominations Oct. 8, 2026 | 99 | | Texas | State nomination list published | 605 | The Idaho certification was reported by the Idaho Business Review.[^15] Washington's 99 tracts were announced by the governor's office, and Texas published its list on the governor's site.[^13][^14] For the national total, the Economic Innovation Group projects about 6,293 designations across the 50 states and D.C.[^8] Treat projections as estimates until Treasury publishes the certified list. Track the latest in [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## How do data centers figure in governors' Opportunity Zone choices? Data centers can shape the map in both directions. A rural tract next to high-voltage transmission or a retired power plant may score well on readiness and offer a real project. At the same time, several governors restricted state data center incentives in 2026, and federal bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits. Those bills are proposals, not law. For developers and communities, the lesson is to engage early in the state process with specific evidence: the site, the power plan, the jobs and tax base, and local government support. Once the list is certified it holds for 10 years. See [Opportunity Zones for economic developers and communities](https://ozdatacenters.com/guides/opportunity-zones-for-communities) and [community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers).[^4] ## Common questions **Can a governor nominate a tract that is not on Treasury's eligible list?** Only by providing tract-level data that shows the tract meets the low-income community definition, under Rev. Proc. 2026-14 §5.04. Arizona's commerce authority said it would submit very few such tracts and that significant justification is required. **How many Opportunity Zones can a state have?** The greater of 25% of its eligible low-income community tracts or 25 tracts. Zones on the current map do not count against the cap for the period that begins January 1, 2027. **Is there a requirement to pick rural tracts?** No. The statute sets no rural quota. The program encourages rural investment through the 30% step-up for Qualified Rural Opportunity Funds and the 50% substantial improvement threshold instead. **Can a governor change the list after Treasury certifies it?** The statute provides no mid-cycle process for doing so. Certified designations run from January 1, 2027 through December 31, 2036, and the next nomination cycle begins on the July 1, 2036 determination date. **Who do I contact to suggest a tract?** The governor's office or the state economic development agency running the process. The CDFI Fund directs public questions about the nomination cycle to each state's governor's office. For 2027 zones most comment windows had closed by October 2026. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. 1400Z-1, Designation" (2025). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^2]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^3]: Internal Revenue Service (copy posted by the State of Alaska), "Rev. Proc. 2026-14, Internal Revenue Bulletin Part III" (2026). https://aws.state.ak.us/OnlinePublicNotices/Notices/Attachment.aspx?id=161118 [^4]: ArentFox Schiff, "IRS Releases Rev. Proc. 2026-14: New Roadmap for OZ 2.0 Designations" (2026). https://www.afslaw.com/perspectives/alerts/irs-releases-rev-proc-2026-14-new-roadmap-oz-20-designations [^5]: KPMG, "Rev. Proc. 2026-14: State procedures for nominating census tracts to be designated as QOZs" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/04/rev-proc-2026-12-state-procedures-nominating-census-tracts-designated-qozs.html [^6]: EY Tax News, "IRS describes requirements for nominating population census tracts as 2027 Qualified Opportunity Zones" (2026). https://taxnews.ey.com/news/2026-0851-irs-describes-requirements-for-nominating-population-census-tracts-as-2027-qualified-opportunity-zones [^7]: Arizona Commerce Authority, "Opportunity Zone recommendation process" (2026). https://www.azcommerce.com/arizona-opportunity-zones/oz-20-recommendation-process [^8]: Economic Innovation Group, "Data alert: projected Opportunity Zone designations under the new eligibility rules" (2026). https://eig.org/ozs-2-0-data-alert/ [^9]: VermontBiz, "State announces Opportunity Zone recommendations" (2026). https://vermontbiz.com/node/244171 [^10]: California Governor's Office of Business and Economic Development, "Opportunity Zones Public Comment Period FAQ" (2026). https://business.ca.gov/wp-content/uploads/Public-Comment-Period-FAQ-08-05-2026.pdf [^11]: North Carolina Department of Commerce, "NC Commerce extends public comment period to help identify new Opportunity Zones in North Carolina" (2026). https://www.commerce.nc.gov/news/press-releases/2026/06/04/nc-commerce-extends-public-comment-period-help-identify-new-opportunity-zones-north-carolina [^12]: Holland & Knight, "District Begins OZ 2.0 Designation Process, DMPED Releases Preliminary Recommendations" (2026). https://www.hklaw.com/en/insights/publications/2026/07/district-begins-oz-20-designation-process-dmped-releases-preliminary [^13]: Washington Governor's Office, "Governor Ferguson selects 99 Opportunity Zones to encourage private investment" (2026). https://governor.wa.gov/news/2026/governor-ferguson-selects-99-opportunity-zones-encourage-private-investment [^14]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (n.d.). https://gov.texas.gov/business/page/opportunity-zones [^15]: Idaho Business Review, "US Treasury approves Idaho Opportunity Zone 2.0 nominations" (2026). https://idahobusinessreview.com/2026/10/02/us-treasury-approves-idaho-opportunity-zone-2-nominations/ [^16]: U.S. Department of the Treasury, "Treasury Opens the New Designation Cycle for Opportunity Zones" (2026). https://content.govdelivery.com/accounts/USTREAS/bulletins/41e8950 [^17]: Economic Innovation Group, "Opportunity Zones 2.0: Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^18]: Federal Register, "CDFI Fund notice regarding the Opportunity Zone Nomination Tool, document 2026-09437" (2026). https://public-inspection.federalregister.gov/2026-09437.pdf [^19]: Ohio Township Association, "Opportunity Zones 2.0: Local Input Process Opens" (2026). https://www.ohiotownships.org/news/opportunity-zones-20-local-input-process-opens --- # Opportunity Zone maps and data tools URL: https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools Last reviewed: 2026-10-20 The official public map of Opportunity Zones is the CDFI Fund's CIMS mapping tool, supported by CDFI Fund data files, the Census Geocoder for finding an address's census tract, and Census TIGER/Line shapefiles for GIS work. As of October 20, 2026, the zones that take effect January 1, 2027 were still being certified state by state, so any 2027 map is provisional until Treasury publishes the certified list. Third-party maps are useful for screening but should always be checked against the government source. ## Key takeaways - CDFI Fund CIMS is the standard official map for designated zones; the CDFI Fund also posts a shapefile and a convenience spreadsheet. - The Census Geocoder converts addresses to 11-digit tract GEOIDs and handles batches of up to 10,000 addresses. - Census TIGER/Line shapefiles provide tract boundaries for overlaying parcels, transmission and other site data. - For the January 1, 2027 map, Rev. Proc. 2026-14 lists 25,332 eligible tracts, but final designations were pending certification as of October 20, 2026. - Data center screening adds public layers for electricity (EIA), broadband (FCC), interconnection (PeeringDB), flood (FEMA) and seismic risk (USGS). ## What are the best Opportunity Zone map tools? Start with the government tools: the CDFI Fund's CIMS map to see designated zones, the Census Geocoder to find a property's tract, and TIGER/Line shapefiles for boundaries.[^1][^4][^5] Then use third-party maps for overlays and the 2027 transition. **Core Opportunity Zone mapping and lookup tools** | Tool | Publisher | Use it for | Official? | | --- | --- | --- | --- | | CIMS mapping tool | CDFI Fund (Treasury) | Viewing designated zones by address or area | Yes | | Opportunity Zones resources page | CDFI Fund | Designated-tract spreadsheet and GIS shapefile | Convenience copy; IRS lists are official | | Opportunity Zones dataset | HUD via data.gov | Designated tract boundaries (geodatabase, shapefile) | Government data | | Census Geocoder | U.S. Census Bureau | Address to 11-digit tract GEOID; batch up to 10,000 | Yes, for tract lookup | | TIGER/Line shapefiles | U.S. Census Bureau | Tract boundaries for GIS | Yes, for boundaries | | Rev. Proc. 2026-14 eligible list | IRS | Tracts eligible for the 2027 map | Yes, eligibility only | | Opportunity Zones mapping tool for the 2027 map | Novogradac | Likely-eligible 2027 tracts, rural overlays, investment data | No | | Opportunity zones mapping tool | Baker Tilly | Third-party map for screening | No | | Designation projections | Economic Innovation Group | Projected designation counts by state | No | ## Which Opportunity Zone tools are official? The government tools are the CDFI Fund's CIMS map and data files, the IRS-published lists of designated tracts, and the Census Bureau's tract tools.[^1][^2][^3] - CDFI Fund CIMS. The Community Investment Mapping System lets you search an address or browse an area and see designated Qualified Opportunity Zones. The CDFI Fund's mapping system page explains the available layers.[^1][^2] - CDFI Fund resources page. It offers a spreadsheet of designated tracts and a zip file containing a GIS shapefile. The CDFI Fund calls the spreadsheet a convenience copy and points to the IRS-published lists as official.[^3] - HUD Opportunity Zones dataset on data.gov. Designated tract boundaries in geodatabase and shapefile formats, useful for analysts who want to load the zones into their own GIS.[^6] - Census Geocoder. Enter an address and choose Find Geographies to get the state, county and tract codes. Batch mode handles up to 10,000 addresses.[^4] - TIGER/Line shapefiles. The Census Bureau's boundary files, including census tracts, for overlay analysis.[^5] For a step-by-step lookup, see [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone). ## Is there a map of the new 2027 Opportunity Zones yet? Not a final one. As of October 20, 2026, governors were still submitting nominations ahead of the extended deadline of about October 28, 2026, Treasury was certifying state lists as they arrived, and no consolidated national list of the zones taking effect January 1, 2027 had been published.[^7][^8] Until then, three kinds of sources help, each with limits: 1. Treasury's eligible list. The appendix to Rev. Proc. 2026-14 lists the 25,332 tracts eligible for nomination, 8,334 of them wholly rural.[^7] Eligible is not designated: each state may designate only about a quarter of its eligible tracts. 2. State nomination lists. Several governors have published their nominations, for example Texas's 605-tract list.[^10] A nominated tract becomes a zone only when Treasury certifies it. 3. Third-party trackers and maps. The Novogradac mapping tool for the new zones shows likely-eligible tracts using 2020 to 2024 ACS data, with rural overlays.[^11] The Economic Innovation Group publishes projected designation counts by state, about 6,293 in total across the 50 states and D.C.[^9] > Expect the official map tools to be updated once Treasury certifies the new zones. Certification is due within 30 days of receiving each state's nominations, with a possible 30-day extension, so the last certifications could arrive in late December 2026. Re-check every site against the certified list before closing on a 2027 investment. For what the new map will change, see [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) and [how governors choose Opportunity Zones](https://ozdatacenters.com/guides/how-governors-choose-opportunity-zones). ## Can you rely on third-party Opportunity Zone maps? Use them to screen, not to decide. Third-party maps from accounting firms, data vendors and trackers can be faster and add useful layers, but they can lag official changes or mix eligible, nominated and designated tracts.[^11][^12] **Figure: Official tools vs. third-party maps** - Official government tools (Confirm) - Show only designated tracts - Tied to IRS-published designations - Updated after Treasury certifies - Basic overlays only - Record for the file - Third-party maps (Screen) - May show eligible or nominated tracts - Rich overlays and investment data - Can move faster than official tools - Can lag or mislabel changes - Not authority for a tax position *Use third-party maps for speed and context, then confirm every site against the government list for the right designation period.* ## Which public data tools help screen a data center site in an Opportunity Zone? For data centers, the zone map is one layer among several. Power, fiber, flood and seismic risk decide whether a site in a zone can actually host a facility. **Public site-screening layers for an Opportunity Zone data center** | Question | Tool | Notes | | --- | --- | --- | | What does power cost and who supplies it? | EIA electricity data and state profiles | Generation, retail sales and prices by state and sector | | Where are transmission lines? | EIA FAQ pointing to HIFLD data | Lines of 69 to 765 kV are published; substation locations are not | | How long is the interconnection queue? | LBNL Queued Up | Generator queue data; median request-to-operation time exceeds 4 years | | Is there fiber and broadband? | FCC National Broadband Map | Fixed and mobile availability by location | | Where are carrier hotels and exchanges? | PeeringDB | Interconnection facilities and networks | | Is the site in a flood zone? | FEMA National Flood Hazard Layer | Flood zones and FIRMettes | | What is the seismic risk? | USGS earthquake hazard maps | National seismic hazard models | EIA's electricity data and state profiles show prices and sales by sector.[^13] EIA explains that transmission line data of 69 to 765 kV come from the HIFLD dataset and that substation locations are not published.[^14] LBNL's Queued Up report found the median time from interconnection request to commercial operation exceeded four years for projects built from 2018 to 2024.[^15] The FCC National Broadband Map shows service availability, PeeringDB lists interconnection facilities, FEMA's flood layer shows flood zones, and USGS publishes seismic hazard maps.[^16][^17][^18][^19] These layers feed directly into Opportunity Zone timing. Power is usually the critical path, and the 31-month [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) starts when cash arrives. See [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones) and [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## What is a good workflow for checking Opportunity Zone data? Screen broadly with third-party tools, confirm with government sources, and document the tract, its vintage and the designation period for every site. **Figure: A defensible Opportunity Zone data workflow** 1. Screen: Third-party map and eligible list 2. Geocode: Census Geocoder, matching vintage 3. Overlay: Parcels on TIGER/Line tracts 4. Confirm: CDFI CIMS and IRS-published list 5. Document: Save exports with dates *Each step leaves a record. Proposed regulations would require census-tract-level reporting on Form 8996, so the tract number becomes part of the fund's filing.* **Figure: Common data mistakes and how to avoid them** - [fail] Treating an eligible tract as designated: Only about a quarter of eligible tracts will be designated. - [watch] Treating a nominated tract as designated: Wait for Treasury certification. - [watch] Mixing tract boundary vintages: Tract numbers change at each decennial census. - [fail] Using ZIP codes: ZIP codes do not align with tracts. - [watch] Relying on a cached or exported map: Re-check close to closing. - [pass] Confirming rural status from the IRS list: Required for the 50% rule and QROF step-up. *Most map errors come from mixing lists or vintages. These checks catch them before they reach a tax return.* Rural status deserves its own check because it drives two benefits: the 50% substantial improvement threshold and the 30% step-up for a [Qualified Rural Opportunity Fund](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). For tract mechanics, see [census tracts and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-census-tracts). ## Common questions **What is the official Opportunity Zone map?** The CDFI Fund's CIMS mapping tool is the standard government map of designated zones. The CDFI Fund also posts a GIS shapefile and a spreadsheet of designated tracts, and the IRS publishes the official lists. **Where can I see the 2027 Opportunity Zones?** As of October 20, 2026 there was no final national map. Treasury was certifying state nominations, with the extended nomination deadline around October 28, 2026. Rev. Proc. 2026-14 lists eligible tracts, and some states have published nominations, but only certified tracts become zones on January 1, 2027. **How do I find the census tract for an address?** Use the Census Bureau's Census Geocoder, choose Find Geographies, enter the address, and read the state, county and tract codes. Combine them into the 11-digit GEOID. **Are Novogradac and other third-party maps accurate?** They are widely used for screening and add helpful overlays, but they are not official. Confirm every site against the CDFI Fund map and the IRS-published list for the correct designation period. **Can I download Opportunity Zone boundaries for GIS?** Yes. The CDFI Fund posts a shapefile of designated tracts, HUD publishes an Opportunity Zones dataset on data.gov, and the Census Bureau provides TIGER/Line tract boundaries. **Is there a public map of substations for data center siting?** Not from EIA. EIA explains that transmission line data come from HIFLD and that substation locations are not published, so substation capacity usually has to come from the utility. ## Sources [^1]: CDFI Fund, U.S. Department of the Treasury, "CIMS Mapping Tool" (n.d.). https://www.cdfifund.gov/cims [^2]: CDFI Fund, U.S. Department of the Treasury, "Mapping System" (n.d.). https://www.cdfifund.gov/mapping-system [^3]: CDFI Fund, U.S. Department of the Treasury, "Opportunity Zones Resources" (n.d.). https://www.cdfifund.gov/opportunity-zones [^4]: U.S. Census Bureau, "How do I search by address using the Census Geocoder?" (n.d.). https://www.census.gov/data/what-is-data-census-gov/guidance-for-data-users/frequently-asked-questions/how-do-i-search-by-address-using-the-census-geocoder.html [^5]: U.S. Census Bureau, "Where can I download Shapefiles?" (n.d.). https://www.census.gov/data/what-is-data-census-gov/guidance-for-data-users/frequently-asked-questions/where-can-i-download-shapefiles.html [^6]: U.S. Department of Housing and Urban Development (data.gov), "Opportunity Zones dataset" (n.d.). https://catalog.data.gov/dataset/opportunity-zones [^7]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^8]: KPMG TaxNewsFlash, "Treasury opens new QOZ designation cycle" (2026). https://kpmg.com/us/en/taxnewsflash/news/2026/07/treasury-new-qoz-designation-cycle.html [^9]: Economic Innovation Group, "Data alert: projected Opportunity Zone designations under the new eligibility rules" (2026). https://eig.org/ozs-2-0-data-alert/ [^10]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (n.d.). https://gov.texas.gov/business/page/opportunity-zones [^11]: Novogradac, "Novogradac Opportunity Zones 2.0 Mapping Tool" (2026). https://novoco.com/resource-centers/opportunity-zones-resource-center/novogradac-opportunity-zones-20-mapping-tool [^12]: Baker Tilly, "Opportunity zones mapping tool" (n.d.). https://connect.bakertilly.com/opportunity-zones-mapping-tool [^13]: U.S. Energy Information Administration, "Electricity data" (n.d.). https://www.eia.gov/electricity/data.php [^14]: U.S. Energy Information Administration, "Does EIA publish the location of electric power plants and transmission lines?" (n.d.). https://www.eia.gov/tools/faqs/faq.php?id=567&t=3 [^15]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^16]: Federal Communications Commission, "How to Use the FCC's National Broadband Map" (n.d.). https://help.bdc.fcc.gov/hc/en-us/articles/10467446103579-How-to-Use-the-FCC-s-National-Broadband-Map [^17]: PeeringDB, "About PeeringDB" (n.d.). https://www.peeringdb.com/about [^18]: Federal Emergency Management Agency, "National Flood Hazard Layer" (n.d.). https://hazards.fema.gov/femaportal/NFHL/searchResult/ [^19]: U.S. Geological Survey, "Earthquake Hazards Program: Hazards" (n.d.). https://www.usgs.gov/programs/earthquake-hazards/hazards --- # Opportunity Zone key dates and timeline URL: https://ozdatacenters.com/guides/opportunity-zone-key-dates Last reviewed: 2026-10-20 The new Opportunity Zones take effect January 1, 2027 and remain in effect through December 31, 2036, and the rolling five-year deferral and 10% or 30% basis step-ups apply to gains invested on or after January 1, 2027. Each investment then runs on its own clock: 180 days to invest a gain, inclusion of the deferred gain at five years, tax-free appreciation after 10 years, and a basis cap at the 30th anniversary. Funds and their businesses run separate clocks, including semiannual asset tests, the 31-month working capital safe harbor and the 30-month substantial improvement period. ## Key takeaways - Governors' nomination window opened July 1, 2026 and closed September 28, 2026, or about October 28, 2026 with the 30-day extension. - New zones take effect January 1, 2027 and run through December 31, 2036; zones on the current map expire December 31, 2028. - Gain still deferred from QOF investments made before 2027 is included in income on December 31, 2026, and Notice 2026-40 says it cannot be deferred again. - For an investment made on or after January 1, 2027, deferred gain is taxed at the earlier of a sale or five years after the investment date. - After 10 years an investor can exclude appreciation; for sales after the 30th anniversary, basis is fixed at fair market value on that anniversary. - Comments on proposed reporting regulations were reported due October 26, 2026, and comments under Notice 2026-55 are due November 23, 2026. ## What are the key Opportunity Zone dates for 2025 to 2027? The rules were enacted July 4, 2025, the new zones and the new investor rules start January 1, 2027, and the guidance needed to run them was issued through 2026.[^1][^2] **Program-level dates (as of October 20, 2026)** | Date | Event | Why it matters | | --- | --- | --- | | Jul 4, 2025 | Public Law 119-21 signed | Program made permanent; 50% rural substantial improvement rule effective | | Sep 30, 2025 | Notice 2025-50 | Rural-area definition; 3,309 wholly rural zones on the current map | | Jan 29, 2026 | 2020 to 2024 ACS five-year data released | Data used to decide tract eligibility | | Apr 2026 | Rev. Proc. 2026-14 | Nomination procedures; 25,332 eligible tracts | | Jun 18, 2026 | Notice 2026-40 | Transition rules between the current and new maps | | Jul 1, 2026 | Determination date | 90-day nomination window opens | | Sep 11, 2026 | Proposed reporting regulations (REG-116506-25) | New Form 8996 and §6039K/§6039L reporting; not final | | Sep 22, 2026 | Notice 2026-55 | Request for comments on §1400Z-2 issues | | Sep 28, 2026 | Base nomination deadline | 90 days after the determination date | | Oct 26, 2026 | Reported comment deadline on proposed reporting rules | Rules apply prospectively once final | | About Oct 28, 2026 | Extended nomination deadline | One 30-day extension | | Nov 23, 2026 | Notice 2026-55 comments due | May shape working capital, inclusion event and 30-year rules | | Late Nov to Dec 2026 | Treasury certification | Within 30 days of nomination, extendable 30 days | | Dec 31, 2026 | Inclusion date for pre-2027 deferred gain | Taxable for 2026; cannot be re-deferred | | Jan 1, 2027 | New zones and new investor rules take effect | Rolling 5-year deferral; 10% or 30% step-up | Sources cited for these dates include the IRS announcements of Notice 2025-50 and Rev. Proc. 2026-14, Notice 2026-40, the proposed regulations and Notice 2026-55.[^3][^4][^5][^6][^7] ## When do the new Opportunity Zones start and end? The new zones take effect January 1, 2027 and remain in effect through December 31, 2036.[^5][^8] New zones are designated every 10 years, so the next determination date is July 1, 2036.[^1] **Figure: Zone map dates** - Jul 1, 2026: Nominations open (90-day window) - About Oct 28, 2026: Extended deadline (Last nominations) - Jan 1, 2027: New zones begin (10-year period) - Dec 31, 2028: Current zones expire (Per Notice 2026-40) - Jul 1, 2036: Next determination date (Next 10-year cycle) - Dec 31, 2036: New zones end (Unless redesignated) *The current and new maps overlap for two years. Notice 2026-40 limits what new property can qualify in current zones that are not redesignated.[^5][^9]* Under Notice 2026-40, property acquired after 2026 in a current zone that is not redesignated generally does not qualify as qualified opportunity zone business property, with narrow exceptions such as a working capital plan adopted before December 31, 2026 with at least 10% of the working capital received and 5% spent by that date.[^9][^10] See [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## What are the key dates for an Opportunity Zone investor? Every investment runs on its own clock, measured from the sale that created the gain and from the date the gain is invested in a Qualified Opportunity Fund (QOF).[^1][^11] **Figure: An investor's clock for gains invested on or after January 1, 2027** - Day 1: Gain realized (Sale date starts the 180-day period) - Day 180: Invest by now (Cash into a QOF; elect deferral) - Year 5: Deferred gain included (Less 10% step-up, or 30% for a QROF) - Year 10: Exclusion available (Elect basis equal to fair market value) - Year 30: Basis cap (Fair market value fixed at the 30th anniversary) *The five-year inclusion is rolling, so each investment has its own tax date. The 10-year and 30-year marks are measured from the investment date.[^1][^11]* - 180 days. A gain must be invested within 180 days, generally starting on the sale date. Partners and S corporation shareholders can elect alternative start dates, including the due date of the entity's return without extensions. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule).[^12] - Five years. The deferred gain is included in income in the tax year containing the earlier of a sale of the QOF interest or five years after the investment date. See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral).[^11] - Ten years. After 10 years the investor may elect, on a sale, to step basis up to fair market value, excluding the appreciation.[^1] - Thirty years. For a sale after the 30th anniversary, basis is fixed at fair market value as of that anniversary, so later appreciation is taxable. The mechanics for valuing the investment at year 30 are among the questions in Notice 2026-55.[^7][^13] ### Worked example with real dates (illustrative) An investor sells stock on March 15, 2027 for a $500,000 long-term gain. Counting the sale date as day 1, the 180-day period ends September 10, 2027. The investor puts $500,000 into a standard QOF on June 1, 2027. The deferred gain is included on June 1, 2032 (in the 2032 tax year), reduced by the 10% step-up, so $450,000 is taxed, or about $107,100 at 23.8% assuming no state tax and an investment worth at least $500,000. The 10-year exclusion becomes available on June 1, 2037. Appreciation after June 1, 2057 would be taxable. ## What deadlines apply to Opportunity Funds and their businesses? Funds and Qualified Opportunity Zone Businesses (QOZBs) run their own deadlines, set mostly by the Treasury regulations in T.D. 9889.[^14][^15] **Operating deadlines under the current rules** | Rule | Period | What it requires | | --- | --- | --- | | QOF 90% asset test | Two semiannual testing dates | Generally the end of the first six months and the end of the tax year | | New cash at the QOF | 6 months | Recently contributed cash can be excluded from the 90% test | | Reinvestment of QOF proceeds | 12 months | Proceeds count as qualifying if reinvested within 12 months | | Working capital safe harbor (QOZB) | 31 months | Written plan and schedule for cash spent on zone property | | Extended working capital | Up to 62 months | Overlapping or sequential plans for start-ups | | Disaster extension | Up to 24 months | For zones in federally declared disaster areas | | Substantial improvement | 30 months | Basis additions over 100% of building basis (50% in wholly rural zones) | | Vacancy for original use | 3 years | A building vacant this long is treated as original use | | Form 8996 and Form 8997 | Annually | Filed with the return; proposed rules would make Form 8996 a separate information return | The new information-reporting penalty under §6726 is $500 per day, capped at $10,000 per return, or $50,000 for a fund with gross assets over $10 million.[^6] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and [Form 8996 and Form 8997](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## How do Opportunity Zone dates line up with a data center build? A data center's longest lead item is usually power, not construction, so the 31-month working capital safe harbor and the 62-month maximum are the dates to plan around.[^15][^16] **Figure: Illustrative data center project against Opportunity Zone clocks** (illustrative) - First working capital plan: 0 to 31 months (Land, design, long-lead equipment) - Maximum with sequential plans: 0 to 62 months (From first cash infusion) - Utility large-load service: 0 to 48 months (Can run 4 to 7 years in constrained markets) - Shell and fit-out construction: 18 to 48 months - Substantial improvement window (existing building): 0 to 30 months - Hold to the 10-year exclusion: 0 to 120 months *Illustrative. A single 31-month plan is tight if utility service takes four years or more. Phasing capital into sequential plans, within the 62-month cap, is a common way to keep cash qualifying.* Dominion Energy said in 2024 that connecting data centers above 100 MW in Northern Virginia could take up to seven years.[^16] Utility study and construction delays are not obviously the kind of governmental permitting delay that tolls the safe harbor, and no guidance found addresses the point. As a practical matter, choose sites with power in hand or near term, and size each capital call to a plan it can meet. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## Which Opportunity Zone dates are still uncertain? Four dates were not fixed as of October 20, 2026: the last Treasury certifications, the publication of a consolidated 2027 zone list, the effective date of final reporting regulations, and any rule changes following Notice 2026-55.[^8][^6][^7] - Certification. Counting from the extended deadline of about October 28, certification is due by about November 27, 2026, or late December 2026 with Treasury's extension. Texas expected certification by November 28, 2026.[^17] - Reporting rules. The proposed regulations would apply prospectively once finalized; no final date was set.[^6] - Notice 2026-55. Comments close November 23, 2026 on topics including working capital plan changes, inclusion events and the 30-year election.[^7] - Transition regulations. Notice 2026-40 announced proposed regulations on the transition rules, which had not been issued.[^5] ## Common questions **When do the new Opportunity Zones take effect?** January 1, 2027. They remain in effect through December 31, 2036, and a new designation cycle begins on July 1, 2036. **When does deferred gain have to be paid for a 2027 investment?** In the tax year that includes the earlier of the date you sell the QOF interest or five years after the investment date. An investment made June 1, 2027 is included on June 1, 2032, less the 10% or 30% step-up. **What happens on December 31, 2026?** Gain still deferred from QOF investments made before 2027 is included in income on that date, and Notice 2026-40 says that gain cannot be deferred again in a new QOF. It is also the date before which a working capital plan must be adopted, with at least 10% of the working capital received and 5% spent, to preserve some investments in current zones that are not redesignated. **When do the current Opportunity Zones expire?** Under Notice 2026-40, zones on the current map generally expire December 31, 2028, and December 31, 2027 for Puerto Rico. **How long does a QOZB have to spend its cash?** Up to 31 months under a written working capital plan, and up to 62 months from the first cash infusion with overlapping or sequential plans. Government delays on completed applications can toll the period (whether utility interconnection delays count is unsettled), and a federally declared disaster can add up to 24 months. **Is the 30-year rule in effect now?** Yes, for investments made on or after January 1, 2027. For a sale after the 30th anniversary, basis is fixed at fair market value on that anniversary. How that value is determined without a sale is an open question in Notice 2026-55. ## Sources [^1]: U.S. Government Publishing Office, "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (2025). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Congress.gov, "Text, H.R.1, 119th Congress" (2025). https://www.congress.gov/bill/119th-congress/house-bill/1/text [^3]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^4]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^5]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^6]: Federal Register, "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^7]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^8]: Congressional Research Service, "Opportunity Zones Round Two Selection Process: Frequently Asked Questions (R48952)" (2026). https://www.congress.gov/crs-product/R48952 [^9]: Cherry Bekaert, "IRS Notice 2026-40: New Opportunity Zone Rules" (2026). https://www.cbh.com/insights/articles/irs-notice-2026-40-new-opportunity-zone-rules/ [^10]: Holthouse Carlin & Van Trigt, "Ten Things to Know About the IRS's Recent OZ 1.0 to 2.0 Transition Guidance" (2026). https://www.hcvt.com/alertarticle-Transition-Guidance-OZ-1-to-2 [^11]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^12]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^13]: Current Federal Tax Developments, "IRS Solicits Technical Comments on Opportunity Zone Regulations Post-OBBBA (Notice 2026-55)" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/22/irs-solicits-technical-comments-on-opportunity-zone-regulations-post-obbba-administrative-focus-on-interim-gains-single-family-housing-and-working-capital-safe-harbors [^14]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^15]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^16]: Bloomberg (via BNN Bloomberg), "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^17]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (n.d.). https://gov.texas.gov/business/page/opportunity-zones # Section: Data centers in Opportunity Zones Why data centers and Opportunity Zones fit, and the rules that matter for digital infrastructure. --- # Data centers in Opportunity Zones: the complete guide URL: https://ozdatacenters.com/guides/data-centers-in-opportunity-zones Last reviewed: 2026-10-20 A data center can be owned through a Qualified Opportunity Fund and its operating business, and investors who hold 10 years can exclude the appreciation from tax, because data centers are not an excluded business under the Opportunity Zone rules. The structure works best when the business actively operates the facility, the long-lived building and power infrastructure carry the value, and the power schedule fits the 31-month working capital safe harbor (62 months at most). The main risks are a single-tenant triple-net lease, short-lived IT equipment, utility delays and proposed federal bills that would exclude data centers from the program. ## Key takeaways - Data centers are not on the excluded business list, so a data center QOZB can qualify under current law; bills introduced in September 2026 would change that but had not been enacted. - Merely entering into a triple-net lease is not the active conduct of a trade or business, which makes a single-tenant powered shell leased to a hyperscaler the highest-risk structure. - Servers typically depreciate over 5 to 6 years in hyperscaler filings, so IT equipment turns over before the 10-year hold; the building, land improvements and power infrastructure carry the long-term gain. - The working capital safe harbor allows 31 months per plan and 62 months at most, while large-load utility service can take 4 to 7 years in constrained markets. - In zones composed entirely of rural area, existing buildings need only 50% basis improvement within 30 months, and Qualified Rural Opportunity Fund investors get a 30% step-up at five years. - A report cited in coverage of Sen. Hawley's bill found 14% of existing U.S. data centers and just over 17% of planned or under-construction projects are in Opportunity Zones, and Pew found 67% of planned data centers are rural. ## Can a data center qualify for Opportunity Zone tax benefits? Yes. A data center is not one of the excluded businesses, so a Qualified Opportunity Zone Business (QOZB) that develops, owns or operates a data center in a designated zone can qualify, and a Qualified Opportunity Fund (QOF) can invest in it.[^1][^2] A QOF is a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property. A QOZB is an operating business, usually an LLC owned by the fund, that meets the business-level tests. The excluded list is narrow: golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and other gambling facilities, and liquor stores.[^1] Data centers are not on it. On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act to exclude data centers from Opportunity Zone benefits, and House members introduced a separate bill aimed at the same incentives.[^3] These are proposals. As of October 20, 2026 neither had been enacted. Data centers already sit in zones in large numbers. A report cited by the National Community Reinvestment Coalition and Sen. Hawley's office found that 14% of existing U.S. data centers, and 17% of those planned or under construction, are in Qualified Opportunity Zones.[^3] Location alone gives no benefit, though. The benefits go only to investors who put eligible capital gains into a QOF that meets the rules. This guide covers the rules that matter most and links to the detailed guides. For the general program, start with [what an Opportunity Zone is](https://ozdatacenters.com/guides/what-is-an-opportunity-zone) and [Opportunity Zone tax benefits](https://ozdatacenters.com/guides/opportunity-zone-tax-benefits-explained). ## Why do data centers and Opportunity Zones fit together? Data centers are capital-heavy, long-lived real assets that are increasingly built where land and power are available, which often means lower-income and rural tracts, and the Opportunity Zone program rewards exactly that kind of long-term equity. **Figure: Why data center capital is looking for long-term equity** - 4.4%: Share of U.S. electricity used by data centers in 2023 (176 TWh) - 11.8%: LBNL reference-case share in 2030 (649 TWh) - 1.4%: Record-low vacancy in primary North American markets, H1 2026 - $8.9–23.3M: All-in greenfield cost per MW, excluding chips *Electricity use from LBNL's 2024 report and 2025 update; vacancy from CBRE's H1 2026 primary-market survey; cost from Cushman & Wakefield's 2026 guide, excluding chips.[^5][^6][^7][^8]* - Capital intensity. JLL forecasts average shell-and-core cost of $11.3 million per MW in 2026, and tenant AI fit-out can cost up to about $25 million per MW more.[^9] - Long holds. The 10-year exclusion suits infrastructure owned for a decade or longer. - Location. Power availability now decides where data centers can be built, pushing development toward frontier and rural markets that overlap with eligible tracts. - Rural enhancements. The 50% substantial improvement threshold and the 30% step-up for a Qualified Rural Opportunity Fund favor rural sites. The full argument, with the counterpoints, is in [why data centers are a natural fit for Opportunity Zones](https://ozdatacenters.com/guides/why-data-centers-fit-opportunity-zones). ## How is an Opportunity Zone data center usually structured? The usual structure has two tiers: investors put capital gains into a QOF, and the QOF invests in a QOZB subsidiary that owns or leases the land, builds the facility and runs the business. **Figure: How capital moves in an Opportunity Zone data center** - Investor capital gain (Stock, business or real estate sale) - then: Within 180 days - 90% test: Qualified Opportunity Fund (Partnership or corporation) - then: Equity for an ownership interest - 70% test: QOZB subsidiary (Develops and operates) - then: Builds or improves - Data center in a zone (Land, shell, power, cooling) - then: Leases capacity or services - Customers (Colocation, wholesale or single tenant) *The two-tier structure gives the project the working capital safe harbor and the 70% tangible property test at the QOZB level, rather than the stricter 90% test at the fund.[^1][^2]* Debt is usually raised at the QOZB, because the investor's Opportunity Zone investment must be equity. See [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund) and [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## Which Opportunity Zone rules matter most for a data center? Five rules decide most data center deals: the active trade or business requirement, the 70% tangible property test, the working capital safe harbor, original use or substantial improvement, and the 10-year holding period.[^1][^11] **Core Opportunity Zone rules and what they mean for a data center** | Rule | Requirement | Data center pressure point | | --- | --- | --- | | 180-day investment period | Invest eligible gain in a QOF within 180 days | Capital calls must line up with investors' gain dates | | QOF asset test | 90% of assets in zone property, tested semiannually | Hold the project through a QOZB to use the 70% test | | Tangible property test | 70% of owned or leased tangible property is zone business property | Servers can dominate value if the QOZB owns them | | Gross income test | 50% of gross income from active business in the zone | Needs a real operating business, not a passive lease | | Intangibles and financial property | 40% of intangibles used in the zone; under 5% nonqualified financial property | Cash outside the safe harbor counts against the 5% | | Working capital safe harbor | 31 months per written plan; 62 months maximum | Power can take longer than one plan | | Original use or substantial improvement | New construction, or basis improvement over 100% (50% in wholly rural zones) in 30 months | Ground-up builds qualify; conversions must clear the hurdle | | 10-year hold | Elect fair market value basis on sale after 10 years | IT equipment sold earlier is taxed normally | **Figure: The QOZB percentage tests a data center business must pass** - Tangible property that is zone business property: at least 70% - Gross income from active business in the zone: at least 50% - Intangibles used in the zone business: at least 40% - Nonqualified financial property: less than 5% *The 70% test is measured by value, which is why expensive IT equipment and who owns it matters so much.[^1][^11]* ## Does a triple-net data center lease qualify as an active business? Not by itself. Under the regulations, owning and operating real property, including leasing it, can be an active trade or business, but merely entering into a triple-net lease is not.[^1][^10] A triple-net lease is one in which the tenant pays taxes, insurance and maintenance in addition to rent and utilities.[^10] The final regulations illustrate the line. A landlord that leases an entire building to a single tenant on a triple-net basis is not engaged in an active trade or business, even with an on-site office handling lease issues. A landlord that leases part of a building triple-net and actively manages and operates the rest through on-site employees is.[^11] **Figure: Lease structure and active business risk (practical view)** - Multiple Number of tenants, Few Operating services the QOZB provides: Multi-tenant, landlord passive (Better than single NNN, but services still matter) - Multiple Number of tenants, Substantial Operating services the QOZB provides: Colocation or turnkey (Operator runs power, cooling, security; strongest facts) - Single Number of tenants, Few Operating services the QOZB provides: Single-tenant NNN powered shell (Textbook risk case) - Single Number of tenants, Substantial Operating services the QOZB provides: Single tenant with operator services (Defensible if services are real and documented) *Analysis, not settled law. No authority addresses hyperscaler data center leases specifically, so these are practical considerations for tax counsel to test against the facts.[^12]* Practical considerations, not rules: structures with more defensible facts include multi-tenant colocation, operator-provided services (power management, cooling, security, remote hands), modified-gross leases with landlord operating duties, and a QOZB that operates the data center itself.[^12] Each is fact-specific. Detail is in [powered shell and triple-net data centers in Opportunity Zones](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones) and [data center lease structures](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones). ## How are servers and IT equipment treated compared with the building? Servers count toward the QOZB's 70% test only if the QOZB owns or leases them, and because they wear out in five to six years they cannot carry a 10-year gain the way the building and power infrastructure can.[^13] **Server useful lives in hyperscaler accounting (as reported; confirm in each 10-K)** | Company | Server useful life | Note | | --- | --- | --- | | Microsoft | 6 years | Extended from 4 years in 2022 | | Alphabet | 6 years | Servers 4 to 6 years, effective 2023 | | Meta | 5.5 years | Effective January 1, 2025 | | Amazon | 5 years (subset) | Shortened from 6 years in 2025, citing AI pace | - Tenant-owned equipment. If the tenant owns the servers, they are outside the landlord QOZB's 70% test entirely. That is the common powered-shell and wholesale pattern. - QOZB-owned equipment. Equipment bought from an unrelated party, with original use in the zone, can qualify. Each replacement over the hold must also meet those requirements. - Equipment sold before year 10. Gain on assets sold before the 10-year mark is not covered by the exclusion. A QOF that sells qualifying property has 12 months to reinvest the proceeds for the 90% test, but that relief does not defer the gain.[^23] - After year 10. For partnership or S corporation QOFs, investors can elect to exclude gain on asset sales, including depreciation recapture, other than inventory.[^26] - Depreciation. 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025, and much data center equipment falls in short-life classes. The building shell, as 39-year property, does not qualify.[^14] Practitioner commentary says the treatment of servers is less settled than that of the shell, power, cooling and backup generation. See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules) and [depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## Does the working capital safe harbor cover a long wait for power? Often not on its own. A QOZB can hold cash as working capital for up to 31 months under a written plan and schedule, and overlapping or sequential plans can extend that to 62 months from the first cash infusion.[^15] Data center power can take longer. Dominion Energy said in 2024 that connecting data centers above 100 MW in Northern Virginia could take up to seven years.[^16] For on-site or co-located generation, LBNL found the median time from interconnection request to commercial operation exceeded four years for projects built from 2018 to 2024.[^17] The safe harbor is tolled for delay caused by government action on a completed application when nothing else can be done, and a federally declared disaster can add up to 24 months.[^15] Whether a utility's study and construction delays count as governmental delay has not been addressed in guidance. - Choose sites with power in hand, or a signed service agreement with a near-term energization date. - Call capital in tranches, each with its own 31-month plan, within the 62-month maximum. - Spend early cash on land, design, long-lead electrical equipment and substations, all of which the plan can schedule. - Watch Notice 2026-55, which asks whether a QOZB should be allowed to modify an existing working capital plan. More in [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines) and [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## Why are rural zones and building conversions attractive for data centers? Rural zones offer the land, transmission access and phasing room large campuses need, plus two rural incentives: a 50% substantial improvement threshold for existing buildings and a 30% step-up for investors in a Qualified Rural Opportunity Fund.[^18][^19] A rural area is anywhere outside a city or town of more than 50,000 people and its contiguous urbanized area. Notice 2025-50 lists 3,309 wholly rural zones on the current map, and 8,334 of the 25,332 tracts eligible for the new map are wholly rural.[^18] Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today.[^4] Conversions of mills, factories and power plant sites are a natural fit for the substantial improvement test, because only the building's basis sets the hurdle and data center fit-out (power, cooling, structural work) is expensive. Land does not need to be separately improved. Ground-up builds on raw land meet original use for the new building. See [rural data centers](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones), [Qualified Rural Opportunity Funds](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund) and [converting industrial buildings into data centers](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones). ## What are the risks of a data center Opportunity Zone investment? The main risks are structural (the active business test and equipment turnover), timing (power and the working capital clock), market and community (state incentive cutbacks and local opposition) and policy (proposals to exclude data centers). - Federal policy. Beyond the Hawley bill, Reps. Kristen McDonald Rivet and Don Davis introduced a House bill to bar data centers from incentives including 100% bonus depreciation and Opportunity Zone benefits, and Sen. Ron Wyden released a framework (not a bill) that would strip those benefits from data center developers.[^3] House Ways and Means Chair Jason Smith called the claim that the zones will be used for data centers a huge stretch, saying data centers can be used in them, but so can everything else.[^20] - State incentives. NCSL counted 38 states with dedicated data center incentives and found lawmakers in 28 states introduced bills in 2026 to scale back or modify programs.[^24] Several states paused new applications in 2026. - Local opposition. Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026.[^21] - Program evidence. GAO found QOFs held more than $108 billion in assets at the end of 2024 but said the effects of the incentive were mostly unknown.[^22] - State tax. Opportunity Zone benefits are federal. California, for example, does not conform to federal deferral or exclusion.[^25] **Figure: Risk scorecard for a hypothetical data center QOZB** - [pass] Site on the certified zone list: Confirmed for the 2027 designation period. - [watch] Active trade or business: Single tenant; QOZB must provide real operating services. - [pass] 70% tangible property test: Tenant owns servers; QOZB owns shell, MEP and substation. - [watch] Power within the safe harbor: Energization date is month 40; two sequential plans needed. - [watch] Federal policy change: Exclusion bills pending; not law as of Oct. 20, 2026. - [pass] State and local approvals: Zoning approved; PILOT under negotiation. *Example statuses for a single-tenant build with tenant-owned servers. Each watch item is a diligence question, not a deal breaker.* Weigh these against the general risks in [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). OZ Data Centers sponsors funds of this kind; if you are evaluating a site or an investment, [talk to our team](https://ozdatacenters.com/#contact). Structuring decisions depend on the facts, so confirm the analysis with your tax adviser. ## Common questions **Are data centers excluded from Opportunity Zones?** No, not under current law. The excluded business list covers golf courses, country clubs, massage parlors, hot tub and suntan facilities, gambling facilities and liquor stores. Bills introduced in September 2026 would exclude data centers, but they had not been enacted as of October 20, 2026. **Can a QOZB lease a data center to a single hyperscaler?** It can, but a bare triple-net lease is not an active trade or business under the regulations. A single-tenant triple-net powered shell is the highest-risk structure. The QOZB needs real operating activity, which is a fact-specific question for tax counsel. **Do servers qualify as Opportunity Zone business property?** They can if the QOZB buys them from an unrelated party and they are first placed in service in the zone. Because servers turn over every five to six years, gain on servers sold before year 10 is taxed normally, and replacements must meet the same requirements. **What if the utility cannot deliver power within 31 months?** A single working capital plan may not be enough. Sequential plans can extend the period to 62 months from the first cash infusion. Government delays on completed applications can toll the period, but guidance has not addressed whether utility delays count. **Do hyperscalers use Opportunity Zone funds?** Rarely, as far as public information shows. Hyperscalers mostly fund construction from operating cash rather than capital gains, and taxpayer information is confidential. The program is more relevant to independent developers and investor-funded projects. **Is a rural data center better for Opportunity Zone purposes?** Rural zones add two benefits: a 50% substantial improvement threshold for existing buildings and a 30% five-year step-up for investors in a Qualified Rural Opportunity Fund. The zone must be composed entirely of rural area. **How long must investors hold to get tax-free appreciation?** At least 10 years. On a sale after that, investors can elect to step basis up to fair market value. For sales after the 30th anniversary, basis is fixed at fair market value on that anniversary. ## Sources [^1]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^2]: U.S. Government Publishing Office, "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (2025). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^3]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^4]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^5]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^6]: Lawrence Berkeley National Laboratory, "United States Data Center Energy Usage Report: 2025 Update" (2026). https://eta-publications.lbl.gov/publications/united-states-data-center-energy-2025 [^7]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction [^8]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^9]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^10]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^11]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^12]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^13]: Accounting Today, "Meta's accounting move on AI servers to boost profit" (2025). https://www.accountingtoday.com/articles/metas-accounting-move-on-ai-servers-to-boost-profit [^14]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^15]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^16]: Bloomberg (via BNN Bloomberg), "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^17]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^18]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^19]: Pillsbury Winthrop Shaw Pittman, "Qualified Rural Opportunity Funds Are Set to Boost U.S. Heartland" (2025). https://www.pillsburylaw.com/en/news-and-insights/qualified-rural-opportunity-funds-boost-us-heartland.html [^20]: Bisnow, "Big Beautiful Bill Boasts New Boosts For Data Center Investments" (2025). https://www.bisnow.com/national/news/data-center/big-beautiful-bill-boasts-new-boosts-for-data-center-investments-130270 [^21]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^22]: U.S. Government Accountability Office, "GAO-26-108132 Highlights, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132-highlights.pdf [^23]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^24]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^25]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^26]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways --- # Why data centers are a natural fit for Opportunity Zones URL: https://ozdatacenters.com/guides/why-data-centers-fit-opportunity-zones Last reviewed: 2026-10-20 Data centers fit the Opportunity Zone program because they are capital-intensive, long-lived real assets that are increasingly built where land and power are available, which often means rural and lower-income tracts, and the program rewards long-term equity with tax-free appreciation after 10 years. The fit is strongest for an actively operated facility whose value sits in the building, land improvements and power infrastructure. It weakens with single-tenant triple-net leases, short-lived IT equipment, long utility waits and pending proposals to exclude data centers. ## Key takeaways - All-in greenfield data center cost runs about $8.9 million to $23.3 million per MW excluding chips, so projects need large amounts of equity. - Power infrastructure is the largest cost component at about 21% of greenfield cost, followed by core-and-shell and sitework at about 17%. - JLL reports 77% of North American development is in frontier markets, and Cushman & Wakefield says power availability now decides where growth can happen. - The 10-year exclusion rewards long holds of long-lived assets such as the shell, substations and mechanical and electrical plant, not servers that turn over every 5 to 6 years. - In wholly rural zones, existing buildings need only 50% basis improvement in 30 months, and Qualified Rural Opportunity Fund investors get a 30% step-up. ## Why are data centers a natural fit for Opportunity Zones? Because the program pays for exactly what data centers need: large amounts of patient equity, committed for a decade or more, invested in physical property in places that need investment. A Qualified Opportunity Fund (QOF) investor who holds at least 10 years can elect to step basis up to fair market value on a sale, which excludes the appreciation from federal tax.[^1] Four features line up: capital intensity, long asset lives, location (land and power push sites toward eligible tracts) and the rural enhancements. Each has limits, set out at the end of this guide. For the complete structuring picture, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). **Figure: Where data centers fit the program, and where they strain it** - Natural fit (Strengths) - Large equity needs per MW - Long-lived shell, substations and MEP - Sites follow land and power into eligible tracts - Rural rules lower the improvement hurdle - Pairs with permanent 100% bonus depreciation - Friction points (Watch) - Bare triple-net leases are not an active business - Servers turn over every 5 to 6 years - Power can outlast the 31-month safe harbor - Hyperscalers report they do not use the program - Bills would exclude data centers (not law) *The fit is real but conditional. Each strain is manageable with structure and site choice, except federal policy, which is outside the sponsor's control.* ## How capital-intensive are data centers? Very. Cushman & Wakefield's 2026 cost guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW, excluding chips and GPUs, up an average of 21% per MW since its previous edition.[^2] JLL forecasts average shell-and-core cost of $11.3 million per MW in 2026, with tenant AI fit-out of up to about $25 million per MW on top.[^3] **Figure: Where greenfield data center money goes** - Power infrastructure: 21% - Core-and-shell and sitework: 17% - Contingencies: 16% - Site acquisition: About 7% *Share of all-in greenfield cost by component in Cushman & Wakefield's 2026 guide. Power infrastructure is the largest single item.[^2]* At the industry level, JLL projects about 100 GW of new capacity globally by 2030 and up to $3 trillion of total investment, including about $1.2 trillion of real estate value.[^3] Opportunity Zone equity is small against that total. But for an independent developer financing a 50 MW or 200 MW project, it can be a meaningful part of the equity, and the program requires the investor's stake to be equity rather than debt. See [why Opportunity Zone investments must be equity](https://ozdatacenters.com/guides/opportunity-zone-equity-requirement). ## Do data center asset lives match a 10-year Opportunity Zone hold? The building, land improvements, substations and most mechanical and electrical plant do; the servers do not. Hyperscalers depreciate servers over about 5 to 6 years, and Amazon shortened part of its fleet to five years in 2025, citing the pace of AI technology change.[^4] That split shapes the investment case. Appreciation over 10 years comes mostly from the real estate and power infrastructure: a powered, leased, connected site is worth more than raw land, and the scarcity of powered capacity supports value. CBRE measured record-low 1.4% vacancy in primary North American markets in the first half of 2026, with more than 80% of capacity under construction preleased.[^5] Gain on equipment sold before the 10-year mark is taxed normally. After 10 years, investors in a partnership or S corporation QOF can elect to exclude gain on asset sales, including depreciation recapture, other than inventory.[^6] See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). ## Why are data centers increasingly built in places that qualify as Opportunity Zones? Because power, not land or fiber, now decides where data centers can be built, and available power is increasingly found in frontier and rural markets. Cushman & Wakefield says power availability now decides where growth can happen.[^7] JLL reports that 77% of North American development is in frontier markets such as West Texas, Ohio, Louisiana, Indiana and the Carolinas.[^8] Many tracts near transmission lines, retired power plants and large industrial sites are lower-income and rural. A report cited in coverage of Sen. Hawley's bill found 14% of existing U.S. data centers, and just over 17% of those permitted, approved or under construction, are in Qualified Opportunity Zones.[^18] Pew Research Center found that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today.[^9] Treasury's list of tracts eligible for the zones taking effect January 1, 2027 includes 8,334 wholly rural tracts out of 25,332.[^10] **Figure: The location overlap** - 77%: North American development in frontier markets - 17%: Planned or under-construction data centers in Opportunity Zones - 8,334: Wholly rural tracts eligible for the 2027 map *Development share from JLL; OZ share from a report cited in coverage of Sen. Hawley's bill (methodology not published); eligible rural tracts from the IRS.[^8][^18][^10]* Analysis, not a rule: the recurring site pattern is a rural tract near high-voltage transmission or a former generating station. Whether such a tract becomes a zone depends on each governor's nominations. See [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones) and [data center site selection](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## How do the rural Opportunity Zone rules strengthen the fit? They lower the cost of qualifying an existing building and raise the investor's five-year benefit. For property in a zone composed entirely of rural area, a purchased building is substantially improved when basis additions over 30 months exceed 50% of its adjusted basis, rather than 100%.[^11] Investors in a [Qualified Rural Opportunity Fund](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund), which holds at least 90% of its assets in such zones, get a 30% basis step-up after five years instead of 10%.[^11][^12] Law firm commentary argues these enhancements could make rural hyperscale and adaptive reuse projects more attractive.[^12][^13] For a mill or factory conversion, data center fit-out often clears even the 100% test, so the rural rule matters most where the building's purchase price is high relative to the planned work. ## How does bonus depreciation add to the Opportunity Zone benefit? The same law that made the program permanent also made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025, including MACRS property with a recovery period of 20 years or less.[^14] Much of a data center's electrical, mechanical and IT equipment falls in short-life classes after a cost segregation study, while the 39-year building shell does not. In a partnership QOF, depreciation deductions can flow through to investors, subject to basis, at-risk and passive loss limits. The 10-year election then lets investors exclude gain on a sale, including recapture for qualifying assets. State conformity varies, so check the state treatment of both bonus depreciation and Opportunity Zone benefits. See [depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation).[^15] ## Where does the data center fit with Opportunity Zones break down? It breaks down where the business is passive, where value sits in short-lived equipment, where power is years away, and where policy shifts. - Passive leasing. Merely entering into a triple-net lease is not the active conduct of a trade or business, so a single-tenant powered shell leased to a hyperscaler is the textbook risk case.[^16] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). - Power timing. The working capital safe harbor allows 31 months per plan and 62 months at most, while large-load service can take up to seven years in Northern Virginia.[^17] - Who uses it. The equity comes from investors with capital gains, so the fit is mainly for independent developers and investor-backed platforms, not companies funding construction from operating cash. - Policy. Bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits, and a Senate framework proposes the same. None was law as of October 20, 2026.[^18] - Community impact. Brookings found counties that got their first large data center saw private employment rise 4% to 5% over five to six years, while Virginia's JLARC found a typical data center employs about 50 full-time workers.[^19][^20] Critics question whether incentives are needed. None of these is fatal by itself. The strongest projects operate the facility, keep value in long-lived infrastructure, choose sites with near-term power and model returns that still work if the policy changes. See [the economic impact of data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-center-economic-impact-opportunity-zones). ## Common questions **What makes a data center a good Opportunity Zone investment?** An actively operated facility in a designated zone, with value concentrated in the building, land improvements and power infrastructure, power available within the working capital timeline, and returns that work over a 10-year or longer hold. **Do servers benefit from the 10-year exclusion?** Usually not. Servers are typically depreciated over 5 to 6 years and replaced before year 10. Gain on assets sold before the 10-year mark is taxed normally. The long-lived building and power infrastructure carry most of the excludable appreciation. **Why are so many data centers in rural areas now?** Power availability has become the main constraint, and available transmission and generation capacity is often in frontier and rural markets. JLL reports 77% of North American development is in frontier markets. **Is Opportunity Zone equity significant for a data center?** For hyperscalers, rarely, because they mostly fund construction from operating cash rather than investors' capital gains. For independent developers, Opportunity Zone equity can be a meaningful part of the equity in a project costing $8.9 million to $23.3 million per MW. **Could Congress remove data centers from the program?** Bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits. They had not been enacted as of October 20, 2026. Investors should model the risk that rules for future investments could change. ## Sources [^1]: U.S. Government Publishing Office, "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (2025). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^3]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^4]: Accounting Today, "Meta's accounting move on AI servers to boost profit" (2025). https://www.accountingtoday.com/articles/metas-accounting-move-on-ai-servers-to-boost-profit [^5]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction [^6]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^7]: IREI, "Cushman & Wakefield: Power availability redraws data center map as Americas development hits record 37.7GW" (2026). https://irei.com/news/cushman-wakefield-power-availability-redraws-data-center-map-as-americas-development-hits-record-37-7gw/ [^8]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^9]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^10]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^11]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^12]: Pillsbury Winthrop Shaw Pittman, "Qualified Rural Opportunity Funds Are Set to Boost U.S. Heartland" (2025). https://www.pillsburylaw.com/en/news-and-insights/qualified-rural-opportunity-funds-boost-us-heartland.html [^13]: Husch Blackwell, "What the New 50% Substantial Improvement Rule Means for Real Estate Investors in Rural Opportunity Zones" (2025). https://www.huschblackwell.com/newsandinsights/unlocking-opportunity-what-the-new-50-substantial-improvement-rule-means-for-real-estate-investors-in-rural-opportunity-zones [^14]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^15]: CBIZ, "Cost segregation bonus depreciation benefits under the OBBBA" (2025). https://www.cbiz.com/insights/article/cost-segregation-bonus-depreciation-benefits-under-the-obbba [^16]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^17]: Bloomberg (via BNN Bloomberg), "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^18]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^19]: Brookings Institution, "New evidence on data center employment effects" (2026). https://www.brookings.edu/articles/new-evidence-on-data-center-employment-effects/ [^20]: Joint Legislative Audit and Review Commission (Virginia), "Data Centers in Virginia, Report 598" (2024). https://jlarc.virginia.gov/pdfs/reports/Rpt598.pdf --- # How a data center Opportunity Zone fund works URL: https://ozdatacenters.com/guides/data-center-opportunity-zone-fund Last reviewed: 2026-10-20 A data center Opportunity Zone fund is a Qualified Opportunity Fund that raises investors' capital gains within their 180-day windows and invests them as equity in a subsidiary Qualified Opportunity Zone Business that buys or leases land in a zone, builds or converts the facility and operates it. Investors defer the gain for up to five years, get a 10% step-up (30% in a rural fund), and after 10 years can exclude the appreciation when the fund or its assets are sold. The fund must keep 90% of its assets in qualifying property, and the business must meet the 70% tangible property, 50% gross income and working capital rules. ## Key takeaways - Investors must put eligible capital gains into the QOF within 180 days and make the deferral election on Form 8949; money that is not eligible gain is a separate investment without the tax benefits. - The QOF must hold at least 90% of its assets in qualified opportunity zone property, measured on two semiannual testing dates, and files Form 8996 every year. - Most data center funds invest through a QOZB subsidiary, which uses the 70% tangible property test and the 31-month working capital safe harbor (62 months maximum). - Debt is usually raised at the QOZB, because the investor's Opportunity Zone stake must be equity; some debt-financed distributions can trigger early tax. - After a 10-year hold, investors can elect fair market value basis on a sale of their interest, and partnership QOF investors can also elect to exclude gain on asset sales other than inventory. ## How does a data center Opportunity Zone fund work? A data center Opportunity Zone fund is a Qualified Opportunity Fund (QOF), usually an LLC taxed as a partnership, that takes investors' capital gains and invests them as equity in a Qualified Opportunity Zone Business (QOZB) that develops and operates a data center in a designated zone.[^1][^2] The fund self-certifies on Form 8996, and investors report their deferral on Form 8949 and Form 8997.[^3][^15] **Figure: The two-tier data center fund** - Investors (Capital gains from sales) - then: Eligible gain within 180 days - 90% test: QOF (partnership LLC) (Self-certifies on Form 8996) - then: Equity - 70% test: QOZB (operating LLC) (Owns, builds and operates) - then: Acquires and builds - Data center property (Land, shell, substation, MEP) *Investors hold QOF interests. The QOF holds QOZB equity, which counts as qualifying property when the QOZB passes its tests, so the QOF can meet its 90% test through one investment.[^1][^2]* Why two tiers? A QOF that owns the data center directly must have 90% of its assets in qualifying property on each testing date, and a construction project holding cash would struggle with that. A QOZB is tested at 70% for tangible property and can treat cash as working capital for up to 31 months under a written plan.[^2][^6] See [Opportunity Zone fund structures](https://ozdatacenters.com/guides/opportunity-zone-fund-structures). ## What are the steps from raising capital to exit? The life of a fund runs from capital raise, through development and operation, to a sale after at least 10 years. **Figure: The life cycle of a data center Opportunity Zone fund** 1. Raise gains: Within each investor's 180 days 2. Fund the QOZB: Equity; written working capital plan 3. Build: Land, power, shell, fit-out 4. Operate: Lease capacity and provide services 5. Report: Form 8996 and Form 8997 each year 6. Exit: Sell after 10 years with the election *The middle steps are where the business-level tests apply. The first and last steps are where the investor's tax clock starts and pays off.* 1. Raise. Each investor invests an amount up to their eligible gain within 180 days, generally from the sale date. For gain from a partnership or S corporation that does not elect deferral itself, the owner's period generally starts on the last day of the entity's tax year, and the owner can instead elect the entity's sale date or the due date of the entity's return (without extensions).[^12] 2. Fund. The QOF contributes cash to the QOZB for equity. The QOZB adopts a written plan and schedule for spending it on property in the zone.[^6] 3. Build. The QOZB acquires land by purchase from an unrelated party, or ground-leases it at market terms, and builds or substantially improves the facility. 4. Operate. The QOZB leases capacity and provides operating services, earning at least 50% of its gross income from the active business in the zone. 5. Exit. After 10 years, investors elect fair market value basis on a sale of their interests, or the fund sells assets and investors elect to exclude the gain.[^8] ## What rules does the fund itself have to follow? The QOF must hold at least 90% of its assets in qualified opportunity zone property, averaged over two semiannual testing dates, and file Form 8996 annually.[^3][^5] - Testing dates. Generally the last day of the first six months of the tax year and the last day of the tax year.[^5] - New cash. Cash contributed within the prior six months can be excluded from the test if held in cash, cash equivalents or short-term debt. - Reinvestment. Proceeds from a return of capital or a sale of qualifying property count as qualifying for 12 months if reinvested, held meanwhile in cash or short-term debt. This helps the asset test only; it does not defer tax on the gain.[^4] - Penalty. A monthly penalty applies for each month the fund falls short, equal to the shortfall times the federal underpayment rate, unless the failure is due to reasonable cause.[^5] - New reporting. IRC §6039K requires an annual QOF information return. Proposed regulations of September 11, 2026 would make Form 8996 a separate information return with census-tract-level detail. The §6726 penalty is $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million.[^7] See [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test) and [Opportunity Zone reporting requirements](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What tests does the data center operating business have to pass? The QOZB must meet four percentage tests, keep any cash within the working capital safe harbor, avoid the excluded businesses, and conduct an active trade or business in the zone.[^2] **QOZB percentage tests for a data center business** | Test | Threshold | Data center note | | --- | --- | --- | | Owned or leased tangible property that qualifies | At least 70% by value | Server ownership can dominate the calculation | | Gross income from active business in the zone | At least 50% | Needs operating activity, not a passive lease | | Intangibles used in the zone | At least 40% | Software and contracts used at the site | | Nonqualified financial property | Less than 5% | Cash outside the safe harbor counts here | - Working capital. Up to 31 months per written plan and schedule; up to 62 months with overlapping or sequential plans; tolling for government delay on completed applications (whether utility interconnection delays count is unsettled); up to 24 more months in a federally declared disaster area.[^6] - Active business. Merely entering into a triple-net lease is not the active conduct of a trade or business. A single-tenant powered shell is the main risk.[^2][^10] - Property. Tangible property must be acquired by purchase from an unrelated party, or leased at market terms, and must meet original use or be substantially improved within 30 months. - Cure. Practitioner summaries describe a one-time six-month cure period for a QOZB that fails the 70% test.[^11] For the detail, see [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers). ## Which data center business models suit an Opportunity Zone fund? Models in which the QOZB operates the facility and provides services fit the active business requirement most naturally; a single-tenant triple-net powered shell fits it least.[^10] **Figure: Three data center models inside an Opportunity Zone fund** - Colocation or turnkey operator (Strongest fit) - QOZB runs power, cooling and security - Multiple customers - Shorter contracts, more operating income - QOZB may own some IT and network gear - Single tenant with services (Fact-specific) - Long lease to one user - QOZB staff operate critical facilities - Services documented in the lease - Tenant owns servers - Triple-net powered shell (Highest risk) - Tenant pays all costs and runs the building - Landlord delivers shell and utility power - Fails the active test on its own - Needs restructuring to qualify *Analysis, not settled law. No IRS guidance addresses data center leases specifically, so the active business question depends on the services the QOZB actually provides.[^10]* Funds can be single-asset (one campus, one QOZB) or multi-asset (several QOZBs). A fund that keeps at least 90% of its assets in wholly rural zones is a [Qualified Rural Opportunity Fund](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund), and its investors get a 30% step-up at five years instead of 10%.[^16] See [single-asset vs. multi-asset funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). ## How is a data center Opportunity Zone fund financed? Investors' Opportunity Zone capital is equity in the QOF; construction and permanent debt is usually borrowed by the QOZB.[^1] Only an investment of eligible gain gets the benefits. Under §1400Z-2(e), any other amount invested is treated as a separate investment to which the deferral, step-up and 10-year exclusion do not apply.[^1] - Mixed investors. Funds often accept both gain and non-gain capital. The non-gain portion is an ordinary investment and is tracked separately. - Debt. Borrowing at the QOZB is common and can provide tax basis for depreciation in a partnership structure. - Distributions. Distributions in excess of an investor's basis, including some debt-financed distributions, can be inclusion events that accelerate the deferred gain.[^13] - Bonus depreciation. 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025, which can create early deductions on short-life data center equipment.[^14] See [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack) and [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing). ## What does the investor's tax math look like? Illustrative example. An investor realizes a $1,000,000 long-term capital gain in 2027. Assume a 23.8% federal rate (20% plus 3.8% net investment income tax), no state tax, no fees, the same doubling of value over 10 years in both cases, and no time-value adjustment for the year-5 tax. **Illustrative comparison over a 10-year hold** | Step | Pay tax now, invest the rest | Invest the gain in a QOF | | --- | --- | --- | | Tax in 2027 | $238,000 | $0 (deferred) | | Amount invested | $762,000 | $1,000,000 | | Tax at year 5 | None | $214,200 on $900,000 after 10% step-up | | Value at year 10 (2x) | $1,524,000 | $2,000,000 | | Tax on sale at year 10 | $181,356 on $762,000 gain | $0 with the 10-year election | | Net after all taxes | $1,342,644 | $1,785,800 | **Figure: After-tax result of a $1,000,000 gain after 10 years** (illustrative) - Pay tax now, invest the rest: $1.34M - Invest the gain in a QOF: $1.79M *Illustrative. Same gross return in both cases; the QOF result subtracts the year-5 tax paid from other funds. A rural fund's 30% step-up would cut the year-5 tax to $166,600.* Most of the difference comes from the 10-year exclusion, so the benefit depends on the project actually appreciating. For appreciation after the 30th anniversary, basis is fixed at fair market value on that date.[^12] See [a worked Opportunity Zone tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## How does a data center fund exit, and what should investors check? After 10 years, investors can sell their QOF interests and elect fair market value basis, or a partnership QOF can sell the data center and investors can elect to exclude the gain, including depreciation recapture, other than on inventory.[^8] Gain on equipment the QOZB sells before year 10 is taxed normally. **Figure: Investor checklist for a data center Opportunity Zone fund** - [pass] Fund certified on Form 8996: First-year certification filed with the return. - [pass] Site on the certified zone list: Confirmed for the 2027 designation period. - [watch] Active business, not a bare NNN lease: Operating services agreement under review. - [watch] Power date inside the working capital plans: Utility energization scheduled for month 34. - [pass] IT equipment ownership decided: Tenant owns servers; QOZB owns MEP. - [pass] Exit plan after year 10: Partnership QOF allows asset-sale election. - [watch] Federal policy risk modeled: Exclusion bills introduced Sept. 2026; not law. *Example statuses for a hypothetical fund. The items that most often go wrong in data center deals are the lease structure and the power schedule.* Policy risk belongs in the model. Bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits; they are proposals, not law.[^17] For a full list of questions, use the [Opportunity Zone fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and [how to choose an Opportunity Zone sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor).[^9][^14] ## Common questions **Does a data center fund have to own the building directly?** No. Most invest through a QOZB subsidiary that owns or leases the property. The QOF's interest in a qualifying QOZB counts toward its 90% asset test, and the QOZB gets the 70% test and the working capital safe harbor. **Can investors put in more than their capital gain?** Yes, but only the eligible gain amount gets Opportunity Zone treatment. Under §1400Z-2(e), any other amount is a separate investment without deferral, step-up or the 10-year exclusion. **Can the fund borrow?** Yes. Debt is usually borrowed at the QOZB level. Investors' Opportunity Zone stakes must be equity, and some debt-financed distributions can trigger early inclusion of the deferred gain. **What happens to servers the business replaces during the hold?** Gain on equipment sold before the 10-year mark is taxed normally. Replacement equipment must itself be purchased from an unrelated party and first placed in service in the zone to count as qualifying property. **How long must the fund hold the data center?** Investors must hold their QOF interests at least 10 years to elect the exclusion. For sales after the 30th anniversary of the investment, basis is fixed at fair market value on that anniversary. **What does the fund file each year?** The QOF files Form 8996 to certify and report its 90% test, and each investor files Form 8997. Proposed regulations would expand Form 8996 into a separate information return with census-tract-level detail. ## Sources [^1]: U.S. Government Publishing Office, "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (2025). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^4]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^5]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^6]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^7]: Federal Register, "Information Reporting Regarding Qualified Opportunity Zones and Updated QOF Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^8]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^9]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^10]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^11]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^12]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^13]: Greenberg Traurig, "Qualified Opportunity Zones: Final Treasury Regulations Released" (2019). https://www.gtlaw.com/ar/insights/2019/12/qualified-opportunity-zones-final-treasury-regulations-released [^14]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^15]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^16]: Willkie Farr & Gallagher, "One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones" (2025). https://www.willkie.com/publications/2025/07/one-big-beautiful-bill-act-extends-tax-incentives-for-qualified-opportunity-zones [^17]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones --- # AI data centers and Opportunity Zones URL: https://ozdatacenters.com/guides/ai-data-centers-opportunity-zones Last reviewed: 2026-10-20 An AI data center can be developed through a Qualified Opportunity Fund on the same terms as any data center, because nothing in the Opportunity Zone rules treats AI facilities differently. What changes is scale: AI fit-out can cost up to about $25 million per MW on top of an $11.3 million per MW shell, liquid-cooled racks draw about 120 kW, and campuses need hundreds of megawatts. That makes three issues sharper: who owns the fast-depreciating GPUs, whether power arrives inside the 31-month working capital safe harbor, and whether the business is an active operator rather than a triple-net landlord. ## Key takeaways - The Opportunity Zone rules make no distinction for AI; an AI data center QOZB must pass the same 70% tangible property, 50% gross income and active business tests. - JLL forecasts shell-and-core cost of $11.3 million per MW in 2026, and tenant AI fit-out can add up to about $25 million per MW. - An NVIDIA GB200 NVL72 rack draws about 120 kW and needs liquid cooling, compared with about 12 kW for a typical CPU rack. - LBNL's reference case puts U.S. data centers at 649 TWh, about 11.8% of U.S. electricity, in 2030. - GPUs depreciate over about 5 to 6 years in hyperscaler accounting, so gain on equipment sold before year 10 is not covered by the 10-year exclusion. - Bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits; they had not been enacted as of October 20, 2026. ## Can an AI data center use Opportunity Zone benefits? Yes. The Opportunity Zone rules do not distinguish AI data centers from any other data center, and data centers are not an excluded business, so a Qualified Opportunity Zone Business (QOZB) that builds and operates an AI facility in a designated zone can qualify.[^10] Investors in the Qualified Opportunity Fund (QOF) above it get the usual benefits: deferral of the invested gain for up to five years, a 10% step-up (30% in a rural fund), and exclusion of appreciation after 10 years. What AI changes is the economics of the asset. AI facilities concentrate far more power and far more equipment value in each square foot, which puts pressure on the rules that measure property by value and on the clock that limits how long cash can wait. For the general framework, start with [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## What makes AI data centers different from conventional data centers? Density, cost and power. A typical general-purpose CPU rack supports up to about 12 kW, an air-cooled H100 rack about 40 kW, and an NVIDIA GB200 NVL72 rack about 120 kW with liquid cooling.[^5] Tenant AI fit-out can cost up to about $25 million per MW, often more than the shell itself.[^6] **Figure: Power per rack by workload** - General-purpose CPU rack: About 12 kW - Air-cooled H100 rack: About 40 kW - GB200 NVL72 rack (liquid-cooled): About 120 kW *Approximate figures reported by SemiAnalysis. Rack density drives liquid cooling, electrical design and the value of equipment inside the building.[^5]* **Figure: Data center cost per MW, excluding chips** - All-in greenfield (Cushman & Wakefield 2026): $8.9M to $23.3M - Shell and core average (JLL): $10.7M to $11.3M *Cushman & Wakefield's all-in greenfield range and JLL's shell-and-core average (2025 actual to 2026 forecast). AI fit-out is separate and can add up to about $25 million per MW.[^6][^7]* Demand is the reason for the build-out. LBNL's 2025 update projects U.S. data centers at 649 TWh, about 11.8% of U.S. electricity, in 2030 in its reference case.[^1] EPRI's 2026 scenarios range from about 9% to 17% by 2030.[^2] The IEA says data centers account for nearly half of U.S. electricity demand growth through 2030.[^3] Aggregated 2026 capital spending guidance for Amazon, Microsoft, Alphabet and Meta runs about $700 billion or more, as tallied by press and trackers rather than company filings.[^4] Construction can be fast. Epoch AI's tracking of recent gigawatt-scale campuses found 1 to 3.6 years from construction start to 1 GW of power.[^8] Power supply, not the building, is usually the constraint. ## How do GPUs and AI servers fit the Opportunity Zone rules? GPUs and servers count as qualifying property only if the QOZB owns or leases them and they meet the purchase and original use rules, and because they depreciate over about five to six years they rarely carry a 10-year gain.[^9][^10] - The 70% test is by value. In an AI facility, equipment can be worth more than the building. If the QOZB owns the GPUs, they dominate both sides of the calculation, so each must be bought from an unrelated party and first placed in service in the zone. - Tenant-owned GPUs sit outside the landlord QOZB's test. That is the usual pattern when a hyperscaler or AI company leases a powered building. - Replacement cycles. Amazon shortened part of its server fleet's useful life from six to five years in 2025, citing the pace of AI technology change; Meta uses 5.5 years.[^9] Over a 10-year hold, AI equipment may turn over twice. - Gain on equipment sold before year 10 is taxed normally. A QOF has 12 months to reinvest sale proceeds for its 90% test, but that does not defer the gain. - No special rule for servers. The regulations test owned and leased servers under the same purchase, original use and leased-property rules as the building and its power and cooling plant.[^22] Bonus depreciation softens the timing. 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025, and servers fall in short-life classes.[^21] See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). ## How do on-site power and co-location affect an AI data center in an Opportunity Zone? AI campuses increasingly bring their own generation or locate next to it, which raises a practical Opportunity Zone question: is the generating plant inside the zone, and who owns it? - Homer City, Pennsylvania: a former coal plant site of more than 3,200 acres planned as a 4.5 GW gas-fired data center campus.[^11] - Stargate in Abilene, Texas: a reported order of gas turbines totaling about 1 GW for on-site power (an earlier permit described a smaller plant).[^12] - Meta's Hyperion campus in Louisiana: the state PSC approved three Entergy gas plants of about 2.26 GW in August 2025.[^13] These examples show the site pattern; they are not described as Opportunity Zone projects. Grid rules are moving too. FERC found PJM's tariff lacked clear rules for co-located load in December 2025 and ordered new transmission service options.[^14] DOE directed FERC in October 2025 to consider rules for interconnecting loads above 20 MW (Docket RM26-4).[^15] For contracted renewable supply, the wind and solar credits end for facilities placed in service after 2027 unless construction began by July 4, 2026.[^16] Utilities are also protecting themselves. AEP Ohio's tariff, approved July 9, 2025, requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years.[^17] Practical consideration: generation equipment owned by the QOZB and located in the zone can be qualifying property; a utility-owned plant is not the QOZB's property at all. See [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## Can an AI campus be built within the working capital safe harbor? A single phase can be, if power is in hand; a multi-phase gigawatt campus usually needs sequential plans. The safe harbor allows 31 months per written plan and up to 62 months from the first cash infusion, with tolling for government delay on completed applications.[^20] **Figure: AI campus timing against the working capital clock** - Multi-phase campus Build scale, Queue or study stage Power certainty: High risk (Large campus waiting on the grid; cash may sit too long) - Multi-phase campus Build scale, Service agreement or on-site supply Power certainty: Phase the capital (Sequential plans within 62 months) - Single phase Build scale, Queue or study stage Power certainty: Wait to raise (Do not call cash until power is clearer) - Single phase Build scale, Service agreement or on-site supply Power certainty: Best fit (One 31-month plan can cover it) *A practical view, not a rule. Power certainty matters more than construction speed, because utility delays are not clearly covered by the safe harbor's tolling.* More in [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## Who actually uses Opportunity Zone funds for AI data centers? Mostly independent developers and investor-backed platforms, not the hyperscalers, because Opportunity Zone equity comes from investors with capital gains rather than corporate operating cash. Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today, which puts more projects within reach of the larger rural step-up.[^19] The typical Opportunity Zone pattern is therefore a developer QOZB that secures land and power and builds the shell and infrastructure, with an AI tenant installing its own equipment. That model is exactly where the active business requirement bites: merely entering into a triple-net lease is not an active trade or business.[^10] The QOZB needs real operating activity. See [hyperscale data center campuses](https://ozdatacenters.com/guides/hyperscale-data-centers-opportunity-zones) and [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## What policy and community risks do AI data centers face in Opportunity Zones? AI data centers are at the center of the policy debate. On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act to exclude data centers from Opportunity Zone benefits; a House bill would bar data centers from several expanded incentives; and Sen. Ron Wyden released a framework, not a bill, along the same lines.[^18] None had been enacted as of October 20, 2026. Local resistance is growing. Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026.[^23] Water, noise, power bills and land use are the recurring issues. See [community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers). **Figure: AI data center Opportunity Zone checklist** - [pass] Site on the certified zone list: Wholly rural tract; 50% improvement rule available. - [pass] GPU ownership and 70% test: Tenant owns GPUs; QOZB owns shell, substation, cooling. - [watch] Active business: Single tenant; QOZB to run critical facilities. - [watch] Power inside the capital plan: Phase 1 energized at month 28; phase 2 uncertain. - [watch] On-site generation in the zone: Turbine pad straddles the tract line. - [watch] Federal policy: Exclusion bills pending; not law. *Example statuses for a hypothetical 300 MW AI campus with a single AI tenant. Most of the risk sits in structure and power, not in the zone itself.* ## Common questions **Are AI data centers treated differently under the Opportunity Zone rules?** No. The same fund and business tests apply. The differences are practical: higher equipment value, denser power and larger campuses make the 70% test, the working capital safe harbor and the active business requirement harder to manage. **Can GPUs be qualified opportunity zone business property?** Yes, if the QOZB buys them from an unrelated party and first places them in service in the zone. Because they depreciate over about five to six years, gain on GPUs sold before year 10 is taxed normally. **Does it matter who owns the GPUs?** Yes. If the tenant owns them, they are outside the landlord QOZB's 70% test. If the QOZB owns them, they often dominate the test by value, and each replacement must also qualify. **Can on-site generation be part of the Opportunity Zone investment?** It can if the QOZB owns the generating equipment and it is used in the zone. A utility-owned plant serving the campus is not the QOZB's property. Confirm the plant site is inside the designated tract. **Do hyperscalers use Opportunity Zones for AI campuses?** Rarely, as far as public information shows; hyperscalers mostly fund construction from operating cash, and taxpayer information is confidential. Opportunity Zone capital is more relevant to independent developers that build for AI tenants. **Will Congress remove AI data centers from the program?** Bills introduced in September 2026 would exclude data centers from Opportunity Zone benefits, but they are proposals. As of October 20, 2026, data centers remain eligible. ## Sources [^1]: Lawrence Berkeley National Laboratory, "United States Data Center Energy Usage Report: 2025 Update" (2026). https://eta-publications.lbl.gov/publications/united-states-data-center-energy-2025 [^2]: EPRI, "Powering Intelligence 2026: Updated Scenarios of U.S. Data Center Electricity Use and Power Strategies" (2026). https://esca.epri.com/products/3002034696/ [^3]: International Energy Agency, "Energy and AI: Executive Summary" (2025). https://www.iea.org/reports/energy-and-ai/executive-summary [^4]: Forbes, "Big Tech Will Spend Over $700 Billion On AI This Year" (2026). https://www.forbes.com/sites/jasonkirsch/2026/10/07/big-tech-will-spend-over-700-billion-on-ai-this-year-follow-the-money-not-the-hype/ [^5]: SemiAnalysis, "GB200 Hardware Architecture and Component Supply Chain" (2024). https://newsletter.semianalysis.com/p/gb200-hardware-architecture-and-component [^6]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^7]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^8]: Epoch AI, "Data center buildout speeds" (2026). https://epoch.ai/data-insights/data-centers-buildout-speeds [^9]: Accounting Today, "Meta's accounting move on AI servers to boost profit" (2025). https://www.accountingtoday.com/articles/metas-accounting-move-on-ai-servers-to-boost-profit [^10]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^11]: Data Center Dynamics, "Homer City and Kiewit unveil plans for 4.5GW natural gas-powered AI data center in Pennsylvania" (2025). https://datacenterdynamics.com/en/news/homer-city-and-kiewit-unveil-plans-for-45gw-natural-gas-powered-ai-data-center-in-pennsylvania [^12]: Data Center Dynamics, "Parker Hannifin to supply more than 1GW of natural gas turbines to Stargate's Abilene campus in Texas" (2026). https://www.datacenterdynamics.com/en/news/parker-hannifin-to-supply-more-than-1gw-of-natural-gas-turbines-to-stargates-abilene-campus-in-texas/ [^13]: Data Center Dynamics, "Entergy obtains approval to construct three gas facilities to serve Meta's 2GW data center in Louisiana" (2025). https://www.datacenterdynamics.com/en/news/entergy-obtains-approval-to-construct-three-gas-facilities-to-serve-metas-2gw-data-center-in-louisiana [^14]: Morgan Lewis, "FERC Directs Co-Location Reforms in PJM" (2025). https://www.morganlewis.com/pubs/2025/12/ferc-directs-co-location-reforms-in-pjm [^15]: Federal Energy Regulatory Commission, "Interconnection of Large Loads to the Interstate Transmission System (Docket RM26-4-000)" (2025). https://www.ferc.gov/rm26-4 [^16]: Jones Day, "IRS Issues New Guidelines for Wind and Solar Tax Credits" (2025). https://www.jonesday.com/en/insights/2025/08/irs-issues-new-guidelines-for-wind-and-solar-tax-credits [^17]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^18]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^19]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^20]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^21]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^22]: Tax Notes, "26 CFR 1.1400Z2(d)-2: Qualified opportunity zone business property" (n.d.). https://taxnotes.com/research/federal/cfr26/1.1400Z2d-2 [^23]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 --- # Hyperscale data center campuses in Opportunity Zones URL: https://ozdatacenters.com/guides/hyperscale-data-centers-opportunity-zones Last reviewed: 2026-10-20 A hyperscale campus can be owned through a Qualified Opportunity Fund if it sits in a designated zone, but the tax benefit goes to the fund's investors who roll capital gains into the project, not to the cloud or AI tenant. The projects that fit best are developer-owned campuses where the fund's operating business actively runs the facility, each construction phase is funded to fit the 31-month working capital safe harbor, and the long-lived shell, power and cooling assets are held for at least 10 years. ## Key takeaways - Opportunity Zone benefits belong to investors who put capital gains into a Qualified Opportunity Fund (QOF); a hyperscale tenant paying rent gets no Opportunity Zone benefit of its own. - Hyperscalers fund most capital spending from operating cash rather than realized capital gains, so Opportunity Zone hyperscale deals are usually developer- or investor-owned campuses leased to hyperscalers. - Merely entering into a triple-net lease is not the active conduct of a trade or business under Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B), which makes a bare single-tenant lease to a hyperscaler the highest-risk structure. - Cash can be sheltered as working capital for 31 months per written plan, and up to 62 months in total, while Dominion Energy said in 2024 that large data center hookups in Northern Virginia could take up to seven years. - For investments after December 31, 2026, a Qualified Rural Opportunity Fund earns a 30% basis step-up at year five, and existing buildings in wholly rural zones need only 50% substantial improvement. ## What is a hyperscale data center campus? A hyperscale campus is a multi-building site built to deliver hundreds of megawatts (MW) to gigawatts (GW) of IT power for a large cloud or AI company, usually phased over several years. The buildings are designed around the user's power density, cooling and network needs, and the campus often includes its own high-voltage substation. Scale drives the economics. One hyperscaler request for information sought a site of at least 200 acres with 400 MW available by mid-2027, expandable to 1 GW, or about half an acre per MW at the first phase; that is one request, not a benchmark.[^6] Cushman & Wakefield's 2026 cost guide puts all-in greenfield development at about $8.9 million to $23.3 million per MW, excluding chips and GPUs, so a 400 MW first phase can cost several billion dollars before any servers arrive.[^7] **Figure: Hyperscale demand and cost, 2026** - 1.4%: CBRE North America primary-market vacancy, H1 2026[^3] - 66 GW+: Under construction in North America, about 95% pre-committed (JLL, midyear 2026)[^4] - $8.9–23.3M: All-in greenfield cost per MW, excluding chips (Cushman & Wakefield, 2026)[^7] - $700B+: Combined 2026 capex guidance of Amazon, Microsoft, Alphabet and Meta, as aggregated by Forbes[^5] *Demand is running ahead of supply, and every campus is capital-intensive. Brokerage figures measure different market sets and should not be compared directly.* A Qualified Opportunity Zone is a census tract designated under IRC §1400Z-1 in which new investment can earn the tax benefits of §1400Z-2.[^1] A hyperscale campus qualifies only if its land and buildings sit inside a designated tract and its owner meets the business tests described below. The broader framework is in [Data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Who gets the Opportunity Zone tax benefit on a hyperscale project? The investor gets it, not the tenant. The benefit attaches to capital gains that a taxpayer reinvests as equity in a Qualified Opportunity Fund (QOF), a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property.[^1] The fund usually invests through a Qualified Opportunity Zone Business (QOZB), the operating company that owns the campus. For gains invested after December 31, 2026, the investor defers the gain for up to five years, receives a 10% basis step-up at year five (30% for a rural fund), and can elect to exclude all appreciation on the fund interest after a 10-year hold, with the exclusion capped at fair market value on the 30th anniversary of the investment.[^1] The mechanics are in [Opportunity Zone tax benefits, explained](https://ozdatacenters.com/guides/opportunity-zone-tax-benefits-explained). **Figure: How money and ownership move in a hyperscale Opportunity Zone deal** - Investor (Has a realized capital gain) - then: Gain invested within 180 days - QOF: Qualified Opportunity Fund (Holds 90% or more in zone property) - then: Equity, not debt - QOZB: Campus operating company (Owns shell, substation and cooling plant) - then: Lease or capacity contract - Hyperscale tenant (Leases capacity and owns its servers) *The tax benefit sits with the investor's fund interest. The tenant pays rent and owns its IT equipment, which stays outside the landlord's Opportunity Zone tests.* This explains why hyperscalers are rarely the direct investors. Hyperscalers fund most capital spending from operating cash flow rather than realized capital gains, and the program rewards only reinvested gain. The natural participants are developers, landowners and investors with gains who own the campus and lease it to a hyperscaler. That is an analysis of how the incentive is built, not a statement about any company's tax position. The campuses themselves are moving toward rural zones: Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today.[^8] ## Which hyperscale ownership models fit the Opportunity Zone rules? Models in which the QOZB operates the facility fit best, and a bare single-tenant lease fits worst. The labels below reflect common industry usage, not defined legal terms. **Common hyperscale structures and how they map to the active trade or business requirement** | Model | Who owns the servers | Who runs power and cooling | Opportunity Zone fit | | --- | --- | --- | --- | | Hyperscaler self-build | Hyperscaler | Hyperscaler | Rarely relevant: the owner is not investing gains through a QOF | | Powered shell on a triple-net lease | Tenant | Tenant | Highest risk under the triple-net rule | | Build-to-suit with landlord services | Tenant | Shared; landlord runs campus power, security or utilities | Fact-specific; depends on real landlord operations | | Turnkey or wholesale data halls | Tenant | Landlord QOZB | Stronger: the QOZB delivers an operated service | | Joint venture campus | Tenant or venture | Venture operator | Depends on who owns and operates each asset | Two other rules shape these structures. First, at least 70% of the tangible property a QOZB owns or leases must be Qualified Opportunity Zone business property, which generally means property bought from an unrelated party that is either first placed in service in the zone by the QOZB or substantially improved.[^2] Second, a hyperscaler that also invests in the fund can become a related party, because the Opportunity Zone rules apply the related-person tests with a more-than-20% ownership threshold in place of the usual more-than-50% (§1400Z-2(e)(2)).[^1] Related-party purchases and leases carry extra limits, covered in [Related-party rules in Opportunity Zone deals](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## Is leasing a campus to one hyperscaler an active trade or business? Not if it is merely a triple-net lease. The regulations treat owning and operating real property, including leasing it, as a trade or business, but they state that merely entering into a triple-net lease of owned real property is not the active conduct of a trade or business (Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B)).[^2] A regulatory example finds no active business where a landlord leases an entire building to one tenant on triple-net terms, even though the landlord keeps an on-site office with staff to handle lease issues. A contrasting example finds an active business where on-site employees actively manage and operate the building's non-triple-net space.[^10] Commentary on data center deals singles out the single-tenant powered-shell lease to a hyperscaler as the classic risk case, and no authority addresses hyperscale leases directly.[^9] Practical responses include landlord-run critical infrastructure (substations, central cooling plants, security and critical facilities staff), multi-tenant campuses, and turnkey delivery in which the QOZB operates the mechanical and electrical plant. These are practical considerations, not safe harbors. The full analysis is in [Powered shell and triple-net data centers in Opportunity Zones](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## How do hyperscale build and power timelines fit the Opportunity Zone clock? They fit only with phasing. A QOZB can hold cash as working capital for up to 31 months under a written plan and schedule for acquiring, building or improving zone property, and overlapping or sequential plans can extend that to a maximum of 62 months from the first cash infusion.[^12] A delay caused by government action on a completed application can toll the period, but tolling is not automatic.[^12] Power is the long pole. Dominion Energy said in 2024 that connecting data centers above 100 MW in Northern Virginia could take one to three years longer than before, for total waits of up to seven years.[^11] Vertical construction is faster: Epoch AI's tracking of recent gigawatt-scale campuses shows 1 to 3.6 years from the start of construction to 1 GW of power.[^19] Whether utility study and construction delays count as government delay for tolling is unsettled: no guidance addresses it, so a sponsor should treat the question as open and not count on tolling to cover them. **Figure: Phasing a hyperscale campus around the working capital safe harbor** (illustrative) - Pre-development with non-OZ capital: 0 to 24 months (Land option, utility studies, permits) - Phase 1 working capital plan: 24 to 55 months (31 months from first OZ cash) - Phase 2 working capital plan: 50 to 81 months (Ends inside the 62-month cap) - Phase 3: separate QOZB or operating cash: 80 to 111 months - Utility power ramps by phase: 48 to 110 months *Illustrative. Sponsors often spend non-Opportunity Zone capital until power is secured, then fund each phase on its own written schedule so cash is spent inside each 31-month window and the 62-month cap.* Fund-level timing matters too. Investors have 180 days from a gain to invest, and the fund must meet its 90% asset test on two semiannual testing dates, so raising equity years before power is available creates pressure at both levels. See [Data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## Why do rural Opportunity Zones matter for hyperscale campuses? Because the largest campuses are moving to places with land and transmission, and the rules give wholly rural zones better terms. A rural area is anywhere other than a city or town of more than 50,000 people and the urbanized area contiguous and adjacent to it.[^13] For property in a zone made up entirely of rural area, an existing building is substantially improved when additions to basis exceed 50% of its adjusted basis within 30 months, instead of 100%, a rule effective since July 4, 2025.[^13] A Qualified Rural Opportunity Fund (QROF), a fund holding at least 90% of its assets in wholly rural zones, gives investors a 30% basis step-up at year five for investments after December 31, 2026.[^18] Pillsbury argues these changes could make hyperscale campuses in rural zones more attractive.[^14] JLL reports that 77% of North American development is in frontier markets such as West Texas, Ohio, Louisiana, Indiana and the Carolinas.[^4] Siting issues are covered in [Rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). Newly designated zones take effect January 1, 2027 and run through December 31, 2036. A campus phased over a decade should confirm its tract's status on the new map before committing fund capital to later phases. ## What does a phased hyperscale Opportunity Zone budget look like? An illustrative 300 MW campus shows why phase size matters. The table assumes a landlord cost of $12 million per MW (inside the Cushman & Wakefield range[^7]), tenant-owned servers, and three 100 MW phases, each with its own written working capital schedule. **Illustrative phasing for a 300 MW campus (assumptions, not a forecast)** | Phase | Capacity | Landlord cost at $12M per MW | Working capital treatment | | --- | --- | --- | --- | | Phase 1 | 100 MW | $1.2 billion | Spent under a 31-month plan from the first OZ cash infusion | | Phase 2 | 100 MW | $1.2 billion | New overlapping plan; must finish inside 62 months | | Phase 3 | 100 MW | $1.2 billion | Often a separate QOZB or funded from operations | | Total | 300 MW | $3.6 billion | Excludes servers, which the tenant owns | Much of that cost is usually debt-financed, and only equity from deferred gains earns Opportunity Zone benefits. Projects often pair an Opportunity Zone equity tranche with conventional equity and construction debt; see [The capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). For GPU-dense campuses, see [AI data centers and Opportunity Zones](https://ozdatacenters.com/guides/ai-data-centers-opportunity-zones). ## What are the main risks for hyperscale Opportunity Zone projects? Tenant concentration, power cost, local approval and federal policy are the main risks. A campus leased to one hyperscaler depends on one credit and one renewal decision, and utilities now shift more stranded-cost risk to large loads. AEP Ohio's tariff, approved July 9, 2025, requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years.[^17] Local opposition is rising. Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026 alone.[^16] Federal policy is in debate. 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, and two House members introduced a bill to bar data centers from expanded incentives including Opportunity Zone benefits and 100% bonus depreciation. Sen. Ron Wyden released a framework with a similar aim.[^15] These are proposals; none had been enacted as of October 20, 2026. A sponsor should model the deal on current law, watch how any change would treat investments already made, and disclose the risk to investors. ## Common questions **Can a hyperscaler invest its own capital gains in an Opportunity Zone fund?** Yes. A corporation with an eligible capital gain can invest it in a QOF within 180 days. In practice most hyperscale capital spending comes from operating cash rather than realized gains, so the program is used mainly by developers and investors who own campuses leased to hyperscalers. **Do the tenant's servers count toward the landlord QOZB's 70% test?** No, if the tenant owns them. The 70% test covers only tangible property the QOZB owns or leases, which in a leased campus means the shell, land rights, power and cooling assets.[^2] **Is a data center a prohibited sin business?** No. The excluded list covers golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and gambling facilities, and liquor stores. A pending Senate bill would add data centers, but it is only a proposal.[^1][^15] **How long must investors hold to get tax-free appreciation?** At least 10 years. After that, investors can elect to step the basis of the QOF interest up to fair market value when they sell; appreciation after the 30th anniversary is taxable.[^1] **What happens if power arrives after the working capital period ends?** Unspent cash outside the safe harbor can count as nonqualified financial property and threaten the QOZB's tests. Sponsors reduce the risk by securing power before raising Opportunity Zone equity and funding each phase on its own schedule.[^12] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction [^4]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^5]: Forbes, "Big Tech Will Spend Over $700 Billion On AI This Year" (2026). https://www.forbes.com/sites/jasonkirsch/2026/10/07/big-tech-will-spend-over-700-billion-on-ai-this-year-follow-the-money-not-the-hype/ [^6]: Data Center Dynamics, "Hyperscaler seeks 200-acre site for 400MW data center in US" (n.d.). https://www.datacenterdynamics.com/en/news/hyperscaler-seeks-200-acre-site-for-400mw-data-center-in-us/ [^7]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^8]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^9]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^10]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^11]: Bloomberg (via BNN Bloomberg), "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^12]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^13]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement for qualified opportunity zones" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^14]: Pillsbury Winthrop Shaw Pittman, "Qualified Rural Opportunity Funds Are Set to Boost U.S. Heartland" (2025). https://www.pillsburylaw.com/en/news-and-insights/qualified-rural-opportunity-funds-boost-us-heartland.html [^15]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^16]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^17]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^18]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^19]: Epoch AI, "Data center buildout speeds" (2026). https://epoch.ai/data-insights/data-centers-buildout-speeds --- # Edge data centers in Opportunity Zones URL: https://ozdatacenters.com/guides/edge-data-centers-opportunity-zones Last reviewed: 2026-10-20 Edge data centers are small facilities placed close to users to cut latency, and they can earn Opportunity Zone benefits when a Qualified Opportunity Zone Business owns and operates them inside designated tracts. Their smaller budgets fit the 31-month working capital safe harbor more easily than hyperscale campuses, but a multi-site edge network must keep at least 70% of its tangible property and 50% of its gross income tied to zone sites. ## Key takeaways - An edge data center is a small facility near end users, ranging from a cabinet or container at a cell tower to a purpose-built metro building, linked back to larger core sites. - A QOZB running edge sites must have at least 70% of the tangible property it owns or leases qualify as Opportunity Zone business property, so sites outside zones count against it. - At least 50% of the QOZB's gross income must come from the active conduct of business in a zone, at least 40% of its intangible property must be used there, and nonqualified financial property must stay under 5%. - Edge sites are usually operated, multi-tenant facilities, which fits the active trade or business requirement more naturally than a single triple-net lease. - Under Notice 2026-40, property acquired after December 31, 2026 in a zone that is not redesignated generally does not qualify, so an edge network expanding in 2027 should check each new site against the new map. ## What is an edge data center? An edge data center is a small facility located near the users or devices it serves, so data travels a shorter distance and latency falls. TechTarget describes edge sites as smaller-footprint facilities near the edge of a network that connect back to a larger central data center or to other edge sites, and notes they can be as small as a single enclosure.[^1] Typical locations include metro industrial buildings, cable headends, the base of cell towers and carrier hotels. Uses include content caching, 5G and wireless network functions, industrial control, and AI inference that must respond in milliseconds. Density is rising: a general-purpose CPU rack supports up to about 12 kW, while an NVIDIA GB200 NVL72 rack draws about 120 kW and needs liquid cooling, so even small edge sites now need serious power and cooling design.[^13] Under the Opportunity Zone rules, an edge site is treated like any other business property. What matters is where it sits, who owns it, and whether the owner actively runs a business. For the full data center framework, start with [Data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## How do edge data centers differ from hyperscale campuses under the Opportunity Zone rules? Edge sites are smaller, faster to build and more often operated by the owner, which makes several Opportunity Zone tests easier and the multi-site tests harder. **Figure: Edge sites versus hyperscale campuses under the Opportunity Zone rules** - Edge network (Many small sites) - Budgets per site are small enough to spend inside one 31-month working capital plan - Often in existing urban buildings, so substantial improvement (100%) is the usual path - Operator provides power, cooling, cross-connects and remote hands - Sites outside zones dilute the 70% property and 50% income tests - Many leased sites: rooftops, tower ground space, metro buildings - Hyperscale campus (One large site) - Phases can cost billions and outrun a single 31-month plan - Usually ground-up construction, so original use is the usual path - Often a single tenant on a long lease, raising the triple-net issue - One tract, so the location tests are all-or-nothing - Power interconnection is the critical path *Edge networks trade the power-timeline risk of large campuses for portfolio-level testing: every site's location counts in the QOZB's 70% and 50% tests.* Because edge deals are smaller, they often suit a multi-asset fund that holds several QOZBs or one QOZB with many sites. The trade-offs are in [Single-asset vs. multi-asset Opportunity Zone funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). ## How do the QOZB tests work for a network of edge sites? The tests apply to the QOZB as a whole, so a network can include some sites outside zones as long as the totals clear each threshold. A Qualified Opportunity Zone Business (QOZB) is the operating company a fund invests in. Under §1400Z-2(d)(3) and the regulations, it must meet the tests below.[^2][^3] **Figure: The QOZB tests an edge network must clear** - Tangible property that is Opportunity Zone business property: at least 70% (By value, owned and leased property) - Gross income from active conduct of business in a zone: at least 50% (Four safe harbors available) - Intangible property used in the zone business: at least 40% (Software, customer contracts, licenses) - Nonqualified financial property: less than 5% (Working capital in the safe harbor is excluded) *Each test is measured across the whole QOZB, not site by site. Out-of-zone sites are allowed but reduce the margin on the 70% and 50% tests.* The gross income test has four safe harbors: at least 50% of services performed for the business (measured by hours) are performed in the zone; at least 50% of amounts paid for services are for services performed in the zone; the tangible property and management functions in the zone are each necessary to generate at least 50% of gross income; or a facts-and-circumstances test.[^4] An edge network with its operations staff, network operations center and most of its revenue-producing sites in zones will usually meet one of them. Location of tangible property is also tested over time. Property counts as used in a zone only if it is used there for substantially all of the QOZB's holding period, and the IRS treats property used in a zone on at least 70% of days as used substantially in the zone, a rule that mainly matters for mobile equipment such as portable or containerized units.[^5] **Illustrative edge QOZB with eight sites, six inside zones (assumed values)** | Item | In-zone sites | Out-of-zone sites | Total | Result | | --- | --- | --- | --- | --- | | Tangible property (owned and leased) | $52 million | $14 million | $66 million | 78.8% qualifies; passes 70% | | Gross income | $9.1 million | $2.9 million | $12.0 million | 75.8% from zone activity; passes 50% | | Margin if two more out-of-zone sites are added at $8 million each | $52 million | $30 million | $82 million | 63.4%; fails 70% | The last row shows the practical constraint: expansion outside zones can tip the QOZB below 70%. One cure is to place out-of-zone sites in a separate company that is not a QOZB. Practitioner summaries of the regulations also describe a limited six-month cure period for a QOZB that falls short of the tangible property test; its conditions are narrow, so confirm with counsel before relying on it.[^3] The test itself is explained in [The QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and the income and intangibles tests in [QOZB gross income, intangibles and financial property tests](https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests). ## Can an edge data center go in an existing urban building? Yes, but a purchased building must either be original use or be substantially improved. A building that has been vacant for at least three years can qualify as original use.[^14] Otherwise, additions to the building's basis within any 30-month period after acquisition must exceed its adjusted basis at the start of that period, and land is excluded from the calculation.[^14] Edge fit-outs often clear that bar easily because the building is cheap relative to the electrical and cooling work. Example (illustrative): a QOZB buys a recently occupied metro warehouse for $4 million, allocating $1.2 million to land and $2.8 million to the building. It must add more than $2.8 million to the building's basis within 30 months. A 2 MW fit-out with switchgear, UPS, generators and cooling would normally exceed that. The new equipment it installs is separately original-use property. Rural buildings face only a 50% threshold; see [Converting industrial buildings into data centers in Opportunity Zones](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones). ## Do leased tower, rooftop and ground sites count? Yes. Leased tangible property can count as Opportunity Zone business property if the lease is on market-rate, arm's-length terms, and the original use requirement does not apply to leased property.[^15] That helps edge networks, which often lease space at towers, rooftops, carrier hotels and metro buildings rather than buying it. Leases from related parties face extra limits: no prepayment of rent for more than 12 months, and for previously used property, a requirement to buy an equivalent amount of new zone property.[^15] Leased property is valued in the 70% test, so long-term leases of large spaces can move the ratio in either direction depending on where the leased sites are. ## Why do edge operators fit the active trade or business requirement? Because they sell operated services, not bare space. A QOZB must actively conduct a trade or business, and the regulations say merely entering into a triple-net lease is not enough.[^3] Edge and colocation operators typically provide power, cooling, security, cross-connects and on-site or remote technical support. Equinix's 10-K, for example, describes recurring revenue from colocation, interconnection and managed infrastructure, billed monthly under contracts that typically run one to five years.[^8] That service model also helps the gross income safe harbors, because the hours and payments for services are tied to the sites. Efficiency still matters for operating costs: Uptime Institute's 2025 survey reports a weighted average power usage effectiveness (PUE) a little above 1.5, essentially flat for about six years.[^17] Shorter contracts mean more re-leasing over a 10-year hold, a theme covered in [Colocation data centers in Opportunity Zones](https://ozdatacenters.com/guides/colocation-data-centers-opportunity-zones). ## What do the 2027 zone maps mean for an edge network? Each new site must be checked against the map in force when it is acquired. Newly designated zones take effect January 1, 2027 and run through December 31, 2036.[^2] Under Notice 2026-40, property acquired after December 31, 2026 in a current zone that is not redesignated generally does not qualify as Opportunity Zone business property, with narrow exceptions such as a working capital plan adopted before that date that meets minimum funding and spending thresholds, and routine replacement of existing property.[^6][^7] Practical tools include the CDFI Fund's CIMS mapping tool for official designated tracts[^11], the Novogradac mapping tool for likely-eligible tracts[^12], PeeringDB for nearby interconnection facilities and carriers[^9], and the FCC National Broadband Map for local fiber and wireless coverage.[^10] Working capital for new sites should be documented under written plans as described in [The Opportunity Zone working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor).[^16] **Figure: Edge site checklist for an Opportunity Zone QOZB** - [pass] Site is in a tract designated for 2027 to 2036: Confirm on the official CIMS map once Treasury publishes designations - [pass] Property bought from an unrelated party, or leased at market rates: Related-party leases need the extra limits checked - [watch] Existing building substantially improved within 30 months: Track additions to building basis against the 100% (or 50% rural) hurdle - [watch] Network-wide 70% tangible property ratio after this site: Out-of-zone sites dilute the ratio - [pass] Operator services delivered on site: Supports the active trade or business requirement - [fail] Site bought in a non-redesignated zone after 2026: Generally not qualifying property under Notice 2026-40 *A quick screen for each proposed site. Watch items do not disqualify a site but need a plan before closing.* ## Common questions **How small can an Opportunity Zone edge data center be?** There is no minimum size in the rules. What matters is that the property is Opportunity Zone business property and the QOZB actively conducts a business. Very small sites mostly matter for how they move the network-wide 70% and 50% tests.[^3] **Can one QOZB own edge sites in several different zones?** Yes. The tests look at whether property is in any qualified zone and whether income comes from activity in a zone, so a QOZB can operate across several zones as long as the totals meet each threshold.[^4] **Do customers' servers in an edge site count toward the QOZB's tests?** No, if the customers own them. The 70% test covers only property the QOZB owns or leases. The QOZB's power, cooling, racks it owns and building improvements are what count.[^3] **Is a containerized edge unit treated as real or personal property?** That is a fact question for the tax adviser. For the location test, the IRS treats property used in a zone on at least 70% of days as used substantially in the zone, which matters if a unit could be moved.[^5] **Does Opportunity Zone status help with rural edge sites?** Yes. A building in a zone made up entirely of rural area needs only 50% substantial improvement instead of 100%, and a fund holding at least 90% of its assets in such zones can qualify as a rural fund with a 30% step-up for investments after 2026.[^2] ## Sources [^1]: TechTarget, "What is an edge data center?" (n.d.). https://www.techtarget.com/searchdatacenter/definition/edge-data-center [^2]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^3]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^4]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^5]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Cherry Bekaert, "IRS Notice 2026-40: New Opportunity Zone Rules" (2026). https://www.cbh.com/insights/articles/irs-notice-2026-40-new-opportunity-zone-rules/ [^8]: Equinix, "Form 10-K for fiscal year 2025" (2026). https://www.sec.gov/Archives/edgar/data/1101239/000110123926000032/eqix-20251231.htm [^9]: PeeringDB, "About PeeringDB" (n.d.). https://www.peeringdb.com/about [^10]: Federal Communications Commission, "FCC Unveils Updated and Modernized National Broadband Map" (n.d.). https://www.fcc.gov/fcc-unveils-updated-and-modernized-national-broadband-map [^11]: CDFI Fund, "CIMS Mapping Tool" (n.d.). https://www.cdfifund.gov/cims [^12]: Novogradac, "Novogradac Opportunity Zones 2.0 Mapping Tool" (2026). https://novoco.com/resource-centers/opportunity-zones-resource-center/novogradac-opportunity-zones-20-mapping-tool [^13]: SemiAnalysis, "GB200 Hardware Architecture and Component Supply Chain" (2024). https://newsletter.semianalysis.com/p/gb200-hardware-architecture-and-component [^14]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^15]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^16]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^17]: Uptime Institute, "Uptime Institute Global Data Center Survey 2025" (2025). https://intelligence.uptimeinstitute.com/resource/uptime-institute-global-data-center-survey-2025 --- # Colocation data centers in Opportunity Zones URL: https://ozdatacenters.com/guides/colocation-data-centers-opportunity-zones Last reviewed: 2026-10-20 Colocation is the data center model that fits the Opportunity Zone rules most naturally, because the owner operates power, cooling, security and interconnection for many customers rather than signing one triple-net lease. The Qualified Opportunity Zone Business owns the building and infrastructure, customers own their servers, and investors who hold the fund interest for at least 10 years can exclude the appreciation from federal tax. ## Key takeaways - A colocation data center leases space, power and connectivity to many customers, who install their own servers in racks, cages or suites while the operator runs the facility. - Operator-provided services make colocation a stronger fit than a single triple-net lease, which the regulations say is not by itself the active conduct of a trade or business. - Customer-owned servers are outside the QOZB's 70% tangible property test; the building, electrical and mechanical plant, and operator-owned network gear are inside it. - Equinix reports customer contracts that typically run one to five years, so a 10-year Opportunity Zone hold usually spans at least one full re-leasing cycle. - After a 10-year hold, investors can elect fair market value basis on sale of the fund interest, and partnership funds can also elect to exclude gain on qualifying asset sales, including depreciation recapture. ## What is a colocation data center? A colocation data center is a multi-tenant facility where the operator provides space, power, cooling, physical security and network connections, and customers bring and own their IT equipment. Retail colocation sells by the rack, cage or kilowatt on shorter contracts. Wholesale colocation leases whole data halls or megawatts to fewer, larger customers. These categories reflect common industry usage rather than legal definitions. Public filings give a sense of the economics. Equinix's 10-K for fiscal 2025 says its recurring revenue comes from colocation, interconnection and managed infrastructure, is billed monthly under contracts that typically run one to five years with automatic one-year renewals, and has made up more than 90% of total revenue for the past three years.[^1] Digital Realty reported that its lease terms are generally longer than standard commercial leases, with an average remaining term of about five years across its portfolio at the end of 2023.[^2] Demand is strong. CBRE measured North American primary-market vacancy at a record 1.4% in the first half of 2026.[^8] For the Opportunity Zone framework that applies to every data center type, see [Data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Why does colocation fit the active trade or business requirement? Because the operator delivers services every day, rather than handing the building to a tenant. A Qualified Opportunity Zone Business (QOZB) must be engaged in the active conduct of a trade or business, and Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B) says merely entering into a triple-net lease of owned real property is not enough.[^4] The regulations' own examples point the same way. A landlord leasing an entire building to one tenant on triple-net terms is not active, but a landlord whose on-site employees actively manage and operate the building's non-triple-net space is active.[^5] Commentators note that the rules look at whether the owner meaningfully participates in management and operations.[^6] A colocation operator that runs the power plant, cooling, security, cross-connects and remote hands has the stronger set of facts. That is a practical reading of the examples, not a separate safe harbor. **Figure: Who owns each layer of a colocation facility** 1. Customer servers, storage and network gear: Owned by customers; outside the QOZB's tests 2. Interconnection: meet-me rooms, cross-connects, operator network: Usually owned by the QOZB 3. Power and cooling: switchgear, UPS, generators, chillers: QOZB property; the largest cost pool 4. Building shell and site improvements: QOZB property; original use or substantially improved 5. Land: Owned or ground-leased; excluded from the substantial improvement test *The QOZB's Opportunity Zone tests cover the layers it owns or leases. Customer IT at the top sits outside the QOZB's 70% test.* ## What property does a colocation QOZB own, and what do customers own? The QOZB owns the building and infrastructure, and the customers own their computers. At least 70% of the tangible property the QOZB owns or leases must be Qualified Opportunity Zone business property, generally meaning property purchased from an unrelated party, first placed in service in the zone by the QOZB or substantially improved, and used in the zone for substantially all of the holding period.[^3][^15] That split helps. JLL forecasts an average global shell-and-core cost of $11.3 million per MW in 2026 and says tenant AI fit-out can cost up to about $25 million per MW.[^7] In a colocation model the expensive, short-lived server fit-out is the customer's, so the QOZB's asset base is dominated by long-lived property that can carry 10-year appreciation. The interplay with server refresh cycles is covered in [Servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). Intangibles matter too. At least 40% of the QOZB's intangible property, such as operations software, customer contracts and brand, must be used in the active conduct of the zone business.[^16] Cash beyond the working capital safe harbor counts as nonqualified financial property, which must stay under 5% of the QOZB's average property basis. ## How does colocation revenue meet the 50% gross income test? Usually through the services or property safe harbors, because the facility, its staff and its customers' equipment are all in the zone. At least 50% of the QOZB's gross income must come from the active conduct of business in the zone. The regulations offer four ways to show it: by hours of services performed in the zone, by amounts paid for services performed in the zone, by showing that the zone's tangible property and management functions are each necessary to generate at least 50% of income, or on facts and circumstances.[^15] A single-site colocation QOZB with on-site critical facilities staff will typically meet more than one of those tests. A multi-site operator with a central network operations center outside any zone should measure the hours and payments test carefully, a point covered in [QOZB gross income, intangibles and financial property tests](https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests). ## How do shorter colocation contracts affect a 10-year Opportunity Zone hold? They add re-leasing risk and capital needs, but they do not change the tax rules. With contracts of one to five years[^1], a 10-year hold will usually see at least one full turnover of the customer base, and customer needs will change over that time. Density is the clearest example. A general-purpose CPU rack supports up to about 12 kW, an air-cooled H100 rack about 40 kW, and an NVIDIA GB200 NVL72 rack about 120 kW with liquid cooling.[^9] A facility built for air-cooled racks may need new power distribution and liquid cooling mid-hold to stay competitive. Those upgrades are new qualifying property if purchased from unrelated parties and placed in service in the zone, but they need capital, and the working capital safe harbor applies to plans for acquiring, building or improving property, so upgrades should be planned in writing. Efficiency also affects margins. Uptime Institute's 2025 survey reports a weighted average PUE a little above 1.5, essentially flat for about six years.[^10] Operating cost and density will drive the facility's value at exit, which is what the 10-year exclusion shelters. ## What does a colocation Opportunity Zone investment return after tax? The benefit comes from deferral, the 10% step-up and above all the exclusion of appreciation after 10 years. The illustrative comparison below follows one investor with a $5 million long-term capital gain realized in early 2027. **Figure: After-tax value after 10 years from a $5 million gain** (illustrative) - Pay tax now, reinvest in a taxable colocation fund: $7.87M - Invest the full gain in a colocation QOF, hold 10 years: $10.93M *Illustrative. Assumes a 23.8% federal rate (20% plus 3.8% net investment income tax), no state tax, the same 2.4x growth in both paths over 10 years, and Opportunity Zone tax at year five paid from other funds. Ignores time value of money.* **How the illustrative numbers are built** | Step | Taxable path | Opportunity Zone path | | --- | --- | --- | | Tax at the start | $1.19M (23.8% of $5M) | $0 (deferred) | | Amount invested | $3.81M | $5.00M | | Value at year 10 at 2.4x | $9.14M | $12.00M | | Tax at year 5 | None | $1.07M (23.8% of $4.5M after 10% step-up) | | Tax at exit on appreciation | $1.27M (23.8% of $5.33M) | $0 (10-year fair market value election) | | After-tax value | $7.87M | $10.93M | The gap comes mainly from tax-free appreciation and from investing the full pre-tax gain. Actual returns depend on the project. More scenarios are in [Opportunity Zone tax savings: a worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example).[^12] ## How do investors exit a colocation Opportunity Zone investment after 10 years? Either by selling the fund interest or by having the fund or QOZB sell the facility. After at least 10 years, an investor who sells a QOF interest can elect to step its basis up to fair market value, so the appreciation is excluded from federal income tax, with the basis fixed at fair market value on the 30th anniversary for later sales.[^3] The regulations also let investors in partnership or S corporation funds elect to exclude gain from the fund's or a lower-tier QOZB's sale of assets after the 10-year mark, including depreciation recapture, with inventory the main exception.[^11] That matters for colocation, where accelerated depreciation on electrical and mechanical systems can create large recapture. Options are compared in [Opportunity Zone exit strategies after 10 years](https://ozdatacenters.com/guides/opportunity-zone-exit-strategies). State taxes can differ. Thirty-eight states offer dedicated data center tax incentives, according to NCSL[^13], and 36 exempt data center building materials and IT equipment from sales and use tax, according to Good Jobs First.[^14] Those state benefits often go to the equipment buyer, which in colocation is frequently the customer, and some states do not follow the federal Opportunity Zone rules. Confirm the state position with your tax adviser. ## Common questions **Is a colocation agreement a lease or a service contract for Opportunity Zone purposes?** Colocation agreements are often written as licenses or service agreements with operator obligations, which supports the active business analysis. The label is less important than the facts: who operates the plant and what services the QOZB actually provides.[^4][^6] **Can a colocation QOZB also lease a whole hall to one large customer?** Yes. The regulatory example finds an active business where part of a building is triple-net leased and the rest is actively managed by on-site staff. The more of the facility that is bare triple-net space, the weaker the facts.[^5] **Do customers get any Opportunity Zone benefit from using an Opportunity Zone facility?** No. The benefits belong to investors in the QOF. Customers may benefit indirectly from pricing or from state incentives on their own equipment.[^3][^14] **Can a colocation fund refinance and return capital before year 10?** Possibly, but carefully. For a partnership fund, the regulations are generally read to treat a distribution as an inclusion event only to the extent it exceeds the investor's basis in the fund interest. That basis can include the investor's share of fund debt even though the Opportunity Zone basis of the deferred-gain investment starts at zero, and special rules apply to debt-financed distributions. Model any refinancing distribution with counsel. **What tax rate does the illustrative example assume?** A 23.8% federal rate on long-term capital gains (20% plus the 3.8% net investment income tax) and no state tax. Your own rate may differ. ## Sources [^1]: Equinix, "Form 10-K for fiscal year 2025" (2026). https://www.sec.gov/Archives/edgar/data/1101239/000110123926000032/eqix-20251231.htm [^2]: Digital Realty Trust, "Form 10-K for fiscal year 2023" (2024). https://www.sec.gov/Archives/edgar/data/1297996/000155837024001575/dlr-20231231x10k.htm [^3]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^4]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^5]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^6]: Varnum, "QOZ Final Rules Part III: Additional Clarity for QOF and QOZ Business Qualifications" (2020). https://www.varnumlaw.com/insights/qoz-final-rules-part-iii-additional-clarity-for-qof-and-qoz-business-qualifications/ [^7]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^8]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction [^9]: SemiAnalysis, "GB200 Hardware Architecture and Component Supply Chain" (2024). https://newsletter.semianalysis.com/p/gb200-hardware-architecture-and-component [^10]: Uptime Institute, "Uptime Institute Global Data Center Survey 2025" (2025). https://intelligence.uptimeinstitute.com/resource/uptime-institute-global-data-center-survey-2025 [^11]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^12]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^13]: National Conference of State Legislatures, "Does your state offer data center tax incentives?" (2026). https://www.ncsl.org/resources/details/does-your-state-offer-data-center-tax-incentives [^14]: Good Jobs First, "Most States Fail to Disclose which Data Center Companies Get Huge Tax Breaks" (2025). https://goodjobsfirst.org/most-states-fail-to-disclose-which-data-center-companies-get-huge-tax-breaks/ [^15]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^16]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look --- # Powered shell and triple-net data centers in Opportunity Zones URL: https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones Last reviewed: 2026-10-20 A powered shell leased to a single hyperscaler on triple-net terms is the riskiest data center structure under the Opportunity Zone rules, because Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B) says merely entering into a triple-net lease is not the active conduct of a trade or business. No guidance addresses data center leases specifically, so sponsors rely on the regulation's examples and build in real landlord operations, multi-tenant use or operator-delivered services, with tax counsel reviewing the facts. ## Key takeaways - A powered shell is a building where the landlord delivers land, structure and utility power and the tenant builds out the mechanical, electrical and IT systems, usually under a long triple-net-style lease. - Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B) treats owning and operating real property, including leasing it, as a trade or business, but says merely entering into a triple-net lease of owned real property is not the active conduct of a trade or business. - A regulatory example holds that leasing an entire building to one tenant on triple-net terms is not an active trade or business, even with an on-site office and staff handling lease issues. - No IRS guidance addresses hyperscaler or powered-shell data center leases; the analysis rests on the general rule and its examples, so every structure is a judgment call. - Facts that strengthen the position include landlord-operated substations, cooling plants, security and critical facilities staff, multi-tenant campuses, and shared campus infrastructure run by the QOZB's own employees. ## What is a powered shell data center? A powered shell is a data center building in which the landlord delivers the land, the structure and utility power to the site, and the tenant installs the mechanical, electrical and IT systems. Leases are usually long and triple-net in style, meaning the tenant pays rent plus taxes, insurance and maintenance. A build-to-suit is a similar building designed for one named user. These are common industry terms, not legal definitions. The split of costs is lopsided. JLL forecasts an average global shell-and-core cost of $11.3 million per MW in 2026 and says tenant AI fit-out can cost up to about $25 million per MW.[^15] In a powered shell, the landlord owns the smaller, longer-lived pool, and the tenant owns the larger, shorter-lived one. **How powered shell compares with other data center delivery models (common industry usage)** | Model | Landlord delivers | Tenant delivers | Typical lease form | Active business fit | | --- | --- | --- | --- | --- | | Powered shell | Land, building, utility power to site | Mechanical, electrical, cooling, IT | Long, triple-net style, single tenant | Weakest unless landlord adds real operations | | Turnkey or wholesale | Fitted data halls with power and cooling | IT equipment | Capacity lease by MW, landlord operates plant | Stronger | | Colocation | Space, power, cooling, security, connectivity | IT equipment | Shorter contracts, many customers | Strongest | ## What do the Opportunity Zone regulations say about triple-net leases? They say a bare triple-net lease is not an active trade or business. A Qualified Opportunity Zone Business (QOZB) is a trade or business in which substantially all (70%) of the tangible property is Opportunity Zone business property and which earns at least 50% of its gross income from the active conduct of that business, among other tests (§1400Z-2(d)(3)).[^1] In paraphrase, the regulations define trade or business by reference to §162; for purposes of the QOZB test, they treat the ownership and operation (including leasing) of real property used in a trade or business as the active conduct of a trade or business; and they then provide that merely entering into a triple-net lease with respect to real property the taxpayer owns is not the active conduct of a trade or business by that taxpayer (Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B)). Check the exact wording in the eCFR text before quoting it.[^2] The rule is part of the final regulations published as T.D. 9889.[^3][^4] The Opportunity Zone regulations do not define triple-net lease. When the rule was first proposed in 2019, Tax Notes reported a Treasury official's comment that merely entering into a triple-net lease is not enough for the active-business test, but that a triple-net lease is not disqualifying by itself if the owner's activities otherwise rise to a §162 trade or business; that is an informal remark, not authority.[^7] Practitioners often look to IRS Notice 2019-07, the rental real estate safe harbor under §199A, which describes a triple-net lease as one in which the tenant pays taxes, fees and insurance and is responsible for maintenance, in addition to rent and utilities.[^3] Baker Tilly notes that definitions differ across tax programs, so labels in a lease are not decisive; the economic substance is.[^8] Holding the building directly in the QOF rather than through a QOZB does not obviously avoid the issue. The triple-net sentence is written for the QOZB test, but property a QOF holds directly must still be used in a §162 trade or business of the fund, and whether a bare triple-net lease meets that standard is itself uncertain. Treat that route as uncertain and confirm with tax counsel. ## What do the regulation's examples show? They show that the answer turns on whether the landlord's own people actively run something beyond the triple-net space. Two examples in the final regulations carry most of the weight.[^5][^6] **The final regulations' triple-net lease examples, paraphrased. The first two columns summarize the regulations; the third is our reading, not authority.** | Facts (regulation) | Result (regulation) | What appears to drive the result (analysis) | | --- | --- | --- | | Landlord leases an entire building to a single tenant on a triple-net basis. The landlord keeps an office in the building with employees who respond to issues under the lease. | Not an active trade or business | Lease administration alone is not management and operation | | Landlord leases one floor of a building triple-net and the rest under other leases. On-site employees meaningfully participate in management and operations of the building. | Active trade or business for the whole building | Real operating activity by the landlord's employees across the non-triple-net space | Commentators read the second example as allowing some triple-net space inside an otherwise actively operated property.[^5][^6] What the examples do not resolve is where the line falls between the two, how much operating activity is enough, and whether services performed by contractors count the same as services by the landlord's employees. The examples refer to employees, so a structure that relies on a third-party manager should document who does the work and under whose direction. ## Why is a single-tenant powered shell lease to a hyperscaler the hardest case? Because it closely matches the regulation's non-active example: one tenant, the whole building, the tenant pays every cost and the tenant runs the mechanical and electrical plant. Dentons' April 2026 commentary on data center projects highlights exactly this issue for hyperscaler deals.[^9] No ruling, notice or regulation addresses data center leases specifically. Passing the 70% tangible property test does not cure it. A powered shell bought new and placed in service by the QOZB can be qualifying property, but the QOZB still needs an active trade or business and at least 50% of gross income from actively conducting it.[^1] Rent from a bare triple-net lease puts both at risk. Under the regulations, landlord-owned shell, power, cooling and backup generation are tested as the QOZB's own owned or leased tangible property, while servers the tenant owns are outside the landlord's test, which leaves the active business question as the main issue.[^10] **Figure: Where data center lease structures fall on the triple-net spectrum** - Multiple tenants Tenancy, Tenant runs the building Landlord operating role: Multi-tenant, bare triple-net leases (Watch: several bare leases with no operations are not clearly better than one) - Multiple tenants Tenancy, Landlord runs power, cooling, security Landlord operating role: Colocation or wholesale campus (Strongest facts: landlord operates plant for many customers) - Single tenant Tenancy, Tenant runs the building Landlord operating role: Classic powered shell, triple-net (Highest risk: matches the regulation's non-active example) - Single tenant Tenancy, Landlord runs power, cooling, security Landlord operating role: Build-to-suit with landlord-run infrastructure (Fact-specific: depends on real, documented services) *Analysis, not law. Movement up and to the right adds facts the regulation's examples treat as active; the bottom-left cell matches the example the regulations say is not active.* ## How can a powered shell deal be structured to strengthen the active business position? By giving the QOZB real, recurring operating responsibilities and documenting them. The points below are practical considerations drawn from the regulation's examples and commentary. None is a safe harbor, and tax counsel should review the specific facts.[^9][^10] 1. Landlord-operated critical infrastructure. The QOZB owns and operates the on-site substation, medium-voltage distribution, central cooling plant or water systems, with its own staff on site. 2. A service-inclusive lease. A modified-gross lease in which the landlord keeps responsibility for structure, roof, building systems, security and insurance looks less like the triple-net pattern. Substance controls, so the landlord must actually perform those duties. 3. Campus-level operations. On a multi-building campus, the QOZB can run shared roads, perimeter security, fiber entrance facilities and utility systems for every building and tenant. 4. Turnkey delivery. The QOZB builds and operates the mechanical and electrical plant and leases finished capacity. This takes more capital but adds qualifying property and services. 5. Mixed tenancy. Leasing part of the campus to colocation or smaller users that the QOZB serves directly follows the logic of the second regulatory example. 6. Annual documentation. Keep staffing records, service logs, budgets and contracts that show the QOZB's operating role each year, and track the gross income safe harbors. 7. Disclosure. Investors should see a plain description of the triple-net risk and of counsel's analysis before they invest. **Figure: Powered shell lease features: how they read under the triple-net rule** - [fail] Single tenant pays all taxes, insurance and maintenance, and runs all systems: Matches the regulation's non-active example - [fail] Landlord office that only handles lease issues: The non-active example already includes this - [pass] QOZB employees operate the substation and central plant: Real management and operation of building systems - [pass] Landlord provides 24/7 security and critical facilities staff: Supports meaningful participation in operations - [watch] Third-party manager performs services for the landlord: Examples refer to employees; document control and scope - [pass] Part of the campus served directly as colocation or turnkey space: Follows the mixed-building example *A screening view based on the regulation's examples. Pass means the feature supports an active business; it does not mean the structure is safe on its own.* The economics change with each step. More landlord responsibility usually means higher rent, more staff and more capital at risk. Lease terms for data centers are compared in [Data center lease structures in Opportunity Zones](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones), and day-to-day compliance in [Managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers). ## Which other Opportunity Zone rules matter for powered shell deals? - Tenant property. Equipment and improvements the tenant pays for are treated as the tenant's purchased property, so they sit outside the landlord QOZB's 70% test.[^12] Reversion of tenant improvements at lease end should be reviewed separately. - Ground leases. Land leased from an unrelated party on market terms can count as qualifying leased property. Related-party leases cannot prepay more than 12 months of rent and face added conditions for previously used property.[^11] - Related parties. A hyperscaler that owns more than 20% of the fund or QOZB is generally a related party under §1400Z-2(e)(2), and property bought from a related party does not qualify.[^1] See [Related-party rules in Opportunity Zone deals](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). - Original use and timing. A new shell is original use. Construction cash can be held under the 31-month working capital safe harbor; see [The Opportunity Zone working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). - Pending guidance. Notice 2026-55 requests comments on issues under §1400Z-2, including rules for operating businesses, with comments due November 23, 2026. Treasury could address leasing in later rules, but nothing has been proposed on data center leases.[^16] For the equipment side of the same building, see [Servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). ## What policy risks apply to powered shell Opportunity Zone deals? Two kinds: scrutiny that follows where data centers are being built, and bills that would change the program. Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today, which puts more projects in or near the zones with the largest benefits.[^13] Opportunity Zone capital comes from developers and investors who own the building, not from the tenant. 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, and was referred to the Senate Finance Committee. Two House members introduced a separate bill to bar data centers from expanded incentives including Opportunity Zone benefits and 100% bonus depreciation, and Sen. Ron Wyden released a framework with a similar aim.[^14][^17] These are proposals, not law. Model the deal on current rules and disclose the legislative risk. ## Common questions **Is any triple-net lease fatal to Opportunity Zone status?** No. The rule targets merely entering into a triple-net lease. The regulation's second example treats a building as active when one floor is triple-net leased and on-site employees actively operate the rest. A whole building leased triple-net to one tenant with nothing more is the problem case.[^2][^5] **Does an on-site property manager fix the problem?** Not by itself. The non-active example already includes an on-site office with employees who handle lease issues. What counts is meaningful participation in management and operations.[^5][^6] **Is there IRS guidance on data center leases specifically?** No. The analysis rests on the general triple-net rule in Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B) and its examples. Commentary such as Dentons' flags the issue for hyperscaler deals.[^2][^9] **Can the QOF own the powered shell directly instead of through a QOZB?** It can own property directly, but that property must still be used in a trade or business of the fund, and the regulations use the same §162 concept. Treat direct ownership as uncertain on this point and confirm with counsel.[^2] **What if the hyperscale tenant also invests in the fund?** Above 20% common ownership it generally becomes a related party, which limits purchases and adds conditions to leases between them.[^1][^11] **Does labeling the lease modified gross solve the issue?** No. The economic substance and the landlord's actual operating role decide the outcome. A lease that shifts real duties to the landlord helps only if the landlord performs them.[^8] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^4]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^5]: Varnum, "QOZ Final Rules Part III: Additional Clarity for QOF and QOZ Business Qualifications" (2020). https://www.varnumlaw.com/insights/qoz-final-rules-part-iii-additional-clarity-for-qof-and-qoz-business-qualifications/ [^6]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^7]: Tax Notes, "More Breathing Room for Triple-Net Leases in Opportunity Zones" (2019). https://www.taxnotes.com/lr/resolve/opinions/more-breathing-room-for-triple-net-leases-in-opportunity-zones/29jv3 [^8]: Baker Tilly, "What's in a name? Recent definitions of a triple net lease across three different programs" (n.d.). https://www.bakertilly.com/insights/recent-definitions-triple-net-lease [^9]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^10]: Tax Notes, "26 CFR 1.1400Z2(d)-2, Qualified opportunity zone business property (text)" (n.d.). https://taxnotes.com/research/federal/cfr26/1.1400Z2d-2 [^11]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^12]: BDO, "IRS and Treasury Release Second Set of Opportunity Zone Guidance" (2019). https://www.bdo.com/insights/tax/irs-and-treasury-release-second-set-of-opportunity-zone-guidance [^13]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^14]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^15]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^16]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^17]: IREI, "Legislation introduced to strip opportunity zone tax breaks for data centers" (2026). https://irei.com/news/legislation-introduced-to-strip-opportunity-zone-tax-breaks-for-data-centers/ --- # Servers, equipment and the Opportunity Zone rules URL: https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules Last reviewed: 2026-10-20 Servers and other IT equipment can be Qualified Opportunity Zone business property if the fund's operating business buys them from an unrelated party and puts them into first use in the zone, but most leased data centers leave servers with the tenant, outside the landlord's tests. When the business does own IT gear, a five-to-six-year life means it will be replaced at least once during a 10-year hold, so the building, power and cooling assets carry most of the tax-free appreciation. ## Key takeaways - Who owns the servers decides whether they count: tenant-owned IT equipment is outside the landlord QOZB's 70% tangible property test, while QOZB-owned equipment counts in both the numerator and the denominator. - Large cloud companies depreciate servers over about 5 to 6 years in their financial statements, and Amazon shortened a subset to 5 years in 2025, so IT bought at the start of a 10-year hold is usually retired before the hold ends. - Each replacement server keeps the QOZB qualifying only if it is bought from an unrelated party, first used in the zone by the QOZB, and used in the zone for substantially all of its holding period. - Gain on equipment sold before the 10-year mark is taxable; after 10 years, investors in partnership funds can elect to exclude gain on qualifying asset sales, including depreciation recapture. - 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025, which can pair with Opportunity Zone equity for short-lived equipment, subject to state conformity. ## Who owns the IT equipment in an Opportunity Zone data center? In most leased data centers the tenant owns the servers, and in operator models the QOZB does. The answer matters because a Qualified Opportunity Zone Business (QOZB) is tested only on the tangible property it owns or leases.[^2] Equipment owned by someone else, such as a hyperscale tenant or a colocation customer, is outside the QOZB's tests entirely. The IT layer is also the most expensive. JLL forecasts an average shell-and-core cost of $11.3 million per MW in 2026 and says tenant AI fit-out can cost up to about $25 million per MW.[^11] Rack power is climbing: a general-purpose CPU rack supports up to about 12 kW, an air-cooled H100 rack about 40 kW, and an NVIDIA GB200 NVL72 rack about 120 kW with liquid cooling.[^12] When a QOZB owns that equipment, it can dominate the balance sheet. **Figure: Three ways to hold IT equipment in an Opportunity Zone data center** - Tenant owns (Powered shell, wholesale, colocation) - Outside the landlord QOZB's 70% test - QOZB assets are mostly long-lived shell, power and cooling - Refresh cycles are the tenant's cost and risk - Landlord's active business must come from operations, not IT - QOZB owns (AI cloud, managed hosting, GPU services) - Counts in the 70% test if bought from an unrelated party and first used in the zone - Strong active business: the QOZB sells compute or services - Refresh purchases must each qualify - Obsolescence risk sits with fund investors - QOZB leases (Vendor or lessor financing) - Counts as leased property if on market-rate terms - Original use does not apply to leased property - Related-party leases face extra limits - Lessor carries residual value risk *The ownership choice changes which tests the equipment affects and how much of the fund's value is short-lived.* ## How do servers affect the 70% tangible property test? If the QOZB owns them, servers count by value on both sides of the ratio, so qualifying servers raise it and non-qualifying servers lower it. At least 70% of the tangible property a QOZB owns or leases must be Qualified Opportunity Zone business property under §1400Z-2(d)(3).[^1] Owned equipment qualifies if it was acquired by purchase from an unrelated party, its original use in the zone begins with the QOZB, and it is used in the zone during substantially all of the QOZB's holding period.[^2] Original use for equipment turns on when it is first placed in service in the zone. Practitioner summaries of the final regulations describe used property as able to meet original use if it has not previously been used or placed in service in the zone in a depreciable way, so refurbished equipment brought in from outside the zone may qualify; confirm the exact conditions in the regulation text with counsel.[^14] Related parties are tested at more than 20% common ownership rather than more than 50% (§1400Z-2(e)(2)), so servers bought from an affiliate of an investor or tenant often fail the purchase requirement.[^1] The regulations are generally read to allow value to be measured either from an applicable financial statement or by an alternative method based on unadjusted cost (with a present-value approach for leased property). The choice matters for fast-depreciating equipment: under a financial statement method, server book values fall quickly, which shifts weight toward the building over time, while a cost-based method does not reflect that depreciation. Confirm the method and its consistency requirements with your adviser.[^2] The test itself is explained in [The QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test). **Illustrative QOZB that owns a GPU cluster (assumed values)** | Asset | Value | Qualifies? | Why | | --- | --- | --- | --- | | Building, substation and cooling plant | $300 million | Yes | New construction placed in service by the QOZB | | GPU servers bought new from a vendor | $500 million | Yes | Purchased from an unrelated party, first used in the zone | | Servers transferred from an investor's affiliate | $120 million | No | Acquired from a related party | | Total | $920 million | $800 million qualifying | 87%: passes the 70% test | Change one fact and the result flips: if the affiliate's servers were worth $400 million instead, qualifying property would be $800 million of $1.2 billion, or 66.7%, and the QOZB would fail. ## How long do servers last compared with a 10-year Opportunity Zone hold? About half as long. The tax-free appreciation election requires holding the fund interest for at least 10 years, while large cloud companies depreciate servers over 5 to 6 years in their financial statements.[^1][^3][^4] **Figure: Server useful lives in hyperscaler financial statements versus the 10-year hold** - Microsoft servers: 6 years - Alphabet servers: 6 years - Meta servers: 5.5 years - Amazon servers (subset): 5 years - Hold needed for the Opportunity Zone exclusion: 10 years *Server lives as reported for each company's financial statements, not tax lives.[^3][^4] Every one is shorter than the 10 years needed for the Opportunity Zone exclusion. Confirm in each company's latest 10-K before relying on a figure.* Amazon shortened a subset of its servers from 6 to 5 years effective January 1, 2025, citing the pace of AI and machine learning change, and Meta moved to 5.5 years the same day.[^3][^4] For tax purposes, computers and peripheral equipment are generally 5-year property under MACRS.[^5] Electrical and mechanical plant such as switchgear and chillers usually lasts longer than servers, though reliable public benchmarks for each component are scarce. ## What happens when servers are replaced during the hold? Each replacement is a new purchase that must qualify on its own, and the old equipment's sale is a taxable event at the business level. **Figure: Equipment generations inside a 10-year Opportunity Zone hold** (illustrative) - Fund interest held for the 10-year election: 0 to 10 years - Building, substation, cooling plant: 0 to 10 years (Long-lived; carries the appreciation) - Server generation 1: 0 to 5 years - Server generation 2: 5 to 10 years - Working capital plan for the refresh purchase: 4 to 6 years *Illustrative. Servers turn over about twice in 10 years; the shell and core plant do not. The appreciation the 10-year election shelters comes mostly from the long-lived layer and the business as a whole.* - New purchases. Generation 2 servers qualify if bought from an unrelated party and first used in the zone by the QOZB.[^2] - Disposal gain. If generation 1 equipment was fully expensed, its basis may be zero, so sale proceeds are generally depreciation recapture taxed as ordinary income. Gain on equipment sold before year 10 is not covered by the 10-year election.[^6] - Cash between sale and purchase. Sale proceeds held by the QOZB are financial property. A written working capital plan for the replacement purchase helps keep the cash inside the safe harbor, and nonqualified financial property must stay under 5%. - Fund-level reinvestment. A QOF has 12 months to reinvest proceeds from selling qualified property before they count against its 90% test, held meanwhile in cash, cash equivalents or short-term debt. That relief is for the asset test only and does not defer the gain.[^9] Selling a QOZB's equipment does not by itself accelerate an investor's deferred gain, because inclusion events are tied to the investor's fund interest; see [Opportunity Zone inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). The gain on the equipment itself still flows through to investors in a partnership fund. ## How do bonus depreciation and recapture interact with Opportunity Zone equity? They stack. 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.[^6] A cost segregation study can move servers, electrical and mechanical components into short-life classes, while the building shell (39-year property) does not qualify.[^7] In a partnership fund, those deductions flow to investors, subject to the usual basis, at-risk and passive activity limits. An investor's Opportunity Zone basis in a deferred-gain investment starts at zero, but the regulations are generally read to let a partner's basis in the fund interest include its share of partnership liabilities under §752, so whether losses are usable often depends on how fund debt is allocated. Confirm the investor-level effect with your tax adviser. The 10-year election helps on the back end. For partnership and S corporation funds, investors can elect to exclude gain from the fund's or a lower-tier QOZB's sale of assets after the 10-year mark, including depreciation recapture, with inventory the main exception.[^8] Equipment sold before year 10 gets no such relief. The qualified production property expensing rule in §168(n) generally does not cover data centers. More detail is in [Depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## What if the tenant owns the servers? Then the servers are invisible to the landlord's Opportunity Zone tests, and the landlord's business has to stand on its operations. Improvements and equipment a tenant pays for are treated as the tenant's own purchased property.[^10] The landlord QOZB's 70% test then covers the shell, land rights, substation, cooling and any systems it owns. That makes the fund's asset base longer-lived and simpler to test, but it moves the focus to the active trade or business requirement. A landlord that merely signs a triple-net lease is not actively conducting a business under the regulations, a problem covered in [Powered shell and triple-net data centers in Opportunity Zones](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). A tenant could, in principle, be its own QOZB funded by a separate QOF, in which case its leased space and its servers would be tested in its own 70% calculation. ## When does it make sense for the QOZB to own the IT equipment? When the business sells compute or managed services, not space. An AI cloud or GPU services company that owns its hardware has a clear active business and income tied to equipment in the zone. The regulations test servers under the same owned and leased tangible property rules as the shell, power, cooling and backup generation, and contain no rules written for data center equipment.[^14] The trade-off is obsolescence. Investors bear the risk that hardware loses value faster than planned, and the business must fund refresh purchases from cash flow or new capital. Mobile or containerized units also need tracking: the IRS treats property used in a zone on at least 70% of days as used substantially in the zone.[^13] For GPU-heavy projects, see [AI data centers and Opportunity Zones](https://ozdatacenters.com/guides/ai-data-centers-opportunity-zones). ## Common questions **Can servers be Qualified Opportunity Zone business property?** Yes, if the QOZB buys them from an unrelated party, their original use in the zone begins with the QOZB, and they are used in the zone for substantially all of the holding period. No guidance addresses servers specifically.[^2][^14] **Can refurbished or used servers qualify?** They may, if they have not previously been used or placed in service in the zone and are bought from an unrelated party, as practitioners generally read the regulations. Equipment already in service in the zone would need a substantial improvement analysis instead. Confirm the conditions with counsel.[^14] **Do leased GPUs count toward the 70% test?** Leased equipment can count as qualifying property if the lease is on market-rate terms. The original use requirement does not apply to leased property, but related-party leases face extra limits.[^10] **Does selling old servers trigger tax for investors?** The gain on the equipment is taxable when sold before the 10-year mark and flows through a partnership fund to investors. It does not by itself trigger the investor's deferred capital gain.[^6] **Does bonus depreciation reduce the Opportunity Zone basis step-up?** No. The 10% or 30% step-up applies to the investor's deferred gain and fund basis; bonus depreciation applies to the business's equipment. They are separate rules that can both apply.[^1][^6] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Accounting Today, "Meta's accounting move on AI servers to boost profit" (2025). https://www.accountingtoday.com/articles/metas-accounting-move-on-ai-servers-to-boost-profit [^4]: Tiger Brokers, "The Accounting Uproar Over How Fast an AI Chip Depreciates" (2026). https://www.itiger.com/news/2589331119 [^5]: Internal Revenue Service, "Publication 946 (2025), How To Depreciate Property" (2025). https://www.irs.gov/publications/p946 [^6]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^7]: CBIZ, "Cost segregation bonus depreciation benefits under the OBBBA" (2025). https://www.cbiz.com/insights/article/cost-segregation-bonus-depreciation-benefits-under-the-obbba [^8]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^9]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^10]: BDO, "IRS and Treasury Release Second Set of Opportunity Zone Guidance" (2019). https://www.bdo.com/insights/tax/irs-and-treasury-release-second-set-of-opportunity-zone-guidance [^11]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^12]: SemiAnalysis, "GB200 Hardware Architecture and Component Supply Chain" (2024). https://newsletter.semianalysis.com/p/gb200-hardware-architecture-and-component [^13]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^14]: Tax Notes, "26 CFR 1.1400Z2(d)-2, Qualified opportunity zone business property (text)" (n.d.). https://taxnotes.com/research/federal/cfr26/1.1400Z2d-2 --- # Converting industrial buildings into data centers in Opportunity Zones URL: https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones Last reviewed: 2026-10-20 Converting an industrial building into a data center can qualify for Opportunity Zone benefits if the fund's business substantially improves it: within 30 months after purchase, additions to the building's basis must exceed its adjusted basis, or 50% of it in a zone made up entirely of rural area. Land is excluded from the test, and data center power and cooling work often clears the hurdle many times over, so the harder questions are usually power, structure and community acceptance. ## Key takeaways - A purchased building that is not original use must be substantially improved: additions to its basis during any 30-month period after acquisition must exceed its adjusted basis at the start of that period. - For property in a zone made up entirely of rural area, the threshold is 50% instead of 100%, effective July 4, 2025 under the statute and Notice 2025-50. - Land under the building does not have to be improved and is excluded from the calculation (Rev. Rul. 2018-29), so the purchase price allocation between land and building sets the size of the hurdle. - A building that has been vacant for at least three years can be treated as original use, which removes the substantial improvement requirement for that building. - Mills, factories and power plant sites can offer heavy floors, high ceilings and existing substations or transmission, but local opposition has ended at least one Maine mill conversion. ## Why convert an industrial building into a data center? Because the site may already have what new data centers struggle to get: heavy utility service, industrial zoning, water and a low purchase price. Many Opportunity Zones are former manufacturing districts, where land and building values are low and large structures sit vacant. There are precedents. Sibley Mill in Augusta, Georgia, a former denim mill with 2.5 MW of on-site hydropower, was planned as a data center and technology park.[^11] Mayo Mill in Dover-Foxcroft, Maine, a woolen mill, was redeveloped with housing, commercial space and a data center with EPA brownfields support.[^12] At a much larger scale, the former Homer City coal plant in Pennsylvania is being converted into a planned 4.5 GW gas-fired data center campus on more than 3,200 acres.[^10] In Millinocket, Maine, Nautilus Data Technologies announced a 60 MW facility on part of the former Great Northern Paper mill site, described as in an Opportunity Zone; its current status is unconfirmed.[^14] Not every building works. Modern AI racks are heavy and dense: an NVIDIA GB200 NVL72 rack draws about 120 kW and requires liquid cooling.[^16] Floor loading, clear height, column spacing and room for generators and heat rejection can rule out a building no matter how good the tax math is. The broader framework is in [Data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## How does the substantial improvement test apply to a building conversion? The building must be improved by more than its own adjusted basis within 30 months, or by more than 50% in a wholly rural zone. Opportunity Zone business property must be either original use in the zone or substantially improved by the Qualified Opportunity Zone Business (QOZB). Under §1400Z-2(d)(2)(D)(ii), property is substantially improved if, during any 30-month period beginning after acquisition, additions to its basis exceed its adjusted basis at the start of that period.[^1][^2] **Figure: Substantial improvement thresholds for an existing building** - Building in an urban or mixed zone: more than 100% (Additions must exceed 100% of building basis) - Building in a zone made up entirely of rural area: more than 50% (Additions must exceed 50% of building basis; effective July 4, 2025) *Additions to the building's basis within any 30-month period, as a percent of its adjusted basis at the start. Land is excluded from both sides of the test.* Three refinements matter for conversions. First, land is excluded: it does not have to be separately improved, and only the basis allocated to the building sets the hurdle (Rev. Rul. 2018-29).[^4] Second, improvements do not have to be finished within the 30 months; the additions to basis must exceed the threshold in that period.[^3] Third, the final regulations allow aggregation, so qualifying new property on the parcel can count toward improving the property as a whole.[^6] How far aggregation reaches data center equipment should be confirmed with counsel. An anti-abuse rule applies to land: unimproved land bought with the intent not to improve it by more than an insubstantial amount within 30 months cannot rely on the land exception.[^5] A conversion that leaves most of a large parcel idle should document the plan for the rest of the site. The rural threshold comes from Public Law 119-21 and applies to determinations after July 4, 2025. Notice 2025-50 applies it to current zones that consist entirely of rural area, defined as anywhere other than a city or town of more than 50,000 people and the urbanized area next to it.[^7] Husch Blackwell flags adaptive reuse of rural buildings for data centers as one of the uses that benefit[^8], and Tax Notes has covered the rule in its analysis of data center tax planning.[^17] The rule is explained in [The Opportunity Zone substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## Worked example: converting a mill into a 10 MW data center Example (illustrative). A QOZB buys a vacant mill for $8 million. An appraisal allocates $3 million to land and $5 million to the building. The QOZB plans a 10 MW conversion with structural reinforcement, a new roof, electrical rooms and a utility service upgrade. **Figure: Required versus planned additions to building basis within 30 months** (illustrative) - Required in an urban zone (more than 100%): $5.0M+ - Required in a wholly rural zone (more than 50%): $2.5M+ - Planned building improvements: $30M *Illustrative. Assumes a $5 million building allocation and $30 million of planned additions to the building's basis. Separate equipment such as generators and UPS is not included in the planned figure.* The conversion clears either threshold by a wide margin. The real work is documentation: a defensible appraisal for the land and building split, a record of each addition to the building's basis by date, and a clear line between building improvements and separate equipment. Only the building's basis sets the hurdle, so a low allocation to the building makes the test easier, but that allocation must be supportable. Cushman & Wakefield's 2026 guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW excluding chips, a reminder that the conversion's total budget will dwarf the building's purchase price.[^15] The tax math for investors is the same as any Opportunity Zone deal; see [Opportunity Zone tax savings: a worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). A rural conversion owned through a rural fund can also give investors a 30% basis step-up at year five for investments after December 31, 2026.[^9] ## When is a converted building original use instead? When it has been vacant long enough, or when the data center is a new building on the site. Under the final regulations, a building that has been vacant for at least three years before purchase can be treated as original use, so it does not need to be substantially improved.[^3] A new building constructed on an old industrial parcel is original use regardless of what stood there before. **Original use and substantial improvement paths for a conversion** | Path | When it applies | What the QOZB must show | | --- | --- | --- | | Original use (vacancy) | Building vacant at least three years before purchase | Evidence of vacancy, such as utility records and leasing history | | Original use (new construction) | New data center building on the parcel | First placed in service in the zone by the QOZB | | Substantial improvement | Any other purchased building | Additions to building basis above 100% (50% rural) within 30 months | | Leased building | Building leased on market terms from an unrelated party | Original use and substantial improvement do not apply to leased property | New equipment installed in the building, such as switchgear, generators and cooling units bought from an unrelated party, is separately original-use property. For leased buildings, see [Leased property rules for Opportunity Zone businesses](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). ## What makes an industrial building suitable for data center use? Power, structure and site room come first. The factors below are practical considerations, not tax rules. **Screening an industrial building for data center conversion** | Factor | Why it matters | Opportunity Zone angle | | --- | --- | --- | | Existing utility service and substation | Upgrading service is often the longest lead item | Delays can strain the 31-month working capital plan | | Floor loading and slab | Liquid-cooled AI racks and battery rooms are heavy | Structural work adds to building basis | | Clear height and column spacing | Affects airflow, containment and rack layout | Major rework adds to building basis | | Yard and roof space | Generators, chillers and heat rejection need room | Yard equipment may be separate property | | Water and wastewater | Cooling design and local permits | Closed-loop designs reduce dependence | | Contamination and historic status | Cleanup and design limits | Brownfield and historic credits may stack | Site-level screening, including fiber and flood risk, is in [Data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## How do the 30-month and 31-month clocks work together on a conversion? They run side by side, so the spending plan should satisfy both. The substantial improvement clock runs 30 months from a start date the QOZB chooses after acquisition. The working capital safe harbor lets the QOZB hold cash for up to 31 months under a written plan and schedule, with overlapping plans extending to a maximum of 62 months.[^18] A conversion that spends steadily on the building inside the first 30 months usually satisfies both. **Figure: Conversion sequence for an Opportunity Zone data center** 1. Confirm power: Utility study and service upgrade path before closing 2. Acquire and allocate: Appraisal splits land and building basis 3. Adopt a written plan: Working capital schedule for the conversion 4. Improve the building: Track every addition to building basis by date 5. Install equipment: New, unrelated-party equipment is original use 6. Place in service: Begin operations and the active business tests *A practical order of operations. Securing power and the basis allocation early keeps both Opportunity Zone clocks under control.* Power upgrades are the usual source of delay. See [Data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## What risks are specific to data center conversions? Community response, hidden building conditions and power reliability. In Jay, Maine, a mill-to-data-center redevelopment collapsed after local opposition and the developer withdrew.[^13] Industrial sites can carry contamination, and older structures can hide problems that only show up during demolition. Federal policy is also in debate: September 2026 bills in Congress propose excluding data centers from Opportunity Zone benefits, but none had been enacted as of October 20, 2026. Engaging the community early is covered in [Community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers). ## Common questions **Does the land have to be improved too?** No. Land is excluded from the substantial improvement test, and only the basis allocated to the building sets the hurdle. Land left idle with no intent to improve it can lose that treatment under an anti-abuse rule.[^4][^5] **Must the conversion be finished within 30 months?** No. Additions to the building's basis must exceed the threshold within a 30-month period, but the project does not have to be complete.[^3] **Does the 50% rural threshold apply to new zones only?** No. It applies to property in any zone made up entirely of rural area for determinations after July 4, 2025, including current zones identified under Notice 2025-50.[^7] **Do generators and cooling equipment count toward substantial improvement?** Improvements that add to the building's basis count directly. Separate equipment is generally its own original-use property, and the final regulations' aggregation rules may let some new property count toward the whole; confirm the treatment with counsel.[^6] **What if the building has been vacant for years?** A building vacant for at least three years before purchase can be treated as original use, which removes the substantial improvement requirement.[^3] **Is a former power plant site a good Opportunity Zone conversion?** It can be, because transmission and land are already there. Homer City in Pennsylvania is being converted into a planned 4.5 GW campus on more than 3,200 acres. Whether it qualifies depends on the site's tract status and the usual tests.[^10] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^4]: Internal Revenue Service (hosted by Morris, Manning & Martin), "Revenue Ruling 2018-29" (2018). https://www.mmmlaw.com/files/documents/publications/rr-18-29.pdf [^5]: Stoel Rives, "Treasury Issues New Proposed Qualified Opportunity Zone Regulations" (2019). https://www.stoel.com/insights/publications/treasury-issues-new-proposed-qualified-opportunity [^6]: Bisnow, "Final Opportunity Zone Regulations Released" (2019). https://www.bisnow.com/news/national/opportunity-zones/treasury-irs-opportunity-zone-regulations-final-round-102322 [^7]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement for qualified opportunity zones" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^8]: Husch Blackwell, "What the New 50% Substantial Improvement Rule Means for Real Estate Investors in Rural Opportunity Zones" (2025). https://www.huschblackwell.com/newsandinsights/unlocking-opportunity-what-the-new-50-substantial-improvement-rule-means-for-real-estate-investors-in-rural-opportunity-zones [^9]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^10]: Data Center Dynamics, "Homer City and Kiewit unveil plans for 4.5GW natural gas-powered AI data center in Pennsylvania" (2025). https://datacenterdynamics.com/en/news/homer-city-and-kiewit-unveil-plans-for-45gw-natural-gas-powered-ai-data-center-in-pennsylvania [^11]: GovTech, "Investors Eye Former Georgia Textile Mill as Home Base for Cybercenter" (n.d.). https://www.govtech.com/workforce/Investors-Eye-Former-Georgia-Textile-Mill-as-Home-Base-for-Cybercenter.html [^12]: U.S. Environmental Protection Agency, "Brownfields success story: Mayo Mill, Dover-Foxcroft, ME" (2020). https://19january2021snapshot.epa.gov/sites/static/files/2020-12/documents/bf-ss-mayo-mill-dover-foxcroft-me.pdf [^13]: Site Selection, "Maine Shutdown 2.0: Mill Redevelopment Project Stymied by Data Center Resistance" (n.d.). https://siteselection.com/maine-shutdown-2-0-mill-redevelopment-project-stymied-by-data-center-resistance/ [^14]: Data Center Dynamics, "Nautilus to build $300m land-based data center in Maine" (2021). https://datacenterdynamics.com/en/news/nautilus-to-build-300m-land-based-data-center-in-maine [^15]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^16]: SemiAnalysis, "GB200 Hardware Architecture and Component Supply Chain" (2024). https://newsletter.semianalysis.com/p/gb200-hardware-architecture-and-component [^17]: Tax Notes, "Tax Considerations for Data Center Projects" (2026). https://www.taxnotes.com/featured-analysis/tax-considerations-data-center-projects/2026/02/06/7tycl [^18]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same --- # Data center power timelines and the Opportunity Zone clock URL: https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines Last reviewed: 2026-10-20 Power, not construction, usually sets the schedule for an Opportunity Zone data center, and it can outrun the rules' clocks: the working capital safe harbor shelters cash for 31 months per plan and 62 months at most, while large-load hookups in constrained markets have taken up to seven years. Sponsors manage the gap by securing power before raising fund equity, phasing capital, and documenting any government delay that might toll the period. ## Key takeaways - A QOZB can hold cash for up to 31 months under a written working capital plan and schedule, and overlapping plans can extend the period to a maximum of 62 months from the first cash infusion. - Delay caused by government action on a completed application can toll the working capital period; no guidance says whether utility study or construction delays count. - Dominion Energy said in 2024 that large data center hookups in Northern Virginia could take up to seven years, and LBNL reports median generator interconnection times above four years. - Large-load tariffs now require long minimum payments: AEP Ohio's requires new loads above 25 MW to pay for at least 85% of subscribed demand for up to 12 years. - Investors have 180 days to invest a gain, so most sponsors finish land and power work with other capital before calling Opportunity Zone fund equity. ## Why does power set the schedule for an Opportunity Zone data center? Because grid capacity is scarcer than construction capacity. LBNL's 2025 update projects data centers using about 649 TWh in 2030 in its reference case, about 11.8% of U.S. electricity.[^19] Utilities are struggling to keep up: Dominion Energy said in 2024 that connecting data centers above 100 MW could take one to three years longer than before, for total waits of up to seven years in Northern Virginia.[^5] Building is faster. Epoch AI's tracking of recent gigawatt-scale campuses shows 1 to 3.6 years from the start of construction to 1 GW of power[^7], and NTT Facilities has put the traditional design and construction period for large data centers at 3 to 4 years.[^8] On-site generation has its own queue: LBNL's Queued Up report finds the median time from interconnection request to commercial operation exceeded four years for generators built in 2018 to 2024, and only 13% of capacity that requested interconnection in 2000 to 2019 reached operation by the end of 2024.[^6] **Figure: Power and construction timelines against the Opportunity Zone windows** - Large-load hookup, Northern Virginia (Dominion, 2024): Up to 7 years - Generator interconnection, median (2018 to 2024 projects): Over 4 years - Traditional large data center design and build (NTT): 3 to 4 years - Construction start to 1 GW, recent campuses (Epoch AI): 1 to 3.6 years - Working capital safe harbor, one plan to the maximum: 31 to 62 months - Substantial improvement window: 30 months *Grid and generator timelines can exceed the maximum working capital period. Sources: Dominion via Bloomberg[^5], LBNL[^6], Epoch AI[^7], NTT via W.Media[^8], Treasury regulations.[^3]* The investor implication is direct: money raised long before power is available can sit idle past the point the rules allow. The full development schedule is in [Opportunity Zone data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## Which Opportunity Zone clocks run during a data center build? Several, at the investor, fund and business levels. They are set by §1400Z-2 and the Treasury regulations.[^1][^2] **Figure: Opportunity Zone clocks that overlap a data center build** - Day 1: Capital gain realized (Investor's 180-day window opens) - Day 180: Last day to invest in a QOF (Equity, not debt) - Month 6: New-cash exclusion runs out (Regulations are generally read to let a QOF exclude new cash held six months or less from the 90% test; confirm terms) - Month 30: Substantial improvement period (For purchased existing buildings) - Month 31: One working capital plan ends (Written plan and schedule required) - Year 5: Deferred gain included (10% step-up, 30% for a rural fund) - Month 62: Maximum working capital period (Overlapping or sequential plans) - Year 10: Exclusion election available (Fair market value basis on sale) *Each clock starts at a different event: the investor's gain, the fund's receipt of cash, or the QOZB's first working capital infusion or acquisition.* **What each clock requires of a data center project** | Clock | Length | What it means for a data center | | --- | --- | --- | | Investor investment window | 180 days from the gain | Fund equity is called when investors have gains, not when the utility is ready | | QOF 90% asset test | Two semiannual testing dates | The fund must invest in the QOZB promptly; it cannot hold cash for long | | Working capital safe harbor | 31 months per plan, 62 months maximum | The QOZB must spend cash substantially as scheduled | | Substantial improvement | 30 months | Conversions must add enough building basis in time | | Five-year inclusion | Five years from investment | Investors pay tax on the deferred gain even if the project is late | The safe harbor is explained in [The Opportunity Zone working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and the investor deadline in [The Opportunity Zone 180-day investment rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule). ## Do utility delays toll the working capital safe harbor? Not clearly. The regulations toll the working capital period when delay is caused by government action on an application that is complete, and only where no other action can be taken to advance the project during the delay. A federally declared disaster can add up to 24 months.[^3][^4] Utility delays are harder. An investor-owned utility's study backlog or equipment lead time is not obviously government action, and no guidance addresses whether it counts. Some steps in the power process do involve government bodies, such as a state commission's review of a large-load contract or a local permit for a substation, and those may be stronger candidates for tolling if the application was complete. This is analysis, not settled law. Rule changes are possible. Notice 2026-55, with comments due November 23, 2026, asks whether a QOZB should be allowed to modify an existing working capital plan.[^17] Until guidance changes, plan as if tolling will not be available for utility delays. ## How do large-load tariffs affect the Opportunity Zone timeline? They add long payment commitments and collateral that must be in place before service, which pushes more spending earlier in the schedule. **Selected large-load tariffs for data centers** | Utility or regulator | Applies to | Key terms | | --- | --- | --- | | AEP Ohio (PUCO order, July 9, 2025) | New data centers above 25 MW | Pay for at least 85% of subscribed demand for up to 12 years, including a 4-year ramp; financial viability proof, exit fees and collateral[^9] | | Georgia Power (Georgia PSC rule, January 23, 2025) | New customers above 100 MW | Contract terms of 5 to 15 years, minimum billing, recovery of upstream costs; contracts reviewed by the PSC[^10] | | Dominion Energy Virginia (GS-5 class) | Loads above 25 MW with a load factor of 75% or more | Obligations begin January 2027; minimum payments reported at 85% of transmission and distribution demand and 60% of generation demand[^11] | Collateral and minimum bills tie up cash. If a QOZB posts cash collateral, that cash is financial property, and nonqualified financial property must stay under 5% of the QOZB's average property basis unless it is covered by the working capital safe harbor. Letters of credit or parent support may work better. This is a practical consideration for counsel. Interconnection options are compared in [Power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## What federal actions could change large-load interconnection timelines? Several proceedings are underway, and their outcomes are still moving. On December 18, 2025, FERC found PJM's tariff unjust and unreasonable for lacking clear rules for co-located load and directed new transmission service options for it.[^12] On October 23, 2025, the Energy Secretary used DOE Organization Act section 403 to send FERC a proposed rulemaking on interconnecting loads above 20 MW, opened as Docket RM26-4-000.[^13] In April 2026, FERC said it would act on the large-load docket by the end of June 2026.[^14] Secondary reports say FERC then issued show-cause orders to the regional grid operators rather than a single final rule; that outcome should be confirmed on ferc.gov. For Opportunity Zone planning, none of these actions changes the tax clocks, and any faster process will take time to reach individual utilities. ## Can on-site generation shorten the timeline? Sometimes, and it changes what the QOZB owns. Large campuses increasingly pair with dedicated generation. The Homer City campus in Pennsylvania plans seven gas turbines for a 4.5 GW campus, with first turbine deliveries expected in 2026 and operation targeted for 2027.[^15] In Louisiana, regulators approved three Entergy gas plants of about 2.26 GW to serve Meta's Hyperion campus.[^20] For Opportunity Zone purposes, generation owned by the QOZB and located in the zone can be qualifying property if it meets the usual purchase, original use and location tests, while generation owned by a utility or independent producer is outside the QOZB. Tax credits also matter: Public Law 119-21 ends the §45Y and §48E credits for wind and solar facilities placed in service after 2027 unless construction began by July 4, 2026.[^16] Generator interconnection still takes time, so on-site power is not an automatic shortcut.[^6] ## How should sponsors sequence power and Opportunity Zone capital? Secure power first, then call Opportunity Zone equity in tranches sized to what can be spent inside each working capital plan. 1. Use non-Opportunity Zone capital for land options, utility studies and early permits, so no fund cash waits on the utility. 2. Obtain a signed electric service agreement or equivalent commitment with a delivery schedule before the first QOF closing. 3. Size each QOF call and QOZB infusion to what the written schedule can spend within 31 months. 4. Adopt a written working capital plan for each phase, tied to the utility's delivery dates. 5. Track every government application and its completeness date to preserve any tolling argument. 6. At the fund level, reinvest proceeds from any asset sale within 12 months to protect the 90% test; this does not defer the gain itself.[^18] 7. Consider wholly rural zones where transmission is available and the 50% substantial improvement and 30% rural step-up apply. **Figure: Sequencing power before Opportunity Zone equity** (illustrative) - Utility studies and land option (non-OZ capital): 0 to 30 months - Electric service agreement signed: 28 to 30 months - First QOF closing and 31-month plan: 30 to 61 months - Construction: 32 to 58 months - Utility energizes first phase: 54 to 60 months *Illustrative. Fund equity arrives only once the utility commits to a delivery date that falls inside the working capital plan.* Sponsors with rural sites should also read [Rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). ## Common questions **How long can an Opportunity Zone business hold cash while waiting for power?** Up to 31 months under one written working capital plan, and up to 62 months from the first cash infusion with overlapping or sequential plans. Cash must be spent substantially as the schedule says.[^3][^4] **Does a utility's study backlog count as a government delay?** No guidance says so. Tolling applies to delay from government action on a completed application. Treat utility study and equipment delays as not tolling unless counsel concludes otherwise.[^3] **What happens to investors if the project is late?** Their deferred gain is still included five years after their investment, whether or not the data center is operating, and the 10-year clock keeps running.[^1] **Should a fund raise equity before signing a power agreement?** Usually not. Raising before power is committed risks idle cash at both the fund and the QOZB level, and power waits in constrained markets have reached up to seven years. A common approach is to fund early studies with other capital.[^5] **Do new federal interconnection rules change the Opportunity Zone deadlines?** No. FERC and DOE actions affect grid processes, not the tax clocks. The Opportunity Zone deadlines come from §1400Z-2 and the Treasury regulations.[^13][^1] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^4]: RSM US, "Final QOZ regulations include favorable interpretations" (2019). https://rsmus.com/insights/tax-alerts/2019/final-qoz-regulations-include-favorable-interpretations.html [^5]: Bloomberg (via BNN Bloomberg), "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^6]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^7]: Epoch AI, "Data center buildout speeds" (2026). https://epoch.ai/data-insights/data-centers-buildout-speeds [^8]: W.Media, "NTT targets 2028 to implement modular construction to halve hyperscale completion time" (n.d.). https://w.media/ntt-targets-2028-to-implement-modular-construction-to-halve-hyperscale-completion-time/ [^9]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^10]: Georgia Public Service Commission, "Media advisory: data centers rule" (2025). https://psc.ga.gov/site/assets/files/8617/media_advisory_data_centers_rule_1-23-2025.pdf [^11]: American Action Forum, "Virginia's New Data Center Electricity Rate Class" (2026). https://www.americanactionforum.org/insight/virginias-new-data-center-electricity-rate-class/ [^12]: Morgan Lewis, "FERC Directs Co-Location Reforms in PJM" (2025). https://www.morganlewis.com/pubs/2025/12/ferc-directs-co-location-reforms-in-pjm [^13]: Federal Energy Regulatory Commission, "Interconnection of Large Loads to the Interstate Transmission System, Docket RM26-4-000" (n.d.). https://www.ferc.gov/rm26-4 [^14]: Holland & Knight, "FERC to Act on Large-Load Interconnection Docket in June" (2026). https://www.hklaw.com/en/insights/publications/2026/04/ferc-to-act-on-large-load-interconnection-docket-in-june [^15]: Data Center Dynamics, "Homer City and Kiewit unveil plans for 4.5GW natural gas-powered AI data center in Pennsylvania" (2025). https://datacenterdynamics.com/en/news/homer-city-and-kiewit-unveil-plans-for-45gw-natural-gas-powered-ai-data-center-in-pennsylvania [^16]: Mintz, "The OBBBA: A Major Shift in Federal Clean Energy Tax Incentives" (2025). https://www.mintz.com/insights-center/viewpoints/2906/2025-09-16-obbba-major-shift-federal-clean-energy-tax-incentives [^17]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^18]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^19]: Lawrence Berkeley National Laboratory, "United States Data Center Energy Usage Report: 2025 Update" (2026). https://eta-publications.lbl.gov/publications/united-states-data-center-energy-2025 [^20]: Data Center Dynamics, "Entergy obtains approval to construct three gas facilities to serve Meta's 2GW data center in Louisiana" (2025). https://www.datacenterdynamics.com/en/news/entergy-obtains-approval-to-construct-three-gas-facilities-to-serve-metas-2gw-data-center-in-louisiana --- # Rural data centers and Opportunity Zones URL: https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones Last reviewed: 2026-10-20 Rural Opportunity Zones offer data center investors the program's richest terms: for investments after December 31, 2026, a Qualified Rural Opportunity Fund gives a 30% basis step-up after five years instead of 10%, and existing buildings in wholly rural zones need only 50% substantial improvement. Those benefits match the industry's move toward land- and power-rich rural markets, but rural sites still depend on transmission, fiber, water, workforce and local support. ## Key takeaways - A rural area is anywhere other than a city or town with more than 50,000 people and the urbanized area contiguous and adjacent to it (§1400Z-2(b)(2)(C)(ii)). - A Qualified Rural Opportunity Fund must hold at least 90% of its assets in Opportunity Zone property in zones made up entirely of rural area; its investors get a 30% basis step-up after five years for investments after December 31, 2026. - Existing buildings in wholly rural zones are substantially improved when additions to basis exceed 50% of the building's basis within 30 months, a rule in effect since July 4, 2025. - Treasury's eligible-tract list for the new zones includes 8,334 wholly rural tracts out of 25,332, but the law sets no rural nomination quota. - Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, while September 2026 bills propose excluding data centers from the program. ## What counts as a rural Opportunity Zone? A rural Opportunity Zone, for the enhanced benefits, is a designated zone made up entirely of rural area. The statute defines a rural area as any area other than a city or town with a population greater than 50,000 and any urbanized area contiguous and adjacent to such a city or town.[^1] Notice 2025-50 applies the same definition to current zones and identifies the tracts treated as entirely rural.[^2][^3] **Figure: Rural Opportunity Zones by the numbers** - 3,309: Current zones made up entirely of rural area, out of 8,764 - 8,334: Wholly rural tracts among 25,332 eligible for the new designations - 50,000: Population above which a city or town is not rural - 30%: Basis step-up for a rural fund after five years, for investments after 2026 *Counts from IRS releases.[^4][^5] The final list of newly designated tracts depends on governors' nominations and Treasury certification.* Newly designated zones take effect January 1, 2027 and run through December 31, 2036. The final law dropped a proposed rural nomination quota, so the rural push works through tax incentives rather than a set-aside.[^6] How rural tracts are identified is in [Rural Opportunity Zones, explained](https://ozdatacenters.com/guides/rural-opportunity-zones). ## What extra benefits do rural Opportunity Zones offer data centers? Two: a larger basis step-up for investors in a rural fund, and a lower substantial improvement threshold for existing buildings. A Qualified Rural Opportunity Fund (QROF) is a QOF that holds at least 90% of its assets in Opportunity Zone property located in zones made up entirely of rural area. Its investors receive a 30% basis step-up on deferred gain held five years, compared with 10% for a standard fund, for investments made after December 31, 2026.[^1][^4] **Figure: Standard QOF versus Qualified Rural Opportunity Fund** - Standard QOF - 90% of assets in Opportunity Zone property, any zone - 10% basis step-up after five years - 90% of the deferred gain taxed at year five - Existing buildings need more than 100% improvement in 30 months - Appreciation excluded after a 10-year hold - Qualified Rural Opportunity Fund (Wholly rural zones) - 90% of assets in zones made up entirely of rural area - 30% basis step-up after five years - 70% of the deferred gain taxed at year five - Existing buildings need more than 50% improvement in 30 months - Appreciation excluded after a 10-year hold *The rural fund's advantages come from the five-year step-up and the lower improvement threshold. The 10-year exclusion is the same.* The 50% substantial improvement rule took effect July 4, 2025 for property in any zone made up entirely of rural area.[^2] Husch Blackwell flags adaptive reuse and new data center construction in rural zones as uses that benefit.[^18] Pillsbury argues the rural enhancements could make hyperscale campuses in rural zones more attractive.[^7] For details see [What is a Qualified Rural Opportunity Fund (QROF)?](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). ## How much does the 30% rural step-up save? On a $10 million gain, about $476,000 of federal tax at year five compared with a standard fund, under the assumptions below. **Figure: Year-five federal tax on a $10 million deferred gain in a rural fund** (illustrative) - Tax on the full $10M gain at 23.8%: 2380000 $ - Standard 10% step-up: -238000 $ - Additional 20% for a rural fund: -476000 $ - Year-five tax in a rural fund: 1666000 $ *Illustrative. Assumes a $10 million long-term gain invested in a QROF in 2027, a 23.8% federal rate (20% plus 3.8% net investment income tax), no state tax, and a fund value at year five at or above the deferred gain.* **Standard fund versus rural fund on a $10 million gain (illustrative)** | Item | Standard QOF | Rural QOF | | --- | --- | --- | | Basis step-up after five years | $1.0 million (10%) | $3.0 million (30%) | | Gain included at year five | $9.0 million | $7.0 million | | Federal tax at 23.8% | $2.142 million | $1.666 million | | Tax on appreciation after a 10-year hold | None (exclusion election) | None (exclusion election) | On a smaller scale, a $500,000 deferred gain in a rural fund held five years gets a 30% basis increase of $150,000, so tax applies to $350,000.[^12] The full tax walk-through is in [The Opportunity Zone basis step-up: 10% and 30%](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). ## Why are data centers moving to rural areas? Land, transmission and power availability. JLL reports that 77% of North American data center development is in frontier markets such as West Texas, Ohio, Louisiana, Indiana and the Carolinas, with Texas leading at 26 GW.[^10] EPRI projects that data centers could exceed 20% of state electricity use in seven states, Arizona, Indiana, Iowa, Nebraska, Nevada, Oregon and Wyoming, by 2030.[^11] Rural sites near large transmission lines, retired power plants and new generation are a recurring pattern. Meta's Hyperion campus in Richland Parish, Louisiana is served by new Entergy gas plants approved in 2025, along with a 500 kV transmission line.[^16] Forvis Mazars sees a trend toward rural, tertiary-market data center and clean energy sites that may qualify as rural Opportunity Zones.[^8] Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today, and that 39% of planned data centers are in counties that have none now.[^9] ## How does the rural fund test work at the fund level? It is measured across the whole fund, so one non-rural asset can cost every investor the 30% step-up. The QROF test requires at least 90% of the fund's assets to be Opportunity Zone property in zones made up entirely of rural area.[^1] A zone that is partly urban does not count toward that 90%, even if the data center parcel itself is in open country. - A single-asset fund that owns one rural campus is the simplest way to meet the test. - A multi-asset fund that adds an urban edge site or colocation building can fall below 90% rural and lose QROF status. - Tract status should be checked against the new designations once Treasury certifies them, because many current zones will not be redesignated. - The rural fund's status and the 50% improvement rule are separate: a standard fund can still use the 50% rule for a building in a wholly rural zone. Rural fund mechanics, including how and when the 90% rural test is measured, may be refined in future Treasury guidance. Confirm the fund's design with your tax adviser. ## What practical challenges do rural data center sites face? Fiber, water, workforce, utility terms and local support. The tax benefits do not fix a site that lacks infrastructure. **Figure: Rural data center site screen** - [pass] High-voltage transmission or a large substation nearby: The main reason rural sites work - [watch] Long-haul fiber within reach: Check the FCC National Broadband Map and carrier routes; laterals add cost - [watch] Water for cooling, or a closed-loop design: Local supply and permits vary - [watch] Construction and operations workforce: Construction peaks are large; permanent staff is small - [pass] Tract made up entirely of rural area: Needed for the 30% fund step-up and 50% rule - [fail] Active local moratorium or organized opposition: Approval risk can outlast the working capital period *Common rural siting issues. Watch items are solvable but cost time and money; fail items usually end the search.* The FCC National Broadband Map helps check local fiber availability.[^14] State incentives differ: Iowa, for example, limited the electricity exemption for new or expanded data centers to 10 years in cities over 30,000 people and 15 years in smaller cities.[^17] Local response matters: Data Center Watch counted opposition groups growing from 396 at the end of 2025 to 833 by the end of the first quarter of 2026.[^19] Brookings found that counties getting their first large data center saw private employment rise 4% to 5% over five to six years, with construction employment up 11%.[^15] Fiber planning is covered in [Fiber connectivity for rural Opportunity Zone data centers](https://ozdatacenters.com/guides/fiber-connectivity-rural-opportunity-zone-data-centers). ## What policy debate surrounds rural data centers in Opportunity Zones? Critics argue the rural incentives will mostly subsidize large data centers. On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act to exclude data centers from Opportunity Zone benefits; House members and Sen. Ron Wyden put forward related proposals.[^13] None had been enacted as of October 20, 2026. Investors should model current law and disclose the proposals. The community side is covered in [The economic impact of data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-center-economic-impact-opportunity-zones). ## Common questions **Is every zone in a rural county a rural zone for the 30% step-up?** No. The zone must be made up entirely of rural area, meaning outside any city or town of more than 50,000 people and its contiguous urbanized area. A county can contain both rural and non-rural tracts.[^1][^3] **When does the 30% rural step-up apply?** To investments in a Qualified Rural Opportunity Fund made after December 31, 2026 and held at least five years.[^4] **Does the 50% substantial improvement rule require a rural fund?** No. It applies to property in any zone made up entirely of rural area, whatever kind of fund owns it, for determinations after July 4, 2025.[^2] **Can a rural data center fund also own urban property?** Only a little. The rural fund must keep at least 90% of its assets in wholly rural zones, so significant urban holdings would cost it rural fund status.[^1] **How many rural tracts will be designated for 2027?** Not yet known. Treasury lists 8,334 wholly rural tracts as eligible, but governors choose which to nominate, and no consolidated national list had been published as of October 20, 2026.[^5] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^3]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement for qualified opportunity zones" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^4]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^5]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^6]: Economic Innovation Group, "Opportunity Zones 2.0: Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^7]: Pillsbury Winthrop Shaw Pittman, "Qualified Rural Opportunity Funds Are Set to Boost U.S. Heartland" (2025). https://www.pillsburylaw.com/en/news-and-insights/qualified-rural-opportunity-funds-boost-us-heartland.html [^8]: Forvis Mazars, "Data Centers, Rural Opportunity Zones, & Clean Energy" (2026). https://www.forvismazars.us/forsights/2026/04/data-centers-rural-opportunity-zones-clean-energy [^9]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^10]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^11]: EPRI, "Powering Intelligence 2026: Updated Scenarios of U.S. Data Center Electricity Use and Power Strategies" (2026). https://esca.epri.com/products/3002034696/ [^12]: Willkie Farr & Gallagher, "One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones" (2025). https://www.willkie.com/publications/2025/07/one-big-beautiful-bill-act-extends-tax-incentives-for-qualified-opportunity-zones [^13]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^14]: Federal Communications Commission, "FCC Unveils Updated and Modernized National Broadband Map" (n.d.). https://www.fcc.gov/fcc-unveils-updated-and-modernized-national-broadband-map [^15]: Brookings Institution, "New evidence on data center employment effects" (2026). https://www.brookings.edu/articles/new-evidence-on-data-center-employment-effects/ [^16]: Data Center Dynamics, "Entergy obtains approval to construct three gas facilities to serve Meta's 2GW data center in Louisiana" (2025). https://www.datacenterdynamics.com/en/news/entergy-obtains-approval-to-construct-three-gas-facilities-to-serve-metas-2gw-data-center-in-louisiana [^17]: Iowa Department of Revenue, "Data Centers (sales and use tax guidance)" (n.d.). https://revenue.iowa.gov/taxes/tax-guidance/sales-use-excise-tax/data-centers [^18]: Husch Blackwell, "What the New 50% Substantial Improvement Rule Means for Real Estate Investors in Rural Opportunity Zones" (2025). https://www.huschblackwell.com/newsandinsights/unlocking-opportunity-what-the-new-50-substantial-improvement-rule-means-for-real-estate-investors-in-rural-opportunity-zones [^19]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 --- # The economic impact of data centers in Opportunity Zones URL: https://ozdatacenters.com/guides/data-center-economic-impact-opportunity-zones Last reviewed: 2026-10-20 Data centers bring large construction spending and property tax revenue but relatively few permanent jobs: Virginia's legislative auditors found a typical facility employs about 50 full-time workers, about half of them contractors. In Opportunity Zones, the community case rests mainly on tax base, construction activity and local spending, weighed against power, water, land use and incentive costs, and new federal reporting rules are set to collect impact data such as employee counts from funds and their businesses. ## Key takeaways - Virginia's JLARC found a typical data center employs about 50 full-time workers, about half of them contractors, and press coverage of the study reports that most of the industry's economic footprint is tied to construction. - Brookings found counties that got their first large data center saw private employment rise 4% to 5% over five to six years, and that naive estimates overstate the effect by about three times. - Good Jobs First estimates states lose more than $3 billion a year to data center tax breaks and puts the cost of Virginia's sales and use tax exemption alone at about $1.6 billion in fiscal 2025. - LBNL's 2025 update projects data centers at about 11.8% of U.S. electricity in 2030 in its reference case, up from 4.4% in 2023. - GAO found the effects of Opportunity Zone investment mostly unknown; proposed regulations published September 11, 2026 would require funds to report impact data such as employee counts, but they are not final. ## How many jobs does a data center create? Few permanent jobs per facility, many construction jobs, and modest county-level gains. Virginia's Joint Legislative Audit and Review Commission (JLARC) found that a typical data center employs about 50 full-time workers, about half of them contractors.[^1] As reported in press coverage of the study, most of the industry's estimated economic activity in the state is tied to construction rather than operations. Careful research finds real but smaller effects than headlines suggest. Brookings researchers found that counties that got their first large data center saw total private employment rise 4% to 5% over five to six years, with construction employment up 11%, and that naive estimates ignoring pre-existing growth trends overstate the effect by about three times.[^2] **Figure: Data center jobs and output: what the evidence says** - About 50: Full-time workers at a typical Virginia data center, about half contractors (JLARC)[^1] - 4% to 5%: Rise in county private employment over five to six years after a first large data center (Brookings)[^2] - 5.5 million: U.S. jobs supported by the industry in 2024, including indirect and induced (PwC for the Data Center Coalition)[^3] *Local studies and an industry-commissioned national estimate measure different things. The national figures come from a PwC study for the Data Center Coalition and include indirect and induced effects.* For Opportunity Zone communities, the honest framing is that a data center is a tax-base and construction project more than a large employer. That is still meaningful in a low-income tract, and it is why communities often focus on tax revenue and local hiring for construction. The broader case is in [Why data centers are a natural fit for Opportunity Zones](https://ozdatacenters.com/guides/why-data-centers-fit-opportunity-zones). ## How do data centers affect the local tax base? They can be very large taxpayers. Loudoun County, Virginia reports that data centers occupy about 4% of commercial parcels but yield about 38% of General Fund revenue, and that the Board has lowered the real property tax rate from $1.145 per $100 of assessed value in tax year 2016 to $0.805 in tax year 2026.[^8] The county also expects growth in data center personal property tax to plateau within five to 10 years.[^8] Many projects negotiate payments in lieu of taxes (PILOTs). In Wilmington, Ohio, a proposed Amazon project sought a 30-year PILOT at 30% of the property taxes otherwise owed, shared among the city, schools, a career campus and the port authority; the council vote was postponed as of late 2025.[^19] For Opportunity Zone deals, PILOT structures in which a public body holds title and leases the property back need a separate review under the owned-versus-leased property and related-party lease rules. State programs are compared in [State data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones). ## What do state data center incentives cost? More than many states expected. NCSL counts 38 states with dedicated data center tax incentives, and reports that lawmakers in 28 states introduced bills in 2026 to scale back or modify them.[^20] **Selected findings on the cost of state data center incentives** | Finding | Source | | --- | --- | | States lose more than $3 billion a year; at least 10 states each forgo more than $100 million a year | Good Jobs First, as reported by Bloomberg Tax[^5] | | 36 states exempt data center building materials and IT equipment from sales and use tax; only 11 name recipients | Good Jobs First[^4] | | Each permanent data center job costs at least $1 million in subsidies (estimate) | Good Jobs First[^5] | | Virginia's exemption cost about $1.6 billion in fiscal 2025 (estimate) | Data Center Dynamics, citing Good Jobs First[^6] | | Virginia recovers about 48 cents in other tax revenue per $1 of exemption (as reported) | Cardinal News, citing JLARC[^7] | Opportunity Zone benefits are federal and go to fund investors, so they do not reduce local property tax by themselves. They do stack with state and local incentives, which is why critics look at the combined subsidy. See [Combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## What are the power and water impacts of data centers? Large and growing. U.S. data centers used about 176 TWh in 2023, about 4.4% of U.S. electricity, and LBNL projected 6.7% to 12% by 2028.[^9] LBNL's 2025 update projects about 649 TWh in 2030 in its reference case, about 11.8% of U.S. electricity, within a scenario range of 9.5% to 15.3%.[^10] **Figure: U.S. data center share of electricity: measured and projected** - 2023, measured: 4.4% - 2028, projected range (LBNL 2024): 6.7% to 12% - 2030, scenario range (LBNL 2025 update): 9.5% to 15.3% *Projections widen with uncertainty about AI server deployment. Sources: LBNL 2024 report[^9] and 2025 update.[^10]* Water use depends on cooling design. LBNL estimated direct on-site water use by U.S. data centers at about 17.4 billion gallons in 2023, with indirect use through electricity generation of about 211 billion gallons, as reported by Honolulu Civil Beat.[^11] Ratepayer protection is now part of utility regulation: AEP Ohio's tariff requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years, so other customers are less exposed if a project underuses its capacity.[^18] Cooling options are in [Water and cooling for Opportunity Zone data centers](https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers). ## Do data centers fit the purpose of Opportunity Zones? That is contested, and both sides have evidence. Supporters point to long-lived capital investment, large property tax payments and construction activity in low-income tracts, especially rural ones. Critics point to small permanent workforces, heavy subsidies and benefits that may flow to large technology companies. A report cited by the National Community Reinvestment Coalition and Sen. Josh Hawley's office found that 14% of existing U.S. data centers, and 17% of those planned or under construction, are in Opportunity Zones; the underlying study's author and method were not identified in that coverage, so treat the shares as reported, not verified.[^15] On September 16, 2026, Sen. Hawley introduced the No Tax Breaks for Data Centers Act to exclude data centers from Opportunity Zone benefits, House members introduced a bill aimed at data center access to expanded incentives, and Sen. Ron Wyden released a framework with a similar aim.[^15] These are proposals and had not been enacted as of October 20, 2026. Others push back. House Ways and Means Chair Jason Smith called the claim that Opportunity Zones will be used for data centers a huge stretch, saying data centers can be used in them, but so can everything else.[^16] Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today, so the debate is likely to center on rural zones.[^17] The program's design is explained in [What is an Opportunity Zone?](https://ozdatacenters.com/guides/what-is-an-opportunity-zone). ## How will Opportunity Zone data center impact be measured? Through new mandatory reporting, once the rules are final. GAO reported in August 2026 that QOFs held more than $108 billion in assets at the end of 2024 and found the effects of the incentive mostly unknown.[^13] Public Law 119-21 added information reporting for funds (§6039K) and their businesses (§6039L), with a penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million.[^14] Proposed regulations published September 11, 2026 would require census-tract-level reporting and information about each business, with commentary listing items such as employee counts and industry codes; the exact data list should be checked against the proposed text, and the rules are not final.[^14] Reporting duties are covered in [Opportunity Zone reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What should a community ask about an Opportunity Zone data center? Ask what the project pays, who it hires, what it uses and who bears the risk if it underperforms. Local opposition has grown quickly: Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026.[^12] Clear answers to these questions tend to separate projects that win approval from those that do not. **Figure: Community review of an Opportunity Zone data center proposal** - [pass] Property tax or PILOT schedule disclosed with clawbacks: Ties incentives to investment actually made - [pass] Large-load tariff or contract covers grid upgrade costs: Limits cost shifts to other ratepayers - [pass] Closed-loop or low-water cooling design: Reduces local water demand - [watch] Job figures separate construction, contractors and permanent staff: Combined figures overstate permanent employment - [watch] Generator testing, noise and setbacks addressed in zoning: Common sources of neighbor complaints - [fail] Incentives with no performance conditions or disclosure: Most states do not name recipients or amounts *Pass marks practices that align community and project interests; watch and fail mark common gaps. A practical screen, not a legal standard.* Economic developers can find more in [Opportunity Zones for economic developers and communities](https://ozdatacenters.com/guides/opportunity-zones-for-communities) and [Community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers). ## Common questions **How many permanent jobs does a typical data center have?** About 50 full-time workers in Virginia's experience, roughly half of them contractors, according to JLARC. Large campuses can employ more, but construction employment is much larger and temporary.[^1] **Do Opportunity Zone benefits reduce a data center's local property taxes?** No. Opportunity Zone benefits are federal income tax benefits for fund investors. Local property taxes and any PILOT are set separately by local and state law.[^21] **Are data centers excluded from Opportunity Zones?** Not under current law. Data centers are not on the excluded business list. A September 2026 Senate bill would add them, but it is a proposal.[^15] **Is the 5.5 million jobs figure independent?** It comes from a PwC study commissioned by the Data Center Coalition, an industry group, and includes indirect and induced jobs across the economy. Local studies such as JLARC's and Brookings' measure narrower effects.[^3][^2] **What impact data will Opportunity Zone funds have to report?** Proposed regulations would require census-tract-level reporting and information on each business, with commentary pointing to items such as employees. The rules were proposed September 11, 2026 and are not final.[^14] ## Sources [^1]: Joint Legislative Audit and Review Commission (Virginia), "Data Centers in Virginia, Report 598" (2024). https://jlarc.virginia.gov/pdfs/reports/Rpt598.pdf [^2]: Brookings Institution, "New evidence on data center employment effects" (2026). https://www.brookings.edu/articles/new-evidence-on-data-center-employment-effects/ [^3]: Data Center Coalition, "Reports and publications" (2026). https://www.datacentercoalition.org/reports-and-publications [^4]: Good Jobs First, "Most States Fail to Disclose which Data Center Companies Get Huge Tax Breaks" (2025). https://goodjobsfirst.org/most-states-fail-to-disclose-which-data-center-companies-get-huge-tax-breaks/ [^5]: Bloomberg Tax, "State Losses From Data Center Tax Breaks Top $3 Billion Annually" (2025). https://news.bloombergtax.com/daily-tax-report-state/state-losses-from-data-center-tax-breaks-top-3-billion-annually [^6]: Data Center Dynamics, "Virginia missed more than $1.6bn in tax revenue due to data center exemptions in 2025" (2026). https://www.datacenterdynamics.com/en/news/virginia-missed-more-than-16bn-in-tax-revenue-due-to-data-center-exemptions-in-2025/ [^7]: Cardinal News, "A state study found that data center tax break was Virginia's 2nd best incentive" (2026). https://cardinalnews.org/2026/06/19/a-state-study-found-that-data-center-tax-break-was-virginias-2nd-best-incentive-producing-6-1-of-labor-income-for-every-1-in-exemptions/ [^8]: Loudoun County, Virginia, "Data Centers: Tax Revenues and County Budget" (n.d.). https://www.loudoun.gov/6409/Tax-Revenues-County-Budget [^9]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^10]: Lawrence Berkeley National Laboratory, "United States Data Center Energy Usage Report: 2025 Update" (2026). https://eta-publications.lbl.gov/publications/united-states-data-center-energy-2025 [^11]: Honolulu Civil Beat, "Data Centers Consume Massive Amounts Of Water. Companies Rarely Say Exactly How Much" (2025). https://www.civilbeat.org/2025/08/data-centers-consume-massive-amounts-of-water-companies-rarely-say-exactly-how-much/ [^12]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^13]: U.S. Government Accountability Office, "GAO-26-108132 Highlights: Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132-highlights.pdf [^14]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^15]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^16]: Bisnow, "Big Beautiful Bill Boasts New Boosts For Data Center Investments" (2025). https://www.bisnow.com/national/news/data-center/big-beautiful-bill-boasts-new-boosts-for-data-center-investments-130270 [^17]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^18]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^19]: WVXU, "Amazon proposes $4B data center in Wilmington, seeks tax abatement" (2025). https://www.wvxu.org/2025-12-02/amazon-proposes-4b-data-center-in-wilmington-seeks-tax-abatement [^20]: National Conference of State Legislatures, "Does your state offer data center tax incentives?" (2026). https://www.ncsl.org/resources/details/does-your-state-offer-data-center-tax-incentives [^21]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 --- # Data center site selection inside Opportunity Zones URL: https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones Last reviewed: 2026-10-20 Data center site selection in an Opportunity Zone starts with power and then checks the tract: the property must sit inside a zone that is designated when it is bought, and newly designated zones take effect January 1, 2027. After that, the usual data center criteria apply (transmission, fiber, water, land, hazards, incentives and community support), and a site that wins on tax benefits but fails on power rarely gets built. ## Key takeaways - Power comes first: Cushman & Wakefield reports that power availability now decides where data center growth can happen. - Newly designated zones run from January 1, 2027 through December 31, 2036, and under Notice 2026-40 property acquired after 2026 in a current zone that is not redesignated generally does not qualify. - Confirm tract status on the CDFI Fund's CIMS map; until Treasury certifies the new zones, third-party tools such as Novogradac's show only likely-eligible tracts. - One hyperscaler request sought at least 200 acres with 400 MW by mid-2027, about half an acre per MW; that is a single data point, and land needs vary widely with design and phasing. - Wholly rural tracts add a 30% basis step-up through a rural fund and a 50% substantial improvement threshold for existing buildings. ## In what order should you screen an Opportunity Zone data center site? Power first, zone status second, everything else after. The Opportunity Zone benefit only matters if the project gets built, and Cushman & Wakefield's 2026 Americas update says power availability now decides where growth can happen.[^14] **Figure: Screening sequence for an Opportunity Zone data center site** 1. Power: Transmission, substation capacity, utility timeline and tariff 2. Zone status: Tract designated for the acquisition date; rural or not 3. Land and zoning: Acreage, entitlements, ground lease or purchase 4. Fiber: Long-haul routes, carriers, interconnection points 5. Water and hazards: Cooling supply, flood and seismic risk 6. Incentives and community: State programs, local approvals, opposition 7. Tax timeline: Fit power and build to the 31-month plan and 10-year hold *Each step can end the search. Putting power and zone status first avoids spending on sites that cannot qualify or cannot be energized in time.* BlackForge Data Centers (blackforgedatacenters.com), our site-selection partner, screens sites against power, fiber and the zone map together, because a site that passes one test and fails another is not a site. For the overall Opportunity Zone framework, see [Data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## How do you confirm a site is in an Opportunity Zone? Look up the parcel's census tract on the official map for the period when the property will be bought. An Opportunity Zone is a census tract designated under §1400Z-1, and qualifying business property must be used in a zone during substantially all of the business's holding period (§1400Z-2(d)(2)(D)).[^1] The CDFI Fund's CIMS mapping tool is the official lookup for designated tracts.[^2] Timing matters now. Newly designated zones take effect January 1, 2027 and run through December 31, 2036. Treasury's eligible-tract list for the new designations contains 25,332 tracts, 8,334 of them wholly rural.[^5] Governors choose which to nominate, and no consolidated national list had been published as of October 20, 2026. Until then, the Novogradac mapping tool shows likely-eligible tracts, not designations.[^3] Under Notice 2026-40, property acquired after December 31, 2026 in a current zone that is not redesignated generally does not qualify as Opportunity Zone business property, with narrow exceptions such as a working capital plan adopted before that date that meets minimum funding and spending thresholds.[^4][^19] A site in a current zone should be checked against the nomination lists for its state before closing. The regulations (26 CFR 1.1400Z2(d)-2) also address real property that straddles a zone boundary; its conditions are technical, so if a parcel crosses tract lines, confirm with counsel whether and how it applies.[^6] Map sources are listed in [Opportunity Zone maps and data tools](https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools) and [How to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone). **Public tools for screening an Opportunity Zone data center site** | Question | Tool | Note | | --- | --- | --- | | Is the tract designated? | CDFI Fund CIMS map[^2] | Official source for designated zones | | Is it likely eligible for 2027? | Novogradac OZ mapping tool[^3] | Third-party; verify against Treasury | | Where are transmission lines? | EIA guidance on HIFLD data[^12] | Substation locations are not published | | What fiber serves the area? | FCC National Broadband Map[^8] | Shows availability by location | | Where are interconnection points? | PeeringDB[^9] | Facilities, exchanges and carriers | | Is it in a flood zone? | FEMA National Flood Hazard Layer[^10] | Check flood maps for the parcel | | What is the seismic risk? | USGS earthquake hazards[^11] | National seismic hazard maps | ## What power criteria matter most for an Opportunity Zone site? Capacity, timeline and contract terms. A site needs a credible path to the load it plans, on a schedule that fits the Opportunity Zone clocks. The working capital safe harbor shelters cash for 31 months per written plan and 62 months at most, so a site whose power is many years away should be developed with other capital until power is committed. Transmission line data are available through the federal HIFLD dataset, but EIA notes that substation locations are not published, so substation capacity usually requires utility conversations.[^12] Tariff terms now shape site economics: AEP Ohio requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years.[^18] Power is covered in [Power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers) and [Data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## How much land does an Opportunity Zone data center site need? It depends on capacity, building height, on-site generation and phasing. One hyperscaler request for information sought a site of at least 200 acres with 400 MW available by mid-2027, expandable to 1 GW, or about half an acre per MW at the first phase.[^7] That ratio comes from one request. There is no authoritative public benchmark, so treat acres per MW as a planning estimate only. How land is held matters for Opportunity Zone purposes. Land does not need to be substantially improved, but it must be used in the business; unimproved land bought with no intent to improve it within 30 months can lose that treatment. A ground lease from an unrelated party on market terms can count as qualifying leased property and keeps fund equity out of non-depreciable land. Options and timing are covered in [Buying land for an Opportunity Zone data center](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center) and, for landowners, [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). ## How do fiber, water and natural hazards factor in? They are pass-or-fix items: a gap can usually be solved, but at a cost. The FCC National Broadband Map shows fixed and mobile broadband availability by location[^8], and PeeringDB lists interconnection facilities, internet exchanges and carriers.[^9] Rural sites often need new fiber laterals to long-haul routes. Water depends on cooling design. Microsoft says all its new data center designs since August 2024 use closed-loop, zero-evaporation cooling, avoiding more than 125 million liters of water a year per facility.[^16] Flood risk can be checked in FEMA's National Flood Hazard Layer[^10] and seismic risk in USGS hazard maps.[^11] ## How do state incentives and local politics affect site choice? They can add or remove millions of dollars and years of delay. NCSL counts 38 states with dedicated data center tax incentives and reports that lawmakers in 28 states introduced bills in 2026 to scale back or modify them, so incentive availability should be confirmed at the time of site selection.[^13] Local approval is a growing risk. Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026.[^15] In September 2026, Pima County, Arizona passed a 120-day moratorium on new data center projects in unincorporated areas.[^17] A moratorium that outlasts the working capital period is an Opportunity Zone problem as well as a development one. Incentives are compared in [State data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones). ## Should you choose an urban or rural Opportunity Zone site? Choose the site where power arrives inside the Opportunity Zone clock, then prefer wholly rural tracts if the infrastructure is there. Zones made up entirely of rural area give a 30% basis step-up through a rural fund for investments after December 31, 2026, and a 50% substantial improvement threshold for existing buildings.[^1] **Figure: Power timing versus zone type** - Wholly rural zone Zone type, Power years away Power availability: Rural, power far off (Best tax terms but clock risk; fund early work with other capital) - Wholly rural zone Zone type, Power available near term Power availability: Rural, power near term (Strongest: 30% rural step-up, 50% rule and a workable timeline) - Urban or mixed zone Zone type, Power years away Power availability: Urban, power far off (Weakest: standard benefits and a long wait) - Urban or mixed zone Zone type, Power available near term Power availability: Urban, power near term (Viable: standard benefits; often edge or colocation) *Analysis for screening. The best Opportunity Zone sites combine near-term power with the rural tax tier; long power waits weaken any site.* **Figure: Sample site scorecard for an Opportunity Zone data center** - [pass] Utility commitment for the first phase within 30 months: Fits a single working capital plan - [watch] Tract on the state's nomination list for 2027: Awaiting Treasury certification - [pass] Tract made up entirely of rural area: Qualifies for rural fund and 50% rule - [watch] Long-haul fiber within 5 miles: Lateral build needed - [pass] Parcel outside mapped flood hazard areas: Per FEMA flood map check - [fail] Local moratorium proposed: Approval timing uncertain *An example of how one candidate site might score. Each project should build its own scorecard from the steps above.* Rural considerations are in [Rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). ## Common questions **Can I rely on a third-party map to confirm Opportunity Zone status?** Use the CDFI Fund's CIMS map for designated tracts. Third-party tools are useful for screening, especially for likely-eligible 2027 tracts, but verify against official designations.[^2][^3] **What if I buy land in a current zone that is not redesignated for 2027?** Property acquired after December 31, 2026 in a zone that is not redesignated generally does not qualify, with narrow exceptions under Notice 2026-40.[^4] **Should I buy land before power is secured?** Often not with Opportunity Zone equity. A land option or ground lease funded with other capital avoids idle fund cash while the utility studies the load.[^7] **What if a parcel straddles two census tracts?** The regulations address real property that straddles a zone boundary, but the conditions are technical. Map the parcel's tract split and confirm with counsel whether and how the rule applies.[^6] **Is a rural site always better for Opportunity Zone purposes?** No. The rural tier improves the tax terms, but a site without power, fiber or local support will not get built in time to use them.[^14] ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: CDFI Fund, "CIMS Mapping Tool" (n.d.). https://www.cdfifund.gov/cims [^3]: Novogradac, "Novogradac Opportunity Zones 2.0 Mapping Tool" (2026). https://novoco.com/resource-centers/opportunity-zones-resource-center/novogradac-opportunity-zones-20-mapping-tool [^4]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^5]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^6]: Tax Notes, "26 CFR 1.1400Z2(d)-2, Qualified opportunity zone business property (text)" (n.d.). https://taxnotes.com/research/federal/cfr26/1.1400Z2d-2 [^7]: Data Center Dynamics, "Hyperscaler seeks 200-acre site for 400MW data center in US" (n.d.). https://www.datacenterdynamics.com/en/news/hyperscaler-seeks-200-acre-site-for-400mw-data-center-in-us/ [^8]: Federal Communications Commission, "FCC Unveils Updated and Modernized National Broadband Map" (n.d.). https://www.fcc.gov/fcc-unveils-updated-and-modernized-national-broadband-map [^9]: PeeringDB, "About PeeringDB" (n.d.). https://www.peeringdb.com/about [^10]: Federal Emergency Management Agency, "National Flood Hazard Layer" (n.d.). https://hazards.fema.gov/femaportal/NFHL/searchResult/ [^11]: U.S. Geological Survey, "Earthquake Hazards Program: Hazards" (n.d.). https://www.usgs.gov/programs/earthquake-hazards/hazards [^12]: U.S. Energy Information Administration, "Does EIA publish the location of electric power plants and transmission lines?" (n.d.). https://www.eia.gov/tools/faqs/faq.php?id=567&t=3 [^13]: National Conference of State Legislatures, "Does your state offer data center tax incentives?" (2026). https://www.ncsl.org/resources/details/does-your-state-offer-data-center-tax-incentives [^14]: IREI, "Cushman & Wakefield: Power availability redraws data center map as Americas development hits record 37.7GW" (2026). https://irei.com/news/cushman-wakefield-power-availability-redraws-data-center-map-as-americas-development-hits-record-37-7gw/ [^15]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^16]: Microsoft, "Sustainable by design: Next-generation datacenters consume zero water for cooling" (2024). https://microsoft.com/en-us/microsoft-cloud/blog/2024/12/09/sustainable-by-design-next-generation-datacenters-consume-zero-water-for-cooling [^17]: KJZZ, "Pima County passes 120-day moratorium on future data center projects" (2026). https://www.kjzz.org/fronteras-desk/2026-09-23/pima-county-passes-120-day-moratorium-on-future-data-center-projects [^18]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^19]: Cherry Bekaert, "IRS Notice 2026-40: New Opportunity Zone Rules" (2026). https://www.cbh.com/insights/articles/irs-notice-2026-40-new-opportunity-zone-rules/ # Section: Structuring & investing Fund structures, financing, due diligence and what investors should ask a sponsor. --- # Opportunity Zone fund structures URL: https://ozdatacenters.com/guides/opportunity-zone-fund-structures Last reviewed: 2026-10-20 Most Opportunity Zone funds are LLCs taxed as partnerships that invest through a subsidiary Qualified Opportunity Zone Business (a two-tier structure), because that combination gives investors debt basis, pass-through losses and the 10-year exclusion on asset sales, while the business gets the 31-month working capital safe harbor and a 70% (not 90%) property test. Corporate and REIT funds exist but generally limit the 10-year exclusion to a sale of the fund shares themselves (the regulations also let 10-year investors in a QOF REIT elect to exclude certain capital gain dividends the REIT designates from its sales of qualifying property). ## Key takeaways - A Qualified Opportunity Fund (QOF) can be any corporation or partnership, including an LLC, that self-certifies on IRS Form 8996 and holds at least 90% of its assets in qualified opportunity zone property. - A partnership QOF lets investors elect, after 10 years, to exclude gain on the fund's and its subsidiaries' asset sales reported on a K-1, not only gain on selling the fund interest. - A two-tier structure (QOF owns equity in a QOZB) brings the 70% tangible property test, the 31-month (up to 62-month) working capital safe harbor and a 5% cap on nonqualified financial property. - A Qualified Rural Opportunity Fund must hold at least 90% of its assets in property in zones made up entirely of rural areas, and its investors get a 30% basis step-up after five years instead of 10%. - For data centers, the structure must also solve the triple-net lease problem: merely entering into a triple-net lease is not an active trade or business for a QOZB. ## What are the main Opportunity Zone fund structures? Opportunity Zone funds differ along four choices: how the fund is taxed, whether it owns property directly or through an operating business, how many projects it holds, and whether it qualifies as a rural fund. A Qualified Opportunity Fund (QOF) is an investment vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property, which must make up at least 90% of its assets.[^1] The fund self-certifies by filing Form 8996 with its federal return; there is no IRS approval step.[^3][^4] Qualified opportunity zone property comes in three forms: stock in a Qualified Opportunity Zone Business (QOZB) that is a corporation, a partnership interest in a QOZB, and qualified opportunity zone business property (tangible property used in a trade or business in the zone) held directly by the fund.[^1][^2] Those three forms produce the two basic ownership models described below. For the definitions, see [what a Qualified Opportunity Fund is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-fund) and [what a Qualified Opportunity Zone Business is](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business). **The four structural choices in an Opportunity Zone fund** | Choice | Common options | What it controls | | --- | --- | --- | | Tax classification | Partnership (LLC or LP); C corporation; REIT | Debt basis, loss pass-through, scope of the 10-year exclusion, investor tax forms | | Ownership tier | Direct (QOF owns property); two-tier (QOF owns a QOZB) | Which asset tests apply, access to the working capital safe harbor | | Asset count | Single-asset; multi-asset; fund-of-one | Diversification, fee layering, control, transparency | | Geography | Standard QOF; Qualified Rural Opportunity Fund (QROF) | 10% or 30% basis step-up at five years; 50% rural substantial improvement threshold | **Figure: How money and ownership move in a two-tier Opportunity Zone fund** - Form 8997: Investor (Realizes an eligible capital gain) - then: Equity within 180 days - 90% test: Qualified Opportunity Fund (LLC taxed as a partnership) - then: Equity (partnership interest) - 70% test: QOZB (Operating LLC in the zone) - then: Purchase or construction - Zone property (Land, building, power and cooling plant) *The investor's gain goes into the QOF as equity within 180 days; the QOF buys equity in a QOZB, and the QOZB buys or builds the zone property. The QOF tests 90% of its assets; the QOZB tests 70% of its tangible property.[^1][^2]* ## Should an Opportunity Zone fund be a partnership or a corporation? For most real estate and infrastructure projects, a partnership is the better fit because it passes losses and debt basis to investors and widens the 10-year exclusion. Under the final regulations, an investor in a partnership or S corporation QOF who has held the investment for 10 years can elect to exclude capital gain and section 1231 gain (including depreciation recapture) that the fund or its lower-tier QOZB reports from selling assets, other than inventory.[^5][^6] An investor in a corporate QOF generally gets the 10-year benefit by selling the QOF stock itself; the regulations also let a 10-year investor in a QOF REIT elect to exclude certain capital gain dividends the REIT designates from its sales of qualifying property, so confirm the details with counsel. Debt is the second reason. A partner's basis in a QOF partnership interest starts at zero for the deferred gain, but it rises by the partner's share of partnership liabilities under IRC §752. That basis can absorb depreciation losses and, within limits, support distributions. A distribution that exceeds the investor's basis is an inclusion event, and distributions soon after an investment, especially debt-financed ones, need review under the disguised sale rules, so model them with counsel.[^7] Shareholders of a corporation get no basis from corporate debt. See [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing) for the mechanics. **Figure: Partnership QOF vs. corporate QOF** - Partnership QOF (LLC or LP) (Most common) - Investors receive a Schedule K-1 - Share of fund debt adds to basis under §752 - Depreciation losses can pass through to investors - 10-year election covers asset sales by the fund and its QOZBs - Exit can be a property sale rather than a sale of interests - Corporate QOF (C corporation or REIT) (Used for some large funds) - Investors receive a Form 1099 - No basis from corporate-level debt - Losses stay inside the corporation - 10-year benefit applies to selling the QOF stock - Buyers must purchase shares to preserve the exclusion *The partnership column wins on tax flexibility; the corporate column wins on simplicity for very large or widely held investor bases. Each fund's documents decide the details.[^5][^7]* A corporate QOF can still make sense. A REIT structure can suit a fund with thousands of investors who prefer a Form 1099 to a K-1, and some investors (for example, tax-exempt holders of other assets, or non-U.S. persons) have their own reasons to prefer a blocker. The tradeoff is that the exit must usually be a sale of shares, and buyers of real assets rarely want to buy a corporation with embedded tax history. ## Should the fund own property directly or through a QOZB? Almost every development fund uses a two-tier structure, because the QOZB tests are more forgiving and only a QOZB can use the working capital safe harbor. A QOF that owns property directly must hold 90% of its total assets in qualified property on its semiannual testing dates. A QOZB, by contrast, needs only 70% of its tangible property to be qualified opportunity zone business property, may hold cash under a written working capital plan for up to 31 months, and must keep nonqualified financial property below 5% of its assets.[^1][^2][^12] **Direct ownership vs. a two-tier QOF and QOZB structure** | Feature | QOF owns property directly | QOF invests through a QOZB | | --- | --- | --- | | Asset test | 90% of total assets, tested twice a year | QOF: 90% (QOZB interest counts in full); QOZB: 70% of tangible property | | Holding cash for construction | Only the six-month grace for newly contributed cash | Working capital safe harbor: 31 months, up to 62 months with sequential plans | | Gross income and intangibles tests | Not applicable | 50% of gross income from active business in the zone; 40% of intangibles used in the zone | | Excluded businesses | Not applicable at fund level | No golf courses, country clubs, massage parlors, hot tubs, suntan facilities, racetracks or gambling, or liquor stores | | Typical use | Simple stabilized assets, small funds | Ground-up development, phased campuses, operating businesses | The two-tier model adds paperwork: the QOZB needs its own books, a written working capital plan, annual testing and, under the proposed reporting regulations, its own information for the QOF's annual return. Those costs are small relative to the flexibility for a multi-year build. The detailed tests are in our guides to the [QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test), the [QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## How many projects should one fund hold? A single-asset fund holds one project and lets the investor choose exactly what they own; a multi-asset fund spreads the investment across several QOZBs. A third model, the fund-of-one, is a QOF formed by a single investor or family office that invests alongside a sponsor in one project. Each model has its own fee, control and reporting profile, compared in [single-asset vs. multi-asset Opportunity Zone funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). Two tax points push toward smaller, cleaner structures. First, the 10-year exclusion applies to the investor's QOF interest as a whole, so a multi-asset fund that sells one project early (before the investor reaches 10 years) produces gain that is not excluded. A QOF has 12 months to reinvest proceeds from a sale of qualifying property before they count against the 90% test, but that rule protects the asset test only; it does not defer the gain.[^15] Second, investors who each want their own five-year inclusion date and 10-year clock get one per investment date, so funds that call capital in tranches create several clocks for the same investor.[^8] ## How does a Qualified Rural Opportunity Fund differ? A Qualified Rural Opportunity Fund (QROF) is a QOF that holds at least 90% of its assets in qualified opportunity zone property located in zones made up entirely of rural areas, and its investors receive a 30% basis step-up after five years instead of 10%.[^9] A rural area is any area other than a city or town with more than 50,000 people and the urbanized area next to it.[^9] Property in wholly rural zones also needs only 50% (not 100%) of the building's basis in improvements over 30 months to meet the substantial improvement test.[^9] The step-up applies to amounts invested on or after January 1, 2027. On a $1,000,000 deferred gain held five years, the taxable amount is $900,000 in a standard QOF and $700,000 in a QROF. At a 23.8% federal rate (20% long-term capital gains plus 3.8% net investment income tax), that is $214,200 versus $166,600 of tax: a $47,600 difference. A fund that wants QROF status must keep the 90% rural test across its whole portfolio, which in practice means a rural-only mandate. See [what a Qualified Rural Opportunity Fund is](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). **Figure: Federal tax due at year five on a $1,000,000 deferred gain** (illustrative) - No QOF (tax paid at sale): $238,000 - Standard QOF (10% step-up): $214,200 - QROF (30% step-up): $166,600 *Illustrative. Assumes a $1,000,000 eligible gain invested after December 31, 2026, held five years, fund value above the deferred gain, 23.8% federal rate, no state tax.* ## How are data center Opportunity Zone funds usually structured? A data center fund usually puts the land, building, substation and mechanical and electrical plant in a QOZB, and the key structuring question is how that QOZB earns its revenue. The regulations treat owning and operating real property, including leasing it, as an active trade or business, but merely entering into a triple-net lease is not.[^11] A QOZB that leases an entire powered shell to one hyperscaler on triple-net terms is the textbook risk case.[^10][^11] - Operating QOZB: the QOZB runs the facility (power, cooling, security, remote hands) and sells capacity to tenants. This fits the active business requirement most naturally. - Landlord QOZB with real operating services: a modified-gross or turnkey lease where the QOZB's employees run critical facilities. This is defensible on the right facts. - Single-tenant triple-net powered shell: highest risk. It needs careful review by tax counsel before any OZ money goes in. - Phased campus: each phase gets its own written working capital plan so cash for later phases does not outrun the 31-month schedule. Who owns the IT equipment matters too. Servers owned by a tenant sit outside the QOZB's 70% test entirely, while servers owned by the QOZB count in both the numerator and denominator and turn over every five to six years, well inside a 10-year hold. Our guides to [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones) and [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund) go deeper. OZ Data Centers sponsors funds that use the operating-QOZB model. ## How do you judge whether a fund's structure fits your goals? Read the structure chart in the private placement memorandum against five questions; a fund that answers all five clearly is well organized. **Figure: Structure scorecard for an Opportunity Zone fund** - [pass] Tax classification: LLC taxed as a partnership; K-1 reporting; 10-year election reaches asset sales - [pass] Ownership tier: QOF holds a QOZB LLC; written working capital plan on file - [watch] Active business: Lease terms must show real landlord operations, not a bare triple-net lease - [watch] Capital call timing: Several closings create several 180-day windows and 10-year clocks - [pass] Exit path: Documents allow a sale of the QOZB's assets or of fund interests after 10 years - [pass] Certification and reporting: Form 8996 filed annually; Form 8997 data delivered to investors on time *A sample scorecard for a two-tier partnership fund developing a data center. Watch items are not disqualifying, but they should have a written answer from the sponsor and its tax counsel.* Fund scale is a useful reality check. GAO reported that QOFs held more than $108 billion in assets at the end of 2024, mostly in urban real estate, and Novogradac tracked $43.61 billion of equity raised by reporting funds through the first quarter of 2026.[^13][^14] Data center funds are a small, specialized slice of that market, so structure and tax counsel quality vary widely between sponsors. For the setup steps, see [how to set up a Qualified Opportunity Fund](https://ozdatacenters.com/guides/how-to-set-up-a-qualified-opportunity-fund). ## Common questions **Can an LLC be a Qualified Opportunity Fund?** Yes. An LLC taxed as a partnership is the most common QOF structure. An LLC that elects to be taxed as a corporation can also be a QOF. A single-member LLC that is disregarded for tax purposes cannot, because it is not a separate partnership or corporation. **Does a QOF need IRS approval?** No. A QOF self-certifies by filing Form 8996 with its federal income tax return for the first year and each year after, reporting whether it met the 90% asset test. **Why do most funds invest through a QOZB instead of owning property directly?** A QOZB needs only 70% of its tangible property to qualify, can hold construction cash under the 31-month working capital safe harbor, and can be extended to 62 months with sequential plans. A QOF holding property directly has no working capital safe harbor and must meet the 90% test on its own assets. **Is a REIT a good structure for an Opportunity Zone fund?** It can be for a large, widely held fund whose investors prefer a Form 1099. The tradeoffs are no debt basis for investors, no pass-through losses, and a 10-year benefit that generally requires selling REIT shares rather than the underlying property. **Can one fund hold both rural and urban projects?** Yes, but it will not be a Qualified Rural Opportunity Fund unless at least 90% of its assets are in zones made up entirely of rural areas. A mixed fund gets the standard 10% step-up. **What structure works best for a data center?** Usually a partnership QOF investing in a QOZB that operates the facility or provides real landlord services, rather than a QOZB that only signs a single-tenant triple-net lease. The right answer depends on the lease and operating facts, so tax counsel should review it. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. Subchapter Z: Opportunity Zones" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^3]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (n.d.). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^4]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^5]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^6]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^7]: EY Tax News, "April 2019 proposed regulations on Opportunity Zones provide generally welcome guidance to QOF partnerships and their investors" (2019). https://taxnews.ey.com/news/2019-0856-april-2019-proposed-regulations-on-opportunity-zones-provide-generally-welcome-guidance-to-qof-partnerships-and-their-investors [^8]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^9]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^10]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^11]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^12]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^13]: U.S. Government Accountability Office, "GAO-26-108132, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^14]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 [^15]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 --- # Single-asset vs. multi-asset Opportunity Zone funds URL: https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds Last reviewed: 2026-10-20 A single-asset Opportunity Zone fund invests in one project, so the investor knows exactly what they own and can exit cleanly after the 10-year hold, but bears full concentration risk. A multi-asset fund spreads capital across several projects, which reduces the impact of any one failure, but adds blind-pool risk, more fee layers, and the chance that a project sold before year 10 produces gain the 10-year exclusion does not cover. ## Key takeaways - The 10-year exclusion applies to the investor's interest in the fund, so in a multi-asset fund an asset sold before the investor reaches 10 years can produce taxable gain. - A QOF has 12 months to reinvest proceeds from selling qualifying property before they count against the 90% asset test, but that relief does not defer the fund's gain. - In one review of nine Opportunity Zone offerings, most charged a 15% or 20% promote, and multi-asset funds typically offered a 6% preferred return. - A single data center campus can cost about $8.9 million to $23.3 million per MW before chips, so a single-asset data center fund is a concentrated bet on one site's power and tenant. - Multi-asset funds that raise first and buy later must deploy cash into qualifying property or QOZBs before the semiannual 90% testing dates. ## What is the difference between a single-asset and a multi-asset Opportunity Zone fund? A single-asset fund is a Qualified Opportunity Fund (QOF) that owns one project, usually through one Qualified Opportunity Zone Business (QOZB); a multi-asset fund owns several projects through several QOZBs. Both are subject to the same rules: the fund must hold at least 90% of its assets in qualified opportunity zone property, and each QOZB must meet the 70% tangible property, 50% gross income and other business tests.[^2][^5] The difference is commercial: what you know before you invest, how risk is spread, how fees stack and how the exit works. **Figure: Single-asset vs. multi-asset Opportunity Zone funds** - Single-asset fund (Pick the project) - Investor reviews the actual site, budget and tenant before committing - All return depends on one project - Usually one sponsor fee layer, sometimes plus a developer promote - Exit can be one sale after the 10-year hold - Simple Form 8997 and K-1 history - Multi-asset fund (Pick the manager) - Often a blind or semi-blind pool at closing - One project's failure is diluted by the others - Fund-level fees plus possible project-level promotes - Projects may be sold at different times, some before year 10 - Reporting covers several QOZBs and testing positions *Neither model is better in general. The single-asset column suits investors who want to underwrite one project; the multi-asset column suits investors who want a manager to diversify for them.* ## How much does diversification matter in an Opportunity Zone investment? It matters more than in most private real estate, because the investment is illiquid for at least 10 years and the tax benefit depends on the fund staying qualified for that whole period. A single-asset investor has one source of failure: if that project stalls, there is no other asset to carry the return, and the deferred gain is still taxed at the five-year inclusion date regardless of performance (the tax is on the lesser of the deferred gain or the investment's fair market value, minus basis).[^2] **Figure: How concentration widens the range of outcomes** (illustrative) - Single project: 0.0x to 3.0x - Pool of five projects: 0.9x to 2.2x *Illustrative only. Shows a hypothetical spread of equity multiples after 10 years for one project versus a pool of five uncorrelated projects of similar quality. Real projects are often correlated (same market, same sponsor, same power grid), which narrows the diversification benefit.* Diversification only helps if the assets are genuinely different. A multi-asset fund with five data center sites on the same constrained utility system, or five multifamily buildings in one city, is less diversified than its asset count suggests. Ask how the projects differ by market, asset type, development stage and tenant. Our guide to [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks) covers concentration in more detail. ## What is blind-pool risk, and how does deployment timing work? Blind-pool risk is the risk of committing capital before knowing which projects it will fund, and multi-asset Opportunity Zone funds carry it more than most private funds because the 180-day rule forces the investor to commit on the tax calendar rather than the deal calendar. An investor must invest an eligible gain in a QOF within 180 days of realizing it.[^2] The fund then has to put that cash to work: it is tested on the last day of the first six months of its tax year and the last day of the year, and only newly contributed cash held for six months or less is disregarded.[^5] A fund that raises money faster than it finds projects can fail the 90% test and owe a monthly penalty on the shortfall. Well-run multi-asset funds solve this by investing promptly into QOZBs, which can then hold the cash under a written working capital plan for up to 31 months (62 months with sequential plans).[^9] Ask a multi-asset sponsor for its pipeline, its deployment schedule and what happens to capital that is not deployed. See the [QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test) and the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). > Single-asset funds have the opposite timing risk. If the investor's 180-day window closes before the one project is ready to take money, the investor must either fund early (and rely on the QOZB's working capital plan) or lose the deferral for that gain. ## How do fees differ between single-asset and multi-asset funds? Multi-asset funds are more likely to stack fees, because the fund manager may charge a fund-level fee and promote while each project's developer charges its own. Citrin Cooperman's review of nine Opportunity Zone offerings found most charged a 15% or 20% promote (the sponsor's share of profits above a hurdle), and the multi-asset funds it reviewed typically offered a 6% preferred return, with 5% and 8% also seen.[^1] Nine offerings is a small sample, so treat those figures as indicative rather than a market standard. The issue to look for is the double promote: an investor pays a promote to the fund manager, and the fund (and so the investor, indirectly) pays a second promote to the project developer. A single-asset fund where the sponsor is also the developer usually has one promote. A multi-asset fund can be fair too, if the fund-level fee is lower or the manager offsets project-level fees. Our guide to [Opportunity Zone fund fees and terms](https://ozdatacenters.com/guides/opportunity-zone-fund-fees-and-terms) explains each fee type. ## Why does the exit work differently in a multi-asset fund? The 10-year exclusion is measured from each investor's investment date, and it covers gain only when the investor has held for at least 10 years; a multi-asset fund that sells one project in year six produces gain that does not qualify.[^2][^4] Under the final regulations, an investor in a partnership QOF who has held 10 years can elect to exclude capital and section 1231 gain from the fund's or its QOZBs' asset sales, which gives a single-asset fund a clean path: sell the property after year 10 and distribute the proceeds.[^4] When a multi-asset fund sells a project early, it has 12 months to reinvest the proceeds in other qualifying property before they count against the 90% test, holding them in cash, cash equivalents or short-term debt in the meantime.[^3] That keeps the fund qualified, but the gain on the sale is still taxable to the investors that year. Some multi-asset funds address this by committing to hold every asset until all investors pass 10 years, which can mean holding a stabilized asset longer than the business plan would otherwise call for. **Figure: Key dates for one investor in a fund that invests after January 1, 2027** - Day 1: Gain realized (180-day window opens) - Day 180: Last day to invest (Equity into the QOF) - Year 5: Deferred gain taxed (10% step-up (30% for a QROF)) - Year 10: Exclusion available (Basis can step up to fair market value on sale) - Year 30: Value fixed (Basis set at fair market value on the 30th anniversary) *Dates run from each investor's own investment date. A fund with several closings has several sets of these dates, which is one reason multi-asset funds need careful exit planning.[^2]* ## Should a data center Opportunity Zone investment be single-asset or multi-asset? Data centers push toward single-asset or single-campus funds because each campus is large, specialized and driven by one power connection. Cushman & Wakefield's 2026 cost guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW, excluding chips, so even a 50 MW first phase is a several-hundred-million-dollar project.[^12] One fund may only be able to finance one campus, phased over several years. Demand is strong but not uniform. CBRE reported primary-market vacancy of 1.4% in the first half of 2026, a record low, with more than 80% of capacity under construction preleased.[^11] The risk in a single-campus fund is less about leasing and more about power delivery, construction schedule and the active-business structure of the lease.[^10] A campus with several phases can work like a multi-asset fund inside one QOZB: each phase can have its own working capital plan, and investors in later closings fund later phases. See [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). ## Which type of fund is right for which investor? Match the fund type to how much of your gain you are investing and how much underwriting you want to do yourself. **A practical guide to choosing a fund type** | Investor situation | Usually better fit | Why | | --- | --- | --- | | Investing a large share of one gain, wants to underwrite the deal | Single-asset | Full transparency on site, budget, tenant and exit | | Spreading several gains over time | Several single-asset funds, or a multi-asset fund | Each investment gets its own 10-year clock; diversification by layering | | Smaller check, no time to diligence projects | Multi-asset | Manager selection replaces project selection | | Family office with a large gain | Fund-of-one or co-investment | Control over timing, reporting and exit | | Wants the 30% rural step-up | Rural-only fund | Must meet the QROF 90% rural test across all assets | Whatever the type, the investment is in a private placement offered under SEC Regulation D, usually only to accredited investors, so the offering documents are your main source of information.[^8] Use our [Opportunity Zone fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and [guide to choosing a sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor) before committing. Market scale is useful context: GAO counted more than $108 billion of QOF assets at the end of 2024, and Novogradac tracked $43.61 billion of equity raised by reporting funds through the first quarter of 2026.[^6][^7] Investors report each QOF investment on Form 8997 every year, whichever model they choose.[^13] ## Common questions **Is a multi-asset Opportunity Zone fund safer than a single-asset fund?** It spreads project risk, but it adds blind-pool risk, more fee layers and the risk of early sales that produce non-excluded gain. It is safer only if the assets are genuinely uncorrelated and the manager is strong. **What happens if a multi-asset fund sells a property before I have held for 10 years?** The gain on that sale is taxable to the investors in the year of sale. The fund can reinvest the proceeds within 12 months to keep passing the 90% asset test, but that does not defer the gain. **Can I build my own diversified portfolio from single-asset funds?** Yes. Many investors invest separate gains in several single-asset funds. Each investment has its own 180-day window, five-year inclusion date and 10-year clock, and each is reported separately on Form 8997. **What is a fund-of-one?** A QOF formed for a single investor or family, usually investing alongside a sponsor in one project. It gives the investor control over timing and reporting, at the cost of setting up and maintaining its own fund. **Do multi-asset funds charge more?** Not always, but they are more likely to have two layers of promote: one to the fund manager and one to each project developer. Ask for a fee table that shows every layer. ## Sources [^1]: Citrin Cooperman, "Comparing Opportunity Zone Funds" (n.d.). https://cm.citrincooperman.com/In-Focus-Resource-Center/Comparing-Opportunity-Zone-Funds [^2]: Office of the Law Revision Counsel, "26 U.S.C. Subchapter Z: Opportunity Zones" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^4]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^5]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^6]: U.S. Government Accountability Office, "GAO-26-108132, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^7]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 [^8]: U.S. Securities and Exchange Commission, "Private Placements under Regulation D: Investor Bulletin" (n.d.). https://www.sec.gov/resources-for-investors/investor-alerts-bulletins/private-placements-under-regulation-d-investor-bulletin [^9]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^10]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^11]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction [^12]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^13]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf --- # Opportunity Zone fund due diligence checklist URL: https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence Last reviewed: 2026-10-20 Opportunity Zone fund due diligence has two jobs: confirm the investment will actually earn the tax benefits for at least 10 years, and confirm the underlying project is worth owning without them. Check five areas (tax qualification, sponsor, project, documents and reporting), and for a data center add proof of power, the lease's active-business structure and a working capital plan that fits the real construction schedule. ## Key takeaways - Confirm the fund files Form 8996 every year and can show how it meets the 90% asset test on its two semiannual testing dates. - Ask for each QOZB's written working capital plan and schedule; the safe harbor allows up to 31 months per plan and 62 months in total. - Check that the zone is designated for the full holding period: the new zones take effect January 1, 2027 and run through December 31, 2036. - For a data center, ask for a utility service agreement or capacity letter; large-load service in constrained markets has taken up to seven years. - Under IRC §6726, QOFs face a reporting penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million. - Under the regulations, merely entering into a triple-net lease is not an active trade or business, so a single-tenant NNN data center lease needs a written tax opinion. ## What should Opportunity Zone fund due diligence cover? It should cover five areas, in this order: tax qualification, the sponsor, the project, the legal documents and the reporting plan. Tax qualification comes first because a fund that fails the rules can cost an investor both the deferral and the 10-year exclusion. The project comes next because the tax benefit is a multiplier on returns, not a substitute for them: the deferred gain is taxed at year five whether or not the project succeeds.[^1] **Figure: A practical due diligence sequence** 1. Screen: Accredited investor fit, 180-day timing, minimum check 2. Tax qualification: Zone, QOZB tests, working capital plan, tax opinion 3. Sponsor: Track record, capital, conflicts, regulatory history 4. Project: Site, power, budget, tenant, schedule 5. Documents: PPM, operating agreement, fees, side letters 6. Reporting: Form 8997 data, K-1 timing, audited financials *Run the steps in order. Each one can end the review, which saves the cost of the later, more detailed steps.* ## How do you check that an Opportunity Zone fund will qualify? Ask the sponsor to show, in writing, how the fund and each operating business meet every test, and who checks them. A Qualified Opportunity Fund (QOF) self-certifies on Form 8996 and reports each year whether it held at least 90% of its assets in qualified opportunity zone property.[^2] A Qualified Opportunity Zone Business (QOZB) must meet its own tests.[^4] **Tax qualification checklist** | Item | What to request | What good looks like | | --- | --- | --- | | Zone designation | Census tract number and designation source | Tract designated for the full hold; new zones run January 1, 2027 to December 31, 2036 | | QOF certification | Prior Forms 8996 (or plan for the first one) | Filed every year, 90% test met on both testing dates | | 70% tangible property test | Asset test workpapers for each QOZB | Qualified property well above 70%, with margin for equipment turnover | | Working capital plan | Written plan, schedule and draw history | Each plan within 31 months; total within 62 months; spending tracks the schedule | | Original use or substantial improvement | Purchase dates, basis allocation, improvement budget | New construction, or improvements above 100% of building basis (50% in wholly rural zones) within 30 months | | Active business | Lease forms and operating plan | QOZB employees provide real operating services; not a bare triple-net lease | | Excluded businesses | Business description | Not a golf course, country club, massage parlor, hot tub or suntan facility, racetrack or gambling facility, or liquor store | | Tax opinion | Opinion or memo from fund tax counsel | Addresses the specific facts, not only the general rules | The working capital safe harbor deserves extra time. A QOZB can treat cash as working capital for up to 31 months if it has a written designation, a written schedule consistent with ordinary start-up spending, and actually spends the money substantially as planned; overlapping plans can extend the period to 62 months.[^5] Government delay on a completed application can toll the period, but utility study queues are not obviously a governmental permitting delay, so do not assume relief for power delays.[^5] See the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and [substantial improvement](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement) guides. ## What should you check about the sponsor? Check whether the sponsor has built and operated this kind of asset before, whether it has money in the deal, and whether it has handled OZ compliance for a full cycle. Specific requests: a track record of realized projects with actual (not projected) returns; the sponsor's co-investment amount; audited financials of prior funds; key-person provisions; and regulatory history. For securities offerings, check whether the sponsor relies on Rule 506(b) or 506(c) and whether placement agents are registered broker-dealers.[^14] Our [guide to choosing an Opportunity Zone sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor) has a full scorecard. ## What project-level diligence matters most? Underwrite the project as if there were no tax benefit, then add the benefit on top. The core items are site control, entitlements, a construction budget with contingency, the capital stack and the lease or offtake. Ask for the budget's basis (a fixed-price or maximum-price construction contract, or only an estimate), the lender's term sheet, and the sources and uses table at the QOZB level. Cushman & Wakefield's 2026 cost guide reported data center costs up an average of 21% per MW since its previous edition, which shows how quickly an old estimate can go stale.[^12] Check the capital stack against the OZ rules. Investor money must go into the fund as equity, but the QOZB can borrow, and lender covenants can restrict the distributions the fund needs to give investors cash for the five-year tax bill. Our guide to [debt in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing) explains how refinancing and distributions affect basis and inclusion events. ## What extra diligence does a data center Opportunity Zone fund need? Power is the item most likely to break a data center schedule, so ask for evidence of power first. Dominion Energy said in 2024 that connecting data centers above 100 MW in Northern Virginia could take up to seven years.[^11] For on-site or co-located generation, LBNL found the median time from interconnection request to commercial operation exceeded four years for projects built in 2018 through 2024.[^10] Neither timeline fits comfortably inside a single 31-month working capital plan. - Power: executed electric service agreement or utility capacity letter, the large-load tariff terms (minimum demand charges, collateral, exit fees) and the energization date. - Lease structure: who runs the critical facilities, who pays operating costs, and whether the QOZB's role is more than a triple-net landlord.[^6][^7] - Equipment ownership: whether servers belong to the tenant or the QOZB, and how equipment replacement is handled in the 70% test. - State incentives: whether the sales and use tax exemption is still open; several states paused or narrowed data center incentives in 2026.[^13] - Water, fiber and zoning: cooling design, water rights, fiber routes, and the local approval record, including any moratorium. - Policy exposure: bills introduced in September 2026 would exclude data centers from OZ benefits; ask how the fund would respond if one passed.[^15] ## Which documents and terms should you read closely? Read the private placement memorandum, the fund operating agreement, the subscription agreement and any side letters. The SEC advises investors in private placements to get all the information they need before investing and to treat a failure to answer questions adequately as a warning sign.[^14] Focus on these terms: - Fees at every level: fund, QOZB and developer, including acquisition, development, asset management and promote. - Tax distributions: whether the fund commits to distribute cash to cover the tax on the deferred gain at year five. - Hold period: whether the documents commit to holding assets until every investor passes 10 years. - Transfers and redemptions: the investment is illiquid; check what happens on death, divorce or a needed sale. - Capital calls: dates, defaults and how a late call affects your 180-day window. - Reporting covenants: delivery dates for K-1s, Form 8997 data and annual audited statements. ## What reporting should you expect, and what are the red flags? Expect each year a Schedule K-1 (for a partnership fund), the information you need for Form 8997, and confirmation that the fund met the 90% test.[^3][^16] New statutory reporting adds weight: IRC §6039K requires an annual QOF information return, and the §6726 penalty is $500 per day, capped at $10,000 per return or $50,000 for a fund with gross assets over $10 million.[^8][^9] Proposed regulations published September 11, 2026 would make Form 8996 a separate information return with census-tract-level detail; they are not final.[^8] See [what investors should expect in fund reporting](https://ozdatacenters.com/guides/opportunity-zone-fund-investor-reporting). **Figure: Red-flag scorecard** - [pass] Zone verified for the full hold: Tract confirmed on the official designation list - [fail] Power evidence: Only a utility inquiry letter; no service agreement or energization date - [watch] Working capital plan vs. schedule: Single 31-month plan for a 48-month build - [watch] Lease structure: Single-tenant lease with tenant-paid operating costs - [pass] Sponsor co-investment: Material sponsor equity alongside investors - [pass] Fee transparency: One table shows every fee at fund, QOZB and developer level - [pass] Reporting covenant: K-1 and Form 8997 data by a fixed date each year *A sample result for a hypothetical data center fund. Any fail should stop the investment until fixed; watch items need a written answer.* ## Common questions **How long does Opportunity Zone fund due diligence take?** Plan on several weeks for a careful review, which is why investors should start well before day 180. If the window is short, prioritize the tax opinion, the working capital plan and proof of power or entitlements. **Should I get my own tax adviser to review the fund?** Yes. The fund's tax counsel represents the fund. Your own adviser should confirm the gain is eligible, the 180-day timing works for you, and the investment fits your state tax position. **What is the single biggest red flag in an Opportunity Zone deal?** A project that only works because of the tax benefit. The deferred gain is taxed at year five regardless of performance, so a weak project can leave an investor with a tax bill and a loss. **How do I confirm a property is in an Opportunity Zone?** Get the census tract number and check it against the official designation list and the CDFI Fund's mapping tool. For investments after 2026, confirm the tract is one of the zones that take effect January 1, 2027. **What should I ask a data center sponsor about power?** Ask for the executed electric service agreement or capacity letter, the energization date, the tariff's minimum demand and collateral terms, and how the working capital plan accounts for any delay. **Is a tax opinion required?** Not by law, but a well-run fund will have one from experienced counsel addressing its specific facts, especially the active-business question for leased data centers. ## Sources [^1]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^2]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^3]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^4]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^5]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^6]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^7]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^8]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^9]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^10]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^11]: BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^12]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^13]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^14]: U.S. Securities and Exchange Commission, "Private Placements under Regulation D: Investor Bulletin" (n.d.). https://www.sec.gov/resources-for-investors/investor-alerts-bulletins/private-placements-under-regulation-d-investor-bulletin [^15]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^16]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms --- # Opportunity Zone fund fees and terms URL: https://ozdatacenters.com/guides/opportunity-zone-fund-fees-and-terms Last reviewed: 2026-10-20 Opportunity Zone funds charge the same kinds of fees as other private real estate funds: a management or asset management fee, transaction fees such as acquisition and development fees, and a promote (carried interest) above a preferred return. In one small review of nine Opportunity Zone offerings, most promotes were 15% or 20% and the multi-asset funds' preferred return was usually 6%, which are examples rather than market norms; the terms that matter most for OZ investors are tax distributions at year five and a commitment to hold until every investor passes 10 years. ## Key takeaways - Citrin Cooperman's review of nine Opportunity Zone offerings found most charged a 15% or 20% promote, and multi-asset funds typically offered a 6% preferred return, with 5% and 8% also seen. - One law firm's commentary cites Opportunity Zone management fees of about 2% of deployed or committed capital, with examples from roughly 0% to 3%; public fee data is thin. - A sponsor's promote is not a qualifying investment for tax purposes; only cash or property invested from an eligible gain gets Opportunity Zone benefits. - Because the deferred gain is taxed at year five, investors should look for a tax distribution provision that pays cash to cover that tax. - Fees charged on total project cost rather than on equity can be several times larger for a leveraged data center campus. ## What fees do Opportunity Zone funds charge? Opportunity Zone funds charge recurring management fees, one-time transaction fees and a share of profits called the promote. None of these is set by the tax rules; they are commercial terms in the fund's operating agreement and private placement memorandum (PPM), which is why reading the PPM's fee section line by line matters.[^5] The table describes each fee and what it is usually charged on. Where a credible public source supports a range, it is noted; otherwise the description is qualitative. **Common Opportunity Zone fund fees** | Fee | What it pays for | Typical base | What to check | | --- | --- | --- | --- | | Management fee | Running the fund | Committed, contributed or deployed capital; one law firm cites about 2% (examples from about 0% to 3%)[^2] | Base, step-downs after the investment period, offsets | | Asset management fee | Overseeing each property or QOZB | Equity invested, asset value or revenue | Whether it duplicates the management fee | | Acquisition fee | Sourcing and closing a purchase | Purchase price or project cost | Paid at fund level, QOZB level or both | | Development fee | Managing design, permits and construction | Total development cost | Fee base includes debt-funded cost | | Financing fee | Arranging loans | Loan amount | Paid on refinancing too | | Disposition fee | Selling the asset | Sale price | Whether it is waived if the promote is earned | | Promote (carried interest) | Sponsor's share of profit | Profit above a preferred return; most often 15% or 20% in one review[^1] | Catch-up, clawback, timing | **Figure: Fee examples reported for Opportunity Zone and private equity funds** - 15–20%: Most common promote in nine Opportunity Zone offerings reviewed - 6%: Typical preferred return in the multi-asset QOFs reviewed - About 2%: Opportunity Zone management fee cited in one law firm's commentary (examples from about 0% to 3%) - 1.5–2%: Commonly cited private equity management fee on committed capital *The Opportunity Zone figures come from a small sample (nine offerings) and one law firm's commentary; private equity benchmarks are shown for comparison. Use them as a reference point, not a market standard.[^1][^2][^3]* ## How does an Opportunity Zone fund distribution waterfall work? A waterfall is the order in which the fund pays out cash: usually investors get their capital back first, then a preferred return, and only then does the sponsor share in profits through the promote. Some waterfalls add a catch-up, which gives the sponsor a large share of profits right after the preferred return until it has received its full percentage of all profits. A catch-up can move a large amount of money and is worth modeling explicitly. **Figure: Example waterfall at a 10-year exit** (illustrative) - Net sale proceeds: 22 $M - Return of investor capital: -10 $M - Preferred return (6% × 10 years): -6 $M - Investors' 80% of remaining profit: -4.8 $M - Sponsor promote: 1.2 $M *Illustrative. Assumes $10 million of investor equity, $22 million of net sale proceeds after 10 years, a 6% simple (non-compounding) preferred return with nothing paid during the hold, an 80/20 split above the preferred return and no catch-up. Values in millions of dollars.* In the example, investors receive $20.8 million on $10 million invested and the sponsor receives $1.2 million. With a full catch-up, the sponsor would instead take 20% of all $12 million of profit, or $2.4 million, leaving investors $19.6 million. The difference ($1.2 million) is the value of that one clause. If the investor reached 10 years and the fund is a partnership, the gain on the sale can be excluded from the investor's income, so the after-tax gap between these outcomes is the full pre-tax gap.[^9] ## Which terms are specific to Opportunity Zone funds? Five terms matter more in an Opportunity Zone fund than in an ordinary real estate fund, because the tax rules tie the investor's outcome to dates and to the fund's continued qualification. - Tax distributions: the deferred gain is taxed at the earlier of a sale or five years after the investment date, whether or not the fund has paid any cash.[^6][^13] A clause that commits the fund to distribute enough cash to cover that tax, if available, protects investors from paying it out of pocket. - Hold commitment: the 10-year exclusion requires the investor to hold at least 10 years. Look for a covenant not to sell assets before every investor has passed 10 years, unless investors consent. - Exit form: in a partnership fund, investors can elect to exclude gain from the fund's asset sales after 10 years, so the documents should allow an asset sale as well as a sale of interests.[^9] - Capital calls: if the fund calls capital after your 180-day window closes, the deferral may not be available for that amount. Check whether the fund requires full funding at closing. - Compliance covenants: the manager should be bound to operate the fund to meet the 90% asset test, file Form 8996, and deliver Form 8997 information on time.[^7][^11] Commentary also warns against management fees that are front-loaded or charged on contributed capital in a way that leaves cash sitting at the fund level, because cash held by the fund counts against its 90% asset test once the six-month grace period for new money ends.[^2][^7] Fees paid by the operating business from capital in a written working capital plan avoid that problem if the plan supports them. See the [QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). ## Does the sponsor's promote get Opportunity Zone tax benefits? No, not by itself. Under the regulations, a partnership interest received for services, such as a carried interest or promote, is not a qualifying investment, so the sponsor's promote is taxed under the ordinary partnership rules rather than excluded after 10 years.[^4][^8] A sponsor who wants OZ treatment for its own money must invest cash from its own eligible gains, which creates a qualifying investment alongside investors. This is one reason sponsor co-investment is a good alignment signal: a sponsor whose own capital gains are in the fund has the same five-year inclusion date and 10-year clock as its investors, and the same interest in staying qualified. Our guide to [choosing an Opportunity Zone sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor) explains how to evaluate co-investment. ## How do fees work in a data center Opportunity Zone fund? The fee base is the main issue, because data center projects are large and heavily financed. Cushman & Wakefield's 2026 guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW before chips.[^10] A fee of a given percentage charged on total development cost is far larger than the same percentage charged on investor equity. **Illustrative effect of the fee base on a 3% fee (hypothetical $500 million campus phase, 30% equity)** | Fee base | Base amount | Fee at 3% | Fee as % of investor equity | | --- | --- | --- | --- | | Investor equity | $150 million | $4.5 million | 3.0% | | Total development cost | $500 million | $15 million | 10.0% | Development fees on total cost are normal in real estate, because the developer manages the whole budget, not only the equity. The point is to see the number in dollars and as a share of equity. Also check fees on tenant fit-out, power infrastructure and leasing commissions, which can be large in data center projects, and whether fees are paid again on each phase. For the wider capital picture, see [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## What do investor-friendly Opportunity Zone fund terms look like? **Figure: Investor-friendly vs. sponsor-friendly terms** - More investor-friendly - Management fee on deployed capital, stepping down after construction - One promote layer, with project-level fees offset against fund fees - No catch-up, or a partial catch-up - Tax distribution covenant for the year-five tax - Hold covenant until all investors pass 10 years - More sponsor-friendly - Management fee on committed capital for the whole term - Fund promote plus developer promote (double promote) - Full catch-up after the preferred return - Distributions at manager discretion only - Manager may sell assets at any time *Most funds mix both columns. The goal is not a fund with no fees but a fund whose fees are visible, earned and aligned with the 10-year hold.* Ask for a single fee table that shows every fee at the fund, QOZB and developer level, with a dollar estimate over the life of the fund. Funds are sold as private placements, usually under Rule 506 of Regulation D, and the SEC notes that an issuer's failure to answer questions adequately is a warning sign.[^5][^12] For the full review process, use our [due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and compare [single-asset and multi-asset funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds), where double promotes are most common. ## Common questions **What is a typical management fee for an Opportunity Zone fund?** Public data is thin. One law firm's commentary cites about 2% of deployed or committed capital, with examples from roughly 0% to 3%; treat these as examples, not a market norm. Check whether the fee is charged on committed, contributed or deployed capital, and whether it steps down. **What is a promote?** A promote, or carried interest, is the sponsor's share of profits after investors receive their capital back and a preferred return. In one review of nine Opportunity Zone offerings, most promotes were 15% or 20%. **Are Opportunity Zone fund fees higher than other real estate funds?** Not inherently. The fee types are the same. The OZ-specific risks are fee layering in multi-asset funds and fee structures that leave cash at the fund level, which can strain the 90% asset test. **Will the fund pay my tax on the deferred gain?** Only if the documents include a tax distribution provision and the fund has cash. The tax itself is the investor's obligation, due for the year that includes the fifth anniversary of the investment (or an earlier inclusion event). **Does the sponsor's promote qualify for the 10-year exclusion?** No. An interest received for services is not a qualifying investment. The sponsor gets OZ benefits only on cash it invests from its own eligible gains. **What is a double promote?** It is when the investor pays a promote to the fund manager and the fund also pays a promote to each project's developer. It is most common in multi-asset funds that invest with third-party developers. ## Sources [^1]: Citrin Cooperman, "Comparing Opportunity Zone Funds" (n.d.). https://cm.citrincooperman.com/In-Focus-Resource-Center/Comparing-Opportunity-Zone-Funds [^2]: Nixon Peabody, "Opportunity zones and estate planning considerations" (2020). https://nixonpeabody.com/insights/alerts/2020/02/27/opportunity-zones-and-estate-planning-considerations [^3]: Duane Morris, "Private equity fund fees" (n.d.). https://www.DuaneMorris.com/site/static/private_equity_fund_fees.pdf [^4]: EY Tax News, "April 2019 proposed regulations on Opportunity Zones provide generally welcome guidance to QOF partnerships and their investors" (2019). https://taxnews.ey.com/news/2019-0856-april-2019-proposed-regulations-on-opportunity-zones-provide-generally-welcome-guidance-to-qof-partnerships-and-their-investors [^5]: U.S. Securities and Exchange Commission, "Private Placements under Regulation D: Investor Bulletin" (n.d.). https://www.sec.gov/resources-for-investors/investor-alerts-bulletins/private-placements-under-regulation-d-investor-bulletin [^6]: Office of the Law Revision Counsel, "26 U.S.C. Subchapter Z: Opportunity Zones" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^7]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^8]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^9]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^10]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^11]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^12]: U.S. Securities and Exchange Commission, "Private placements under Rule 506(b)" (n.d.). https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b [^13]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html --- # Debt and financing in Opportunity Zone projects URL: https://ozdatacenters.com/guides/opportunity-zone-debt-financing Last reviewed: 2026-10-20 Opportunity Zone projects can use debt freely: the investor's money must go into the fund as equity, but the fund and its operating business can borrow. In a partnership fund, each investor's share of that debt adds to basis under IRC §752, so practitioners generally read the regulations to mean that a refinancing distribution made more than two years after the investment, and within the investor's basis, is not an inclusion event; distributions above basis trigger tax on the deferred gain. Confirm any distribution with counsel. ## Key takeaways - The investor's qualifying investment must be equity, but a QOF or QOZB can borrow, and an investor can pledge a QOF interest as loan collateral without an inclusion event. - A partner's basis in a QOF partnership interest starts at zero for the deferred gain but increases by the partner's share of partnership liabilities under IRC §752. - Under the final regulations, a distribution that exceeds the partner's basis in the qualifying investment is an inclusion event to the extent of the excess. - Distributions within two years of an investor's contribution can be tested under rules modeled on the §707 disguised sale rules, which can turn part of the investment into a non-qualifying investment. - Corporate QOFs give investors no basis from fund debt, so, as the regulations are generally read, return-of-capital distributions from a corporate QOF are much harder to make without an inclusion event. ## Can Opportunity Zone projects use debt? Yes. The rule that the investment must be equity applies to the investor's money going into the Qualified Opportunity Fund (QOF), not to the project's capital stack. The statute defers gain only for an investment in a QOF, and the regulations treat only an equity interest (partnership interest or stock) as a qualifying investment.[^1][^11] Below that, the fund and its Qualified Opportunity Zone Business (QOZB) can take construction loans, permanent mortgages and other debt on normal commercial terms. See [why Opportunity Zone investments must be equity](https://ozdatacenters.com/guides/opportunity-zone-equity-requirement). - Investor-level borrowing: an investor can borrow to fund a QOF investment, and using a qualifying investment as collateral for a loan is not, by itself, an inclusion event.[^11] - QOF-level debt: possible, but cash or loan proceeds held at the fund level count against the 90% asset test unless quickly invested. - QOZB-level debt: the usual place for project debt. Loan proceeds held for construction can be working capital under a written plan, within the 31-month safe harbor.[^9][^12] **Figure: Where debt and equity enter a two-tier Opportunity Zone structure** - Investor (Invests eligible gain as equity) - then: Equity - QOF partnership (Allocates its share of QOZB debt to partners) - then: Equity - QOZB (Borrower on construction and permanent loans) - then: Loan proceeds and debt service - Lender (Secured by the project) *Investor money enters as equity; lenders typically lend to the QOZB. In a partnership structure, the QOZB's debt is allocated up through the QOF to each investor under §752, which creates basis.[^3][^4]* ## How does fund debt affect an investor's basis? In a partnership QOF, debt gives the investor basis that the deferred gain does not. An investor's basis in a qualifying investment starts at zero, because the deferred gain is not yet taxed.[^1] Under IRC §752(a), an increase in a partner's share of partnership liabilities is treated as a contribution of money, and the regulations recognize that this raises the partner's basis in the QOF interest without creating a separate non-qualifying investment.[^4][^5] That basis does two jobs. It lets the investor deduct allocated losses, including depreciation (data center equipment often qualifies for 100% bonus depreciation), and it lets the fund distribute cash, such as refinancing proceeds, without exceeding the investor's basis.[^4] Shareholders of a corporate QOF get no basis from the corporation's debt, so neither benefit is available. This is one of the main reasons most Opportunity Zone funds are partnerships; see [Opportunity Zone fund structures](https://ozdatacenters.com/guides/opportunity-zone-fund-structures). **Figure: Tracking one partner's basis through a refinancing** (illustrative) - Basis from the deferred gain: 0 $ - Share of QOZB debt (§752): +1500000 $ - Allocated depreciation losses: -800000 $ - Year-three refinancing distribution: -500000 $ - Remaining basis $200,000: 200000 $ *Illustrative. A partner invests a $1,000,000 deferred gain (starting basis zero). The partner is allocated $1,500,000 of QOZB debt, then $800,000 of depreciation losses, then a $500,000 refinancing distribution in year three. Remaining basis: $200,000. A distribution above that amount would be an inclusion event to the extent of the excess.* ## When is a debt-financed distribution an inclusion event? A distribution from a QOF partnership is an inclusion event to the extent it exceeds the partner's basis in the qualifying investment, and a distribution within two years of the contribution can also be tested under disguised sale principles.[^3][^5] An inclusion event is a transaction that reduces or ends the investor's qualifying investment and triggers tax on some or all of the deferred gain before the five-year date.[^8][^11] The two-year point comes from the final regulations, which apply rules modeled on the IRC §707 disguised sale rules. If a contribution and a distribution together would be treated as a sale under those rules (distributions within two years of a contribution are presumed to be part of a sale unless the facts show otherwise), part of the investor's original investment can be recharacterized as a non-qualifying investment.[^3][^6] Commentators note that it is a misconception that every debt-financed distribution in the first two years is prohibited: the §707 framework has exceptions for certain debt-financed distributions, but applying them is technical.[^2] **Figure: How timing and amount affect a debt-financed distribution** - After two years Timing after contribution, Within the partner's basis Distribution amount: Generally not an inclusion event (After two years and within basis) - After two years Timing after contribution, Exceeds the partner's basis Distribution amount: Inclusion event for the excess (Deferred gain taxed up to the excess amount) - Within two years Timing after contribution, Within the partner's basis Distribution amount: Disguised sale review (May be fine under a debt-financed distribution exception, or may recharacterize part of the investment) - Within two years Timing after contribution, Exceeds the partner's basis Distribution amount: Highest risk (Disguised sale review plus an inclusion event for the excess) *A simplified view of the final regulations as described by practitioners. Each cell needs a fact-specific review by tax counsel before a refinancing closes.[^2][^3]* For a corporate QOF, the analysis is different. As the regulations are generally read, a distribution paid out of earnings and profits is a dividend and does not reduce the qualifying investment, but a distribution treated as a return of basis or as gain is an inclusion event. Because the investor's basis is zero, a debt-financed distribution from a new corporate QOF with no earnings is likely to be an inclusion event; confirm the treatment with counsel. Our guide to [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events) lists the other triggers. ## How should a refinancing be timed around the five-year inclusion date? Refinancing after the five-year inclusion date is usually easier, because the inclusion adds basis. The deferred gain is taxed at the earlier of a sale or five years after the investment date, and once it is included, the investor's basis in the qualifying investment increases by the amount of gain recognized.[^8][^10] The investor also gets the 10% step-up (30% in a Qualified Rural Opportunity Fund) before the inclusion. That creates a common pattern: the fund refinances a stabilized property around year five and distributes cash that helps investors pay the tax on the deferred gain, using the new basis from the inclusion plus the investor's share of the new loan. The distribution must still not exceed basis. A refinancing in year two or three can work too, but it needs the disguised sale analysis above and enough §752 basis to cover the distribution. **Figure: Debt milestones for an investment made in 2027** - Day 0: Equity in (Construction loan closes at the QOZB) - Year 2: Two-year mark (Disguised sale presumption period ends) - Year 3 to 4: Stabilization (Permanent loan replaces construction loan) - Year 5: Deferred gain included (Basis rises by the gain included) - Year 10+: Exit (Fair market value election on sale) *Typical timing for a ground-up project. The two-year and five-year marks run from each investor's own contribution date, so a fund with several closings tracks several schedules.[^3][^10]* ## What happens to the debt when the investment is sold after 10 years? The 10-year election is designed to cover the debt as well as the equity. After a 10-year hold, an investor can elect to treat the basis of the QOF interest as its fair market value on sale, and in a partnership fund can elect to exclude gain from the fund's or QOZB's asset sales reported on a K-1.[^7][^1] Practitioner summaries of the final regulations describe the partnership-interest election as stepping basis up to fair market value in a way that takes the partner's share of liabilities into account, so that debt relief on sale does not create gain in a leveraged fund.[^7] Confirm that point against the regulation text for your fund's exit plan. Two cautions. First, the exclusion is capped: for a sale after the 30th anniversary of the investment, basis is fixed at fair market value on that anniversary.[^10] Second, debt-financed distributions before 10 years that caused an inclusion event are not undone by the later election. See [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) and [Opportunity Zone exit strategies](https://ozdatacenters.com/guides/opportunity-zone-exit-strategies). ## How is debt used in an Opportunity Zone data center? Data center projects are debt-heavy, and lenders size loans to leases and power. JLL expects data center construction to drive more than $700 billion of permanent debt originations in North America over about two and a half years.[^13] For an Opportunity Zone project, a typical stack is OZ equity in the QOZB, a construction loan during the build, and a permanent or securitized loan after the tenant takes occupancy. - Working capital: loan proceeds held for construction must fit the QOZB's written working capital plan, and the QOZB must keep nonqualified financial property, such as idle cash outside the plan, below 5% of its assets.[^12][^9] - Interest and lease reserves: lenders often require reserves; hold them under the working capital plan where possible. - Equipment financing: financing servers or other short-lived equipment adds debt that turns over faster than the 10-year hold. - Credit support from the sponsor: a completion or carry undertaking by the sponsor is common in development lending; check how it interacts with the §752 allocation of the debt. - Distribution covenants: lender restrictions can block the year-five tax distribution; negotiate a carve-out. For the full picture of equity, debt and incentives in a campus, see [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## Common questions **Can I borrow money to invest in an Opportunity Zone fund?** You can borrow personally, but only an amount equal to an eligible capital gain, invested within 180 days, gets the deferral. Pledging your QOF interest as collateral for a loan is not, by itself, an inclusion event. **Is a cash-out refinancing an inclusion event?** Not necessarily. In a partnership QOF, a distribution of refinancing proceeds is generally read as not an inclusion event if it is within the partner's basis (including the partner's share of debt) and not treated as a disguised sale. The part that exceeds basis is an inclusion event. Have counsel review the distribution before it is made. **Are all distributions in the first two years prohibited?** No. Distributions within two years of a contribution are tested under rules modeled on the disguised sale rules, which have exceptions for some debt-financed distributions. The analysis is technical and should be done before the distribution. **Does debt basis help with depreciation losses?** Yes. In a partnership QOF, the investor's share of liabilities adds to basis, which allows allocated depreciation losses to be deducted, subject to the at-risk and passive loss rules. **Do corporate QOFs get the same debt benefits?** No. Shareholders get no basis from corporate debt, losses stay in the corporation, and a return-of-capital distribution from a corporate QOF with zero investor basis is likely to be an inclusion event. ## Sources [^1]: Office of the Law Revision Counsel, "26 U.S.C. Subchapter Z: Opportunity Zones" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^2]: McDermott Will & Emery, "Receiving Debt-Financed Distributions From a QOF" (n.d.). https://www.mwe.com/?p=307691 [^3]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^4]: EY Tax News, "April 2019 proposed regulations on Opportunity Zones provide generally welcome guidance to QOF partnerships and their investors" (2019). https://taxnews.ey.com/news/2019-0856-april-2019-proposed-regulations-on-opportunity-zones-provide-generally-welcome-guidance-to-qof-partnerships-and-their-investors [^5]: Mondaq, "New Guidance Clarifies Aspects Of The Opportunity Zone Program" (2019). https://mondaq.com/unitedstates/real-estate/804192/new-guidance-clarifies-aspects-of-the-opportunity-zone-program [^6]: Novogradac, "Regulation Resolution: 26 OZ Issues We're Watching, Part 1" (n.d.). https://www.novoco.com/notes-from-novogradac/regulation-resolution-26-oz-issues-were-watching-part-1 [^7]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^8]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^9]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^10]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^11]: Greenberg Traurig, "Qualified Opportunity Zones: Final Treasury Regulations Released" (2019). https://www.gtlaw.com/ar/insights/2019/12/qualified-opportunity-zones-final-treasury-regulations-released [^12]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^13]: Building Design + Construction, "Data center demand likely to be strong through at least 2028" (2026). https://www.bdcnetwork.com/building-sector-reports/data-centers/article/55402995/data-center-demand-likely-to-be-strong-through-at-least-2028 --- # How to choose an Opportunity Zone sponsor URL: https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor Last reviewed: 2026-10-20 Choose an Opportunity Zone sponsor on four things: a realized track record in the same asset type, real money of its own in the fund, the systems to keep the fund qualified for 10 or more years, and a clean regulatory record. Under IRC §6726 a fund that misses its new annual information return can owe $500 per day, up to $50,000 for funds over $10 million of gross assets, so compliance capacity is no longer a back-office detail. ## Key takeaways - Ask for realized returns on completed projects of the same asset type, not projections or returns on unrealized assets. - Sponsor co-investment from its own eligible gains gives the sponsor the same five-year inclusion date and 10-year clock as investors. - A sponsor must be able to run semiannual 90% asset tests, written working capital plans and annual Form 8996 filings for the life of the fund. - Check the sponsor's Form D filings on EDGAR and, if it advises funds, its Form ADV status; the SEC has charged firms for failing to file Form D on time. - For data centers, the sponsor's power procurement record matters as much as its construction record, because large-load service has taken up to seven years in constrained markets. ## What makes a good Opportunity Zone sponsor? A good Opportunity Zone sponsor is a strong developer or operator first and an Opportunity Zone specialist second. The sponsor is the firm that finds the project, raises the fund, manages the Qualified Opportunity Fund (QOF) and usually controls the operating business (QOZB). Investors are relying on it for at least 10 years, through construction, leasing, compliance and exit, with no practical way to leave early. That makes sponsor selection the most important decision in the investment after the decision to invest at all. **Figure: Experience and alignment: the two sponsor dimensions** - Deep Asset-type experience and OZ compliance record, Low Alignment (co-investment and fee structure): Skilled but fee-driven (Strong team; returns depend on fees more than performance) - Deep Asset-type experience and OZ compliance record, High Alignment (co-investment and fee structure): Preferred sponsor (Realized track record and meaningful money at risk) - Limited Asset-type experience and OZ compliance record, Low Alignment (co-investment and fee structure): Avoid (New to the asset type and little at stake) - Limited Asset-type experience and OZ compliance record, High Alignment (co-investment and fee structure): Committed but unproven (Willing to invest, but execution risk is high) *Experience without alignment invites fee-driven decisions; alignment without experience invites execution risk. Aim for the top-right cell.* ## How do you evaluate a sponsor's track record? Look at realized results on completed projects of the same type and size, measured the same way the new fund will measure them. A track record built on multifamily buildings says little about a 100 MW data center, and unrealized internal rates of return are estimates, not results. - Ask for a deal-by-deal list: project, asset type, equity invested, dates, realized multiple and IRR, and whether any project lost money. - Ask for audited financial statements of prior funds and how many funds have completed a full cycle to exit. - Ask how the sponsor performed on budget and schedule, and what it did when a project ran late. - Ask for references from investors and lenders, not only from tenants. - Ask whether any prior QOF failed the 90% asset test or paid a penalty, and why. The SEC's investor guidance on private placements advises getting all the information you need before investing and treating a sponsor that cannot answer adequately as a warning sign.[^1] Most Opportunity Zone funds are raised through Regulation D private placements, so the sponsor's own disclosures are usually the main record available.[^2][^3] See [securities rules for Opportunity Zone funds](https://ozdatacenters.com/guides/opportunity-zone-fund-securities-rules). ## How do you know a sponsor's interests are aligned with yours? Alignment shows up in three places: how much of its own money the sponsor invests, how it is paid, and what it has agreed not to do. Co-investment from the sponsor's own eligible gains is the strongest signal, because it puts the sponsor on the same five-year inclusion date and 10-year clock as investors. A promote earned for services is not a qualifying investment and does not get OZ treatment, so a sponsor with no cash in the fund has different tax incentives from its investors.[^15] Then read the fee structure. Citrin Cooperman's review of nine Opportunity Zone offerings found most charged a 15% or 20% promote, with multi-asset funds typically offering a 6% preferred return.[^8] A sponsor whose income comes mostly from transaction and management fees can do well even if investors do not. Finally, check the covenants: commitments to hold assets until all investors pass 10 years, to make tax distributions for the year-five tax, and to keep key people on the fund. Our guide to [fund fees and terms](https://ozdatacenters.com/guides/opportunity-zone-fund-fees-and-terms) covers each provision. ## Can the sponsor keep the fund qualified for 10 years or more? Ask the sponsor to walk you through its compliance calendar, because a fund that loses qualification can cost investors both the deferral and the 10-year exclusion. The fund must certify on Form 8996 each year and report whether it met the 90% asset test on its semiannual testing dates.[^5] Each QOZB must meet the 70% tangible property test and other business tests, and any working capital plan must be written, scheduled and followed.[^10] The new reporting regime raises the stakes. IRC §6039K requires an annual QOF information return and §6726 sets a penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million, with higher amounts for intentional disregard.[^6][^7] Proposed regulations published September 11, 2026 would add census-tract-level reporting and a formal decertification procedure; they are not final.[^6] Ask who prepares these filings (in-house staff, a fund administrator or an outside accounting firm) and request a sample investor report. See [Opportunity Zone reporting requirements](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What should a data center Opportunity Zone sponsor be able to show? A data center sponsor should be able to show that it can secure power, build to a hyperscale or colocation specification, and structure leases that meet the active-business requirement. Power is usually the critical path: Dominion Energy said in 2024 that connecting data centers above 100 MW in Northern Virginia could take up to seven years.[^11] A sponsor without utility relationships and a record of energized projects is taking a risk that investors carry. - Power: energized megawatts delivered on prior projects, and the status of power for this project (service agreement, capacity letter or only an application). - Lease structuring: how the sponsor avoids the bare triple-net lease, which the regulations say is not an active trade or business.[^9] - Community and permitting: the sponsor's approach to local approvals. Data Center Watch counted at least 75 projects blocked or delayed in the first quarter of 2026 alone.[^12] - Incentives: experience with state sales and use tax exemptions and property tax agreements, several of which were paused or narrowed in 2026.[^13] - Equipment strategy: who owns servers and how replacement is handled within the 70% test and the 10-year hold. OZ Data Centers is one sponsor in this category; whichever sponsor you consider, ask the same questions. For the asset-specific background, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) and [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## What regulatory checks should you run on a sponsor? Check the sponsor's public filings and registrations, which takes less than an hour. Issuers relying on Regulation D generally file a Form D notice with the SEC within 15 days after the first sale, and the filings are public on EDGAR.[^14] The SEC has brought enforcement actions for failing to file Form D on time, including charges against two private companies and a registered investment adviser in December 2024.[^4] - EDGAR: search the fund and sponsor entities for Form D filings and amendments; compare the amounts and dates with what you are told. - Form ADV: if the sponsor advises private funds, check whether it is a registered investment adviser or an exempt reporting adviser. - Broker-dealers: confirm that any placement agent paid a commission is a registered broker-dealer. - Bad actor disqualification: ask for the issuer's Rule 506(d) bad actor certification. - Litigation: ask about pending lawsuits, investor disputes and lender defaults. ## How do you compare sponsors side by side? Score each sponsor on the same criteria and require a written answer for every item marked watch. **Figure: Sponsor scorecard** - [pass] Realized track record, same asset type: Several completed and exited data center projects with audited results - [pass] Sponsor co-investment: Material cash from the sponsor's own eligible gains - [watch] Fee structure: Development fee on total cost; ask for a dollar estimate - [pass] OZ compliance system: Outside accountant runs semiannual tests and Form 8996 - [watch] Power status: Capacity letter in hand; service agreement pending - [pass] Lease structure: QOZB staff operate critical facilities; not a bare triple-net lease - [pass] Regulatory record: Form D filed on time; placement agent registered; no bad actor events *A sample result for a hypothetical data center sponsor. A single fail on compliance capacity or regulatory history should usually end the review.* Combine this scorecard with the project-level review in our [due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and the risk review in [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). If you want to discuss how a specific sponsor answers these questions, you can [talk to our team](https://ozdatacenters.com/#contact). ## Common questions **What is an Opportunity Zone sponsor?** The firm that organizes and manages a Qualified Opportunity Fund, finds and develops its projects, and usually controls the operating business. It earns fees and a promote, and often co-invests. **How much should a sponsor co-invest?** There is no rule. What matters is that the amount is material to the sponsor relative to its fees, and ideally that it comes from the sponsor's own eligible gains so it gets the same tax treatment and clock as investors. **Is a first-time Opportunity Zone sponsor a red flag?** Not if the team has a long record in the asset type and hires experienced OZ tax counsel and accountants. A sponsor new to both the asset type and the OZ rules is a much higher risk. **How can I check a sponsor's SEC filings?** Search the fund and sponsor names on the SEC's EDGAR system for Form D filings, and check the SEC's investment adviser public disclosure records for any Form ADV. **What should a data center sponsor be able to prove?** Delivered, energized megawatts on prior projects; the power status of the new project; a lease and operating model that meets the active-business requirement; and a plan for equipment ownership and replacement. ## Sources [^1]: U.S. Securities and Exchange Commission, "Private Placements under Regulation D: Investor Bulletin" (n.d.). https://www.sec.gov/resources-for-investors/investor-alerts-bulletins/private-placements-under-regulation-d-investor-bulletin [^2]: U.S. Securities and Exchange Commission, "Private placements under Rule 506(b)" (n.d.). https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b [^3]: U.S. Securities and Exchange Commission, "General solicitation under Rule 506(c)" (n.d.). https://www.sec.gov/resources-small-businesses/exempt-offerings/general-solicitation-rule-506c [^4]: U.S. Securities and Exchange Commission, "Press release 2024-210 on failures to file Form D" (2024). https://www.sec.gov/newsroom/press-releases/2024-210 [^5]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^6]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^7]: Vinson & Elkins, "QOZ compliance just got teeth: Treasury proposes daily penalties and mandatory reporting for Qualified Opportunity Funds" (2026). https://www.velaw.com/insights/qoz-compliance-just-got-teeth-treasury-proposes-daily-penalties-and-mandatory-reporting-for-qualified-opportunity-funds/ [^8]: Citrin Cooperman, "Comparing Opportunity Zone Funds" (n.d.). https://cm.citrincooperman.com/In-Focus-Resource-Center/Comparing-Opportunity-Zone-Funds [^9]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^10]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^11]: BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^12]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^13]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^14]: U.S. Securities and Exchange Commission, "What is a Form D?" (n.d.). https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/what-form-d [^15]: EY Tax News, "April 2019 proposed regulations on Opportunity Zones provide generally welcome guidance to QOF partnerships and their investors" (2019). https://taxnews.ey.com/news/2019-0856-april-2019-proposed-regulations-on-opportunity-zones-provide-generally-welcome-guidance-to-qof-partnerships-and-their-investors --- # The risks of Opportunity Zone investing URL: https://ozdatacenters.com/guides/opportunity-zone-investment-risks Last reviewed: 2026-10-20 The main risks of Opportunity Zone investing are policy and tax-law change, compliance failure that costs the tax benefits, at least 10 years of illiquidity, concentration in one project or market, and ordinary development risk, which for data centers is mostly power and construction risk. The deferred gain is taxed at year five whatever the project does, so a failing investment can still leave the investor with a tax bill. ## Key takeaways - 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; a House bill would bar data centers from several expanded incentives. Neither had been enacted as of October 20, 2026. - Proposed reporting regulations published September 11, 2026 are not final, and the §6726 penalty runs $500 per day, capped at $10,000 per return or $50,000 for funds with more than $10 million of gross assets. - The deferred gain is taxed five years after the investment (or earlier on an inclusion event) on the lesser of the deferred gain or the investment's fair market value, less basis, even if the fund has distributed nothing. - The 10-year exclusion requires holding the investment for at least 10 years, and there is no established secondary market for most QOF interests. - Large-load power service has taken up to seven years in constrained markets, which can outrun the 31-month working capital safe harbor. ## What are the main risks of investing in an Opportunity Zone fund? 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] **Figure: The six layers of Opportunity Zone investment risk** 1. Tax-law and policy risk: Bills, regulations and guidance still in progress 2. Compliance risk: Asset tests, working capital plans, reporting 3. Liquidity risk: 10-year minimum hold, no ready buyer for interests 4. Concentration risk: One project, one market, one tenant, one utility 5. Development and power risk: Budget, schedule, energization, permits 6. Market and exit risk: Leasing, obsolescence, values at year 10 and later *The top two layers can cost the tax benefit itself; the lower four can cost the investment. A full review addresses every layer.* ## Could Congress or Treasury change the rules for my investment? 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. > State tax treatment is a separate policy risk. Opportunity Zone benefits are federal, and states may decouple. California, for example, does not conform to the federal deferral or exclusion.[^15] See [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ## What happens if the fund fails the Opportunity Zone rules? 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](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## How illiquid is an Opportunity Zone investment, and why does the year-five tax matter? 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. **Figure: Federal tax at year five on a $1,000,000 deferred gain, by fund value** (illustrative) - Fund value $1,300,000 (taxable $900,000): $214,200 - Fund value $1,000,000 (taxable $900,000): $214,200 - Fund value $600,000 (taxable $500,000): $119,000 - Fund value $100,000 (taxable $0): $0 *Illustrative. Assumes $1,000,000 of deferred gain in a standard QOF, a 10% step-up ($100,000 basis), a 23.8% federal rate and no state tax. Taxable amount equals the lesser of the deferred gain or fair market value, minus basis.* ## How concentrated is a typical Opportunity Zone investment? 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](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds) for how fund design changes this risk. ## What are the development and power risks for a data center Opportunity Zone project? 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](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines) and [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## How can investors reduce Opportunity Zone risk? No structure removes these risks, but the right questions and documents reduce them. Score each risk and its mitigant before investing. **Figure: Risk mitigation scorecard for a data center fund** - [watch] Policy change: Project returns modeled with and without OZ benefits; documents allow restructuring - [pass] Compliance: Independent accountant runs asset tests; working capital plans per phase - [watch] Year-five tax cash: Tax distribution covenant, subject to lender approval - [pass] Power: Executed service agreement with an energization date inside the plan - [watch] Concentration: Single campus; investor limits allocation to a share of total gains - [pass] Lease structure: QOZB operates critical facilities; tax opinion on file *A sample result for a hypothetical fund. Watch items are acceptable only with a written plan; a fail on power or compliance should stop the investment.* Size the investment so that a total loss, plus the year-five tax, would not change your plans. Then use the [due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and [sponsor guide](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor) to test the rest. ## Common questions **Can I lose money in an Opportunity Zone fund?** Yes. A QOF is a private, illiquid investment that can lose some or all of its value. The tax benefits only improve returns on an investment that holds its value. **Will the proposed data center bills affect existing investments?** That would depend on the enacted text. As of October 20, 2026, none of the bills had passed, and their final effective dates and any protection for existing investments are unknown. **Do I still owe tax at year five if the fund has lost money?** Possibly less, but usually something. The taxable amount is the lesser of the deferred gain or the investment's fair market value, minus basis. If the value has fallen below the step-up basis, the amount can be zero. **Can I sell my QOF interest before 10 years?** Sometimes, if the fund documents allow it and a buyer exists, but a sale is an inclusion event and you lose the 10-year exclusion on that interest. Plan to hold for at least 10 years. **What is the biggest risk for a data center Opportunity Zone project?** Usually power delivery. A project that cannot get energized on schedule can miss its working capital plan, delay leasing and strain the fund's asset tests. **Are the new reporting rules final?** No. The proposed regulations were published September 11, 2026. The statutory penalty in IRC §6726 exists, but the final data items and procedures are still pending. ## Sources [^1]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^2]: IREI, "Legislation introduced to strip opportunity zone tax breaks for data centers" (2026). https://irei.com/news/legislation-introduced-to-strip-opportunity-zone-tax-breaks-for-data-centers/ [^3]: CoStar, "Congress takes aim at tax breaks fueling data center boom" (2026). https://www.costar.com/article/655990625/congress-takes-aim-at-tax-breaks-fueling-data-center-boom [^4]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^5]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^6]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^7]: Office of the Law Revision Counsel, "26 U.S.C. Subchapter Z: Opportunity Zones" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^8]: U.S. Government Accountability Office, "GAO-26-108132, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^9]: BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^10]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^11]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^12]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^13]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^14]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^15]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^16]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^17]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^18]: Accounting Today, "Meta's accounting move on AI servers to boost profit" (2025). https://www.accountingtoday.com/articles/metas-accounting-move-on-ai-servers-to-boost-profit --- # Combining Opportunity Zones with other incentives URL: https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones Last reviewed: 2026-10-20 Opportunity Zone benefits can usually be combined with other incentives, because the OZ rules change how the investor's capital gain is taxed while most other incentives reduce the project's costs. For a data center, the main stack is the federal OZ deferral and 10-year exclusion, permanent 100% bonus depreciation on equipment acquired after January 19, 2025, a state sales and use tax exemption (offered in 38 states), and a local property tax abatement or PILOT, each with its own conditions and interactions. ## Key takeaways - NCSL counted 38 states with dedicated data center tax incentives in April 2026, and Good Jobs First found 36 states exempt data center equipment or building materials from sales and use tax. - Public Law 119-21 made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025; the building shell (39-year property) does not qualify. - In a partnership QOF held 10 years, investors can elect to exclude gain on the fund's or QOZB's asset sales, which can include depreciation recapture, so bonus depreciation and the OZ exclusion work together. - Several states paused or narrowed data center incentives in 2026: Ohio paused new exemption requests on May 27, 2026, and Arizona adopted a three-year moratorium on new applications from July 1, 2026. - OZ benefits are federal; California does not conform to the federal deferral or exclusion, and other states conform only in part. ## Can Opportunity Zone benefits be combined 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. **Figure: The incentive stack for an Opportunity Zone data center** 1. Federal Opportunity Zone benefits: Deferral, five-year step-up, 10-year exclusion on the investor's gain 2. State Opportunity Zone conformity: Whether the state follows the federal deferral and exclusion 3. Federal depreciation: 100% bonus depreciation on qualifying equipment and improvements 4. State sales and use tax exemption: Equipment, materials, sometimes electricity 5. Local property tax abatement or PILOT: Negotiated with the county, city or development authority 6. Energy and other credits: Clean electricity credits for on-site generation; New Markets Tax Credits in rare cases *Top layers apply to investors; lower layers apply to the project. Each layer has separate eligibility tests and can be lost independently.* ## How do state data center tax incentives work with Opportunity Zones? 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. **Figure: Minimum capital investment for selected state data center exemptions** - Virginia (distressed localities, 10 jobs): $70M - Ohio (over 3 years, $1.5M payroll): $100M - Virginia (standard, 50 jobs): $150M - Texas (over 5 years, 20 jobs): $200M - Iowa (within 6 years): $200M *Investment thresholds only; each program also has job, wage or timing requirements, and some were paused in 2026. Sources: Virginia Economic Development Partnership, Sales Tax Institute (Texas), Ohio Governor's office, Iowa Department of Revenue.[^3][^4][^5][^6]* 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](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) covers each state. ## How do property tax abatements and PILOTs fit with Opportunity Zone rules? 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](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). ## How does 100% bonus depreciation combine with an Opportunity Zone investment? 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. **Illustrative: one investor's 10% share of bonus depreciation in a partnership QOZB** | Item | Amount | Assumption | | --- | --- | --- | | Bonus-eligible property placed in service | $60,000,000 | Equipment and short-life systems from a cost segregation study | | Investor's 10% share of deduction | $6,000,000 | Allocated pro rata; investor has enough basis from debt | | Federal tax value of deduction at 37% | $2,220,000 | Only if the investor can use the loss (passive and at-risk rules) | | Recapture on a sale after 10 years | $0 | If the investor makes the 10-year election on the QOZB's asset sale | > Two cautions. Short-lived equipment sold or replaced before year 10 produces gain that is not covered by the 10-year exclusion. And many states decouple from federal bonus depreciation for state income tax, so the state benefit can differ. See [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## Can New Markets Tax Credits or energy credits be used with Opportunity Zones? 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. ## Do states follow the federal Opportunity Zone benefits? 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. **Figure: The state incentive picture in 2026** - 38: States with dedicated data center tax incentives (NCSL, April 2026) - 36: States exempting data center equipment or materials from sales and use tax (Good Jobs First) - 28: States where 2026 bills proposed scaling back or modifying programs (NCSL) *State incentives are widespread but under review; check program status before modeling them.[^1][^2][^19]* For the full state picture, read [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). For how all of these layers fit into one financing plan, see [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## Common questions **Can I use a state data center sales tax exemption and Opportunity Zone benefits on the same project?** Generally yes. The exemption reduces the project's cost, and the OZ benefits apply to the investor's capital gain. Check that the project meets the state's investment and job thresholds and that the program is still accepting applications. **Does bonus depreciation reduce Opportunity Zone benefits?** Not directly. In a partnership fund it can provide deductions during the hold, and the 10-year election on asset sales can exclude recapture. Equipment sold before year 10 does not get the exclusion. **Can a project use both New Markets Tax Credits and Opportunity Zone equity?** It is possible, because both target low-income communities, but each has its own structure and compliance period. It is uncommon for large data centers. **Do PILOT agreements cause problems under the Opportunity Zone rules?** They can if title moves to a public entity and the QOZB leases the property back. The lease must meet the leased-property rules, so have tax counsel review the structure. **Which states do not follow federal Opportunity Zone rules?** California does not conform to the federal deferral or exclusion. Others, including North Carolina, Mississippi and Massachusetts, are reported as non-conforming or partly conforming. Lists vary, so confirm with the state. ## Sources [^1]: National Conference of State Legislatures, "Does your state offer data center tax incentives?" (2026). https://www.ncsl.org/resources/details/does-your-state-offer-data-center-tax-incentives [^2]: Good Jobs First, "Most States Fail to Disclose which Data Center Companies Get Huge Tax Breaks" (2025). https://goodjobsfirst.org/most-states-fail-to-disclose-which-data-center-companies-get-huge-tax-breaks/ [^3]: Virginia Economic Development Partnership, "Data Center Retail Sales and Use Tax Exemption" (n.d.). https://www.vedp.org/incentive/data-center-retail-sales-use-tax-exemption [^4]: Sales Tax Institute, "Texas Enacts Data Center Exemption for Certain Property" (2013). https://www.salestaxinstitute.com/resources/texas-enacts-data-center-exemption-certain-property [^5]: Office of the Ohio Governor, "Data center tax exemption pause" (2026). https://content.govdelivery.com/accounts/OHIOGOVERNOR/bulletins/419304d [^6]: Iowa Department of Revenue, "Data Centers" (n.d.). https://revenue.iowa.gov/taxes/tax-guidance/sales-use-excise-tax/data-centers [^7]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^8]: CBIZ, "Cost segregation bonus depreciation benefits under the OBBBA" (2025). https://www.cbiz.com/insights/article/cost-segregation-bonus-depreciation-benefits-under-the-obbba [^9]: JMCO, "OBBBA's Bonus Depreciation Rules: What Capital-Intensive Industries Need to Know" (2025). https://www.jmco.com/articles/tax/obbba-bonus-depreciation-rules/ [^10]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^11]: Business Facilities, "Opportunity Zones: Federal Policy Meets State Implementation" (2026). https://businessfacilities.com/opportunity-zone-2-0-federal-policy-meets-state-implementation/ [^12]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^13]: WVXU, "Amazon proposes $4B data center in Wilmington, seeks tax abatement" (2025). https://www.wvxu.org/2025-12-02/amazon-proposes-4b-data-center-in-wilmington-seeks-tax-abatement [^14]: Williams Mullen, "Virginia Budget Creates New Electricity Consumption Tax for Data Centers" (2026). https://www.williamsmullen.com/insights/news/legal-news/virginia-budget-creates-new-electricity-consumption-tax-data-centers [^15]: Bisnow, "Big Beautiful Bill Boasts New Boosts For Data Center Investments" (2025). https://www.bisnow.com/national/news/data-center/big-beautiful-bill-boasts-new-boosts-for-data-center-investments-130270 [^16]: Mintz, "The OBBBA: A Major Shift in Federal Clean Energy Tax Incentives" (2025). https://www.mintz.com/insights-center/viewpoints/2906/2025-09-16-obbba-major-shift-federal-clean-energy-tax-incentives [^17]: Bloomberg Law, "Arizona Data Center Tax Incentive Pause Signed by Governor Hobbs" (2026). https://news.bloomberglaw.com/ip-law/arizona-data-center-tax-incentive-pause-signed-by-governor-hobbs [^18]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^19]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^20]: The Batavian, "Proposed incentive package for data center includes higher property taxes" (2025). https://www.thebatavian.com/howard-owens/proposed-incentive-package-for-data-center-includes-higher-property-taxes-savings-on [^21]: CDFI Fund, U.S. Department of the Treasury, "CY 2024-2025 Introduction to the NMTC Program" (2025). https://www.cdfifund.gov/system/files/2025-04/CY_2024-2025_Introduction_to_the_NMTC_Program.pdf --- # What investors should expect in Opportunity Zone fund reporting URL: https://ozdatacenters.com/guides/opportunity-zone-fund-investor-reporting Last reviewed: 2026-10-20 An Opportunity Zone fund investor should receive, at minimum, an annual Schedule K-1 (or Form 1099), the details needed to file Form 8997 every year, confirmation that the fund met its 90% asset test, audited annual financial statements and regular project updates. New statutory reporting under IRC §6039K, with a §6726 penalty of $500 per day, makes the fund's own annual return mandatory; proposed regulations published September 11, 2026 would add census-tract-level detail but are not final. ## Key takeaways - The investor elects deferral on Form 8949 for the year of the gain, listing the QOF's EIN and investment date, and files Form 8997 every year the investment is held. - The fund self-certifies and reports its 90% asset test on Form 8996 each year, including the year it decertifies. - IRC §6039K requires an annual QOF information return; the §6726 penalty is $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million. - Proposed regulations (REG-116506-25, 91 FR 57968) would make Form 8996 a separate information return with census-tract-level reporting; they would apply only once final. - Good funds deliver K-1s on a fixed date and give each investor a year-five tax estimate well before the deferred gain is included. ## What reports should an Opportunity Zone fund investor receive? Expect two kinds of reports: tax documents you need to file your own return, and performance and compliance reports that show the fund is on track. The table lists what a well-run Qualified Opportunity Fund (QOF) provides. None of the investor-facing reports except the tax documents is required by tax law; they are set by the fund's operating agreement, so check its reporting covenant before investing. **Reports a well-run Opportunity Zone fund provides** | Report | Typical frequency | What it should contain | | --- | --- | --- | | Schedule K-1 (partnership fund) or Form 1099 (corporate fund) | Annual | Income, losses, distributions, share of liabilities | | Form 8997 information | Annual | QOF name and EIN, investment dates, amounts, any dispositions or inclusion events | | Compliance certificate | Annual (often semiannual) | Results of the 90% asset test on both testing dates; QOZB 70% test status | | Audited financial statements | Annual | Fund and, ideally, each QOZB, with auditor's opinion | | Capital account statement | Quarterly or annual | Contributions, distributions, allocations, current balance | | Project update | Quarterly | Budget versus actual, schedule, leasing, financing, working capital plan spending | | Year-five tax estimate | Before the inclusion year | Estimated fair market value, step-up and taxable amount | ## What does the investor have to file with the IRS? The investor files three things over the life of the investment: the deferral election, an annual Form 8997, and the reporting of the deferred gain when it is included. The deferral election is made on Form 8949, attached to a timely filed return for the year the gain would otherwise be taxed; the investor lists the QOF's employer identification number (EIN) and investment date and shows the deferred amount as a negative adjustment.[^3] Form 8997 is filed every year the investor holds a QOF investment. It reports the QOF investments and deferred gains held at the start and end of the year, gains deferred during the year, and any dispositions.[^2][^3] When the deferred gain is included (at five years after the investment date, or earlier on an inclusion event), the investor reports it, net of the 10% step-up (30% for a Qualified Rural Opportunity Fund).[^11] After 10 years, the investor makes the fair market value election when the investment is sold. Read [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained). **Figure: The investor's filings over the life of an Opportunity Zone investment** 1. Year of gain: Elect deferral on Form 8949; file first Form 8997 2. Each year held: Form 8997; report K-1 items 3. Year five: Include deferred gain, net of step-up 4. Year 10 or later: Sell and elect fair market value basis 5. Final year: Report disposition on Form 8997 *Every step uses data from the fund, which is why reliable fund reporting matters to each investor's own compliance.[^2][^3]* ## What does the fund file, and what is changing? Today the fund files Form 8996 with its return every year to certify as a QOF and report whether it met the 90% asset test, computing any penalty for a shortfall.[^1][^10] Public Law 119-21 added a new layer. IRC §6039K requires each QOF, including a Qualified Rural Opportunity Fund, to file an annual information return covering its total assets, the value of its qualified property, investor and investment information including dispositions, and impact data such as employees; IRC §6039L adds information from the operating businesses.[^5][^6] The penalty in IRC §6726 is $500 per day while a failure continues, capped at $10,000 per return, or $50,000 for a QOF with gross assets over $10 million, with higher amounts ($2,500 per day; caps of $50,000 or $250,000) for intentional disregard.[^4][^8] Proposed regulations published September 11, 2026 would make the updated Form 8996 a separate information return, require census-tract-level reporting, require self-certification only in the first year (with Form 8996 still filed annually), create a single decertification procedure, and let a late or corrected filing stop the daily penalty.[^4][^7] They are not final and would apply prospectively once finalized.[^9] **Figure: Current fund reporting vs. the proposed reporting regulations** - Current practice - Form 8996 filed with the fund's income tax return - 90% asset test and any penalty reported annually - Limited investor and QOZB detail - Decertification by notice on Form 8996 - Proposed rules (Not final) - Form 8996 becomes a separate information return - Census-tract-level reporting for each QOZB - Investor, investment and disposition information - Single formal decertification procedure - Late or corrected filing stops the daily penalty *The proposed column describes REG-116506-25 as published September 11, 2026. Final rules may differ.[^4][^6]* ## What information will the fund ask investors for? Expect the fund to ask for your taxpayer identification number, the amount and date of each investment, the amount of gain you elected to defer, and notice of any transfer, gift or other event that could be an inclusion event. The new QOF return covers investor and investment information, including dispositions during the year, so the fund needs accurate investor records to file it.[^5][^6] Commentary on the proposal lists NAICS codes, census tracts, employee counts and residential units among the QOZB items, though the final list may change.[^5] Tell the fund promptly if you transfer your interest, move it to a trust, or have a change that could be treated as a sale or gift. Death is not an inclusion event, but the fund must update its records for heirs. Our guide to [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events) explains which transfers trigger tax. ## What should a data center Opportunity Zone fund report on? A data center fund should report power and construction milestones as carefully as financial results, because those milestones drive both returns and compliance. The most useful quarterly items are: - Power: status of the electric service agreement, substation and energization date, with any change from the last report. - Working capital plan: cumulative spending against the written schedule, and months remaining under each 31-month plan. - Construction: budget versus actual by major system (shell, electrical, mechanical), contingency used, and schedule. - Leasing: signed capacity in MW, tenant start dates, and whether the operating model keeps the QOZB active rather than a bare triple-net landlord. - Asset tests: QOZB 70% tangible property position, including the effect of equipment purchases and replacements. - Incentives: status of any state sales and use tax exemption or property tax agreement. For background on these items, see [managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers) and the [Opportunity Zone data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## When should investors expect each report? Most funds follow the tax calendar; ask for the actual delivery dates in writing. Partnership K-1s often arrive close to the extended deadline, which can push investors to extend their own returns. **Figure: A typical annual reporting calendar for a calendar-year partnership QOF** - Quarterly: Project update (Budget, schedule, power, leasing) - Mar 15: Partnership return due (Often extended) - Jun 30: First asset test date (90% test) - Sep 15: Extended return and K-1s (Form 8996 filed with return) - Oct 15: Investor extended deadline (Form 8997 with individual return) - Dec 31: Second asset test date (90% test) *Illustrative timing for a well-run fund; individual funds vary. The two asset test dates are the last day of the first six months and the last day of the tax year.[^1][^10]* ## How do you judge whether a fund's reporting is good enough? Ask for a sample investor package from a prior fund and score it. Reporting quality is also a proxy for compliance quality: a fund that cannot produce clear numbers for investors is unlikely to produce them for the IRS. **Figure: Reporting quality scorecard** - [watch] K-1 delivery date: Delivered in September; ask for estimates by April - [pass] Form 8997 data: EIN, dates and amounts provided in one schedule - [pass] Asset test results: Both testing dates reported with percentages - [pass] Audited statements: Fund and QOZB audited by an independent firm - [fail] Year-five tax estimate: Not offered; request it as a covenant - [pass] Project metrics: Power, schedule and working capital spending reported quarterly *A sample review of one fund's investor package. Watch items should be fixed in the reporting covenant before you invest.* Use this alongside the [due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and [reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). Treasury also reports to Congress on the program, including a report every five years on the impacts of zone designations, so fund-level data quality will matter for policy as well.[^12] ## Common questions **Do I file Form 8997 every year?** Yes. An investor who holds a QOF investment at any time during the year files Form 8997 with their return, reporting investments held at the start and end of the year, new deferrals and dispositions. **What if the fund's K-1 arrives late?** Extend your return. Late K-1s are common for partnerships. Ask the fund for estimates early in the year so you can make estimated tax payments. **Will the fund tell me how much tax I owe at year five?** It should provide the fair market value and other data you need, and many good funds provide an estimate. The calculation and the tax are the investor's responsibility. **Are the new reporting regulations in effect?** The statutory reporting requirement and the §6726 penalty are law. The proposed regulations published September 11, 2026 that set the details are not final and would apply once finalized. **What penalty applies if the fund does not file its information return?** Under IRC §6726, $500 per day while the failure continues, capped at $10,000 per return, or $50,000 for a fund with gross assets over $10 million, with higher amounts for intentional disregard. ## Sources [^1]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^2]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^3]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^4]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^5]: Current Federal Tax Developments, "Treasury Proposes Comprehensive QOZ Information Reporting and QOF Certification Regulations" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/10/treasury-proposes-comprehensive-qualified-opportunity-zone-information-reporting-and-qof-certification-regulations-a-technical-analysis-for-tax-practitioners [^6]: EY Tax News, "Proposed regulations would expand Opportunity Zone reporting requirements and establish QOF decertification procedures" (2026). https://taxnews.ey.com/news/2026-2003-proposed-regulations-would-expand-opportunity-zone-reporting-requirements-and-establish-qof-decertification-procedures [^7]: KPMG, "Report: Proposed QOF information reporting and certification" (2026). https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2026/09/kpmg-report-proposed-qof-information-reporting-certification-september-2026.pdf [^8]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^9]: Vinson & Elkins, "QOZ compliance just got teeth: Treasury proposes daily penalties and mandatory reporting for Qualified Opportunity Funds" (2026). https://www.velaw.com/insights/qoz-compliance-just-got-teeth-treasury-proposes-daily-penalties-and-mandatory-reporting-for-qualified-opportunity-funds/ [^10]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (n.d.). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^11]: Office of the Law Revision Counsel, "26 U.S.C. Subchapter Z: Opportunity Zones" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterZ&=&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uMTQwMFotMg%3D%3D%7C%7C%7C0%7Cfalse%7Cprelim&=&edition=prelim [^12]: U.S. Government Accountability Office, "GAO-26-108132, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132.pdf --- # Securities rules for Opportunity Zone funds URL: https://ozdatacenters.com/guides/opportunity-zone-fund-securities-rules Last reviewed: 2026-10-20 Interests in an Opportunity Zone fund are generally securities, so the fund must register its offering or use an exemption, and most funds use Rule 506 of Regulation D. Rule 506(b) bars general solicitation but allows up to 35 sophisticated non-accredited investors; Rule 506(c) allows public advertising but requires every purchaser to be a verified accredited investor (for individuals, generally over $200,000 of income, $300,000 jointly, or over $1 million of net worth excluding the home). This guide is general information, not legal advice. ## Key takeaways - SEC and NASAA staff said in a 2019 joint statement that interests in Qualified Opportunity Funds are likely to be securities under federal and state securities laws, depending on the facts. - Rule 506(b) allows unlimited accredited investors and up to 35 non-accredited but sophisticated investors in any 90-day period, with no general solicitation. - Rule 506(c) allows general solicitation, but every purchaser must be accredited and the issuer must take reasonable steps to verify it; self-certification alone is not enough. - Form D is due 15 calendar days after the first sale; filing is not a condition of the exemption, but the SEC has charged companies for failing to file on time. - Most private funds rely on Investment Company Act section 3(c)(1) (no more than 100 beneficial owners) or 3(c)(7) (qualified purchasers only), and advisers to private funds with less than $150 million of U.S. assets may be exempt from SEC registration. ## Are Opportunity Zone fund interests securities? Yes, generally. In July 2019, the staffs of the SEC and the North American Securities Administrators Association (NASAA) issued a joint staff statement indicating that interests in Qualified Opportunity Funds (QOFs) are likely to be securities for purposes of federal and state securities laws; the staff stressed that the analysis is fact-specific.[^15][^16] That means a fund must either register its offering with the SEC or fit an exemption, and the sponsor and anyone who sells the interests must follow the securities rules on disclosure, solicitation and anti-fraud. The tax rules and securities rules are separate. A fund can be a perfectly qualified QOF for tax purposes and still violate securities law, or the reverse. In practice, most Opportunity Zone funds are private placements under Regulation D, and the SEC notes that most private placements rely on Rule 506.[^1] For who can invest from a tax standpoint, see [who can invest in an Opportunity Zone fund](https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund). > This guide summarizes general rules for information only. Securities law is fact-specific; sponsors should work with securities counsel, and investors should review offering documents with their own advisers. ## What is the difference between Rule 506(b) and Rule 506(c)? The difference is whether the fund may advertise. Under Rule 506(b), the issuer may not use general solicitation (public advertising, open websites, cold mass marketing) and may sell to unlimited accredited investors plus up to 35 non-accredited investors in any 90-calendar-day period, who must be financially sophisticated alone or with a purchaser representative and must receive disclosure comparable to a registered offering.[^1][^2] Under Rule 506(c), the issuer may solicit generally, but every purchaser must be an accredited investor and the issuer must take reasonable steps to verify that status.[^3] **Figure: Rule 506(b) vs. Rule 506(c)** - Rule 506(b) (No advertising) - No general solicitation or advertising - Unlimited accredited investors - Up to 35 sophisticated non-accredited investors per 90 days - Disclosure document required if any non-accredited investor buys - Issuer needs a reasonable belief that investors are accredited - Rule 506(c) (Advertising allowed) - General solicitation permitted - Accredited investors only - Issuer must take reasonable steps to verify status - Checking a box is not enough verification - Suits sponsors that market widely online or at events *Both exemptions allow an unlimited amount to be raised and produce restricted securities that cannot be freely resold.[^1][^2][^3]* Sponsors that raise from an existing network often use 506(b); sponsors that market publicly use 506(c). Under either rule, a sponsor that has a substantive pre-existing relationship with an investor is in a stronger position to show it did not generally solicit. The SEC states that self-certification alone, such as checking a box, does not satisfy the 506(c) verification requirement; under 506(b), the issuer needs a reasonable belief that investors are accredited, usually supported by a questionnaire.[^1][^3] ## Who is an accredited investor? An accredited investor is a person or entity that meets one of the tests in Rule 501(a) of Regulation D. For individuals, the main tests are income above $200,000 in each of the two most recent years ($300,000 with a spouse or spousal equivalent) with a reasonable expectation of the same this year, or net worth above $1 million, alone or jointly, excluding the primary residence.[^4][^5] Holders in good standing of the Series 7, Series 65 or Series 82 licenses also qualify, under amendments the SEC adopted in 2020.[^5][^6] **Figure: Accredited investor tests for individuals** - $200,000: Individual income in each of the last two years - $300,000: Joint income with a spouse or spousal equivalent - $1 million: Net worth, excluding the primary residence - 7, 65, 82: FINRA Series licenses that qualify in good standing *Thresholds from Rule 501(a) as summarized by the SEC. The home is not counted as an asset, and mortgage debt up to its value is not counted as a liability, except debt added in the 60 days before the investment.[^4][^5]* Entities can qualify too: for example, entities with more than $5 million of assets not formed to make the investment, entities owning more than $5 million of investments, family offices with at least $5 million under management, and entities owned entirely by accredited investors.[^4][^6] The definition can change. At a September 30, 2026 open meeting, the SEC considered notices on whether more certifications or credentials should qualify individuals under Rule 501(a)(10); check the SEC's current list before relying on a credential.[^14] ## How is accredited status verified, and when is Form D filed? In a 506(c) offering, the issuer must take reasonable steps to verify each purchaser, and the SEC lists non-exclusive methods: reviewing IRS forms showing income, reviewing recent bank, brokerage and credit statements for net worth, or obtaining a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or certified public accountant.[^3][^13] Investors in a 506(c) Opportunity Zone fund should expect to provide documents or a letter from their CPA or attorney. Form D is a short notice filed with the SEC on EDGAR, due 15 calendar days after the first sale, which is the date the first investor is irrevocably committed to invest.[^7] An amendment is required annually if the offering continues for more than 12 months, and when certain information changes. The SEC says filing is not a condition of the Rule 506 exemptions, but it expects a late filer to file as soon as practicable, and in December 2024 it charged two private companies and a registered investment adviser for failing to file Forms D on time.[^8][^9] Many states require their own notice filing and fee for Rule 506 offerings.[^7] **Figure: Securities steps in a typical Opportunity Zone fund offering** 1. Choose exemption: 506(b) or 506(c); bad actor checks 2. Prepare documents: PPM, operating agreement, subscription documents 3. Qualify investors: Questionnaire; verification if 506(c) 4. First sale: First irrevocable commitment 5. Form D: Within 15 days; state notices 6. Ongoing: Annual Form D amendment while offering continues *A simplified sequence for a Rule 506 offering. Counsel will add state notice filings, investor questionnaires and any broker-dealer arrangements.[^1][^7]* ## Does the Investment Company Act apply to an Opportunity Zone fund? It can, so most funds rely on an exclusion. A fund that invests in securities, such as membership interests in a Qualified Opportunity Zone Business (QOZB), could fall within the definition of an investment company and face registration. The two common private fund exclusions are section 3(c)(1), for funds with no more than 100 beneficial owners that do not make a public offering, and section 3(c)(7), for funds owned only by qualified purchasers (generally individuals with at least $5 million in investments, and certain larger entities).[^10][^11] Some real estate funds rely instead on section 3(c)(5)(C), which covers issuers primarily engaged in acquiring mortgages and other liens on and interests in real estate; SEC staff positions generally look for at least 55% of assets in qualifying real estate interests.[^17] A development fund holding equity in an operating business may not fit that exclusion, which is why many Opportunity Zone funds use 3(c)(1) or 3(c)(7). A 3(c)(1) fund's 100-owner cap can be tight for a broadly marketed data center fund with modest minimum investments, so check how the fund counts investors. ## Does an Opportunity Zone sponsor need to register as an investment adviser or broker? It depends on what the fund holds and how large the sponsor is. A sponsor that manages a fund investing in securities is generally an investment adviser. Rule 203(m)-1 exempts an adviser that advises solely private funds and has less than $150 million of assets under management in the United States; such an adviser is an exempt reporting adviser and must still file reports on Form ADV.[^12] An adviser above the threshold, or with clients that are not private funds, generally must register. One commentator notes that an adviser solely to a fund relying on the real estate exclusion may not need the private fund exemption at all, because that fund is not a private fund under the Advisers Act definition; confirm with securities counsel.[^17] Anyone paid a commission or other transaction-based compensation for selling fund interests should generally be a registered broker-dealer. Investors can ask who is being paid to sell the offering and check registrations. The issuer must also confirm that no covered person is subject to a disqualifying event under the Rule 506(d) bad actor rules. Our [guide to choosing a sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor) lists the regulatory checks to run. **Securities law checklist for investors in an Opportunity Zone fund** | Question | Where to look | What good looks like | | --- | --- | --- | | Which exemption is the offering using? | PPM and Form D on EDGAR | Rule 506(b) or 506(c) stated clearly; Form D filed on time | | Am I eligible? | Investor questionnaire | You meet an accredited investor test; verification if 506(c) | | How does the fund avoid Investment Company Act registration? | PPM risk factors and legal section | Clear reliance on 3(c)(1), 3(c)(7) or another exclusion | | Is the manager registered or exempt? | SEC adviser public disclosure records | Registered adviser or exempt reporting adviser with Form ADV on file | | Who is paid to sell? | PPM plan of distribution | Registered broker-dealer; compensation disclosed | | Can I resell? | Operating agreement and PPM | Restrictions explained; no expectation of liquidity | ## What securities issues are specific to data center Opportunity Zone funds? Data center funds tend to be large raises with long timelines, which affects three choices. First, scale often pushes sponsors toward Rule 506(c) to reach a wider group of accredited investors, which brings verification work. Second, a large investor base can exceed the 3(c)(1) limit of 100 beneficial owners, so funds may need 3(c)(7) or a structure with several parallel funds. Third, the offering documents must disclose risks that are specific to the asset: power delivery, construction cost, tenant concentration and the pending bills that would exclude data centers from Opportunity Zone benefits. The SEC's guidance to investors applies directly: securities bought under Rule 506 are restricted and cannot be freely resold, and an issuer that does not answer questions adequately is a warning sign.[^1] Read this guide alongside [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks), the [due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). ## Common questions **Do I have to be an accredited investor to invest in an Opportunity Zone fund?** Not under the tax rules, but most funds are private placements that accept only accredited investors. A Rule 506(b) offering may accept up to 35 sophisticated non-accredited investors per 90 days, but many sponsors choose not to. **Why does a 506(c) fund ask for my tax returns or a CPA letter?** Because Rule 506(c) requires the issuer to take reasonable steps to verify that every purchaser is accredited. Reviewing income documents or getting a written confirmation from a CPA, attorney, registered adviser or broker-dealer are accepted methods. **Can I look up an Opportunity Zone fund's Form D?** Yes. Form D filings are public on the SEC's EDGAR system. They show the exemption claimed, the amount offered and sold, the date of first sale and related persons. **Is an Opportunity Zone fund registered with the SEC?** Usually not. Most funds rely on a Regulation D exemption for the offering and an Investment Company Act exclusion for the fund. The manager may be a registered investment adviser or an exempt reporting adviser. **Does the primary residence count toward the $1 million net worth test?** No. The home is excluded as an asset, and mortgage debt up to its value is excluded as a liability, except that debt added within 60 days before the investment (other than to buy the home) counts as a liability. **Can I sell my Opportunity Zone fund interest to someone else?** Only if the fund documents and securities rules allow it. Rule 506 securities are restricted, there is usually no market, and a sale is also a tax inclusion event that ends the 10-year benefit for that interest. ## Sources [^1]: U.S. Securities and Exchange Commission, "Private Placements under Regulation D: Investor Bulletin" (n.d.). https://www.sec.gov/resources-for-investors/investor-alerts-bulletins/private-placements-under-regulation-d-investor-bulletin [^2]: U.S. Securities and Exchange Commission, "Private placements under Rule 506(b)" (n.d.). https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b [^3]: U.S. Securities and Exchange Commission, "General solicitation under Rule 506(c)" (n.d.). https://www.sec.gov/resources-small-businesses/exempt-offerings/general-solicitation-rule-506c [^4]: eCFR, "17 CFR 230.501, Definitions and terms used in Regulation D" (n.d.). https://www.ecfr.gov/current/title-17/chapter-II/part-230/subject-group-ECFR6e651a4c86c0174/section-230.501 [^5]: Investor.gov (SEC Office of Investor Education and Advocacy), "Updated Investor Bulletin: Accredited Investors" (n.d.). https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3 [^6]: U.S. Securities and Exchange Commission, "Press release 2020-191: SEC modernizes the accredited investor definition" (2020). https://www.sec.gov/newsroom/press-releases/2020-191 [^7]: U.S. Securities and Exchange Commission, "What is a Form D?" (n.d.). https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/what-form-d [^8]: U.S. Securities and Exchange Commission, "Frequently Asked Questions and Answers on Form D" (n.d.). https://www.sec.gov/about/divisions-offices/division-corporation-finance/frequently-asked-questions-answers-form-d [^9]: U.S. Securities and Exchange Commission, "Press release 2024-210 on failures to file Form D" (2024). https://www.sec.gov/newsroom/press-releases/2024-210 [^10]: U.S. Securities and Exchange Commission, "Private funds (capital raising building blocks)" (n.d.). https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/private-funds [^11]: U.S. Securities and Exchange Commission, "Small business glossary" (n.d.). https://www.sec.gov/resources-small-businesses/glossary [^12]: eCFR, "17 CFR 275.203(m)-1, Private fund adviser exemption" (n.d.). https://www.ecfr.gov/current/title-17/chapter-II/part-275/section-275.203(m)-1 [^13]: U.S. Securities and Exchange Commission, "Assessing accredited investors under Regulation D" (n.d.). https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/assessing-accredited-investors-under-regulation-d [^14]: U.S. Securities and Exchange Commission, "Commissioner Peirce remarks at the open meeting on accredited investor notices under Rule 501(a)(10)" (2026). https://www.sec.gov/newsroom/speeches-statements/peirce-the-other-ai-remarks-ocm-on-accredited-investor-notices-under-rule-501a10-of-regd-093026 [^15]: U.S. Securities and Exchange Commission, "SEC and NASAA explain application of securities laws to Opportunity Zone investments (staff statement)" (2019). https://www.sec.gov/news/press-release/2019-132 [^16]: King & Spalding, "Client alert on the SEC and NASAA staff statement on Qualified Opportunity Funds" (2019). https://www.kslaw.com/attachments/000/007/086/original/ca071919.pdf [^17]: California Corporate & Securities Law, "More On Real Estate Funds And The Investment Advisers Act" (2017). https://www.calcorporatelaw.com/2017/05/more-on-real-estate-funds-and-the-investment-advisers-act --- # Why Opportunity Zone investments must be equity URL: https://ozdatacenters.com/guides/opportunity-zone-equity-requirement Last reviewed: 2026-10-20 To defer a capital gain and earn the 10-year exclusion, you must invest the gain in a Qualified Opportunity Fund in exchange for an equity interest: stock, a partnership interest or an LLC interest taxed as either. A loan to the fund is not an eligible interest, even if it is funded with capital gain. Debt is still allowed in the deal: the fund and its operating business can borrow, and the investor can pledge the equity as collateral. ## Key takeaways - An eligible interest in a QOF is an equity interest, including preferred stock or a partnership interest with special allocations; debt instruments are excluded. - Pledging a QOF interest as collateral for a loan does not change its status, as long as the investor remains the tax owner. - A QOF that invests through a subsidiary must also use equity: QOZ stock or a QOZ partnership interest acquired at original issue solely for cash. - If only part of an investment comes from deferred gain, the statute splits it into two investments, and only the gain portion gets the Opportunity Zone benefits. - A partnership interest received for services, such as a sponsor's carried interest, is a non-qualifying investment. - Property-level debt is allowed, and in a partnership QOF a partner's share of liabilities adds to basis, which supports depreciation deductions and some later distributions. ## Why must an Opportunity Zone investment be equity? Because the statute grants the tax benefits only for an investment in a Qualified Opportunity Fund, and the Treasury regulations define that investment as an equity interest issued by the fund. A Qualified Opportunity Fund (QOF) is a corporation or partnership organized to invest in Opportunity Zone property that holds at least 90% of its assets in that property.[^1] An investor who sells an asset at a gain may elect to defer the gain by investing the same amount in a QOF within 180 days.[^1] The regulations call the qualifying investment an "eligible interest." It is an equity interest issued by the QOF, including preferred stock or a partnership interest with special allocations. It does not include any debt instrument.[^2][^4] A capital gain lent to a fund, even at a market interest rate and even if the fund uses it for the same building, earns no deferral, no five-year basis step-up and no 10-year exclusion. The logic follows the program's design. The benefits reward investors who share the risk and upside of a project in a zone. A creditor's return is fixed, so the code gives the incentive to owners instead. For how the full sequence works, see [how Opportunity Zones work, step by step](https://ozdatacenters.com/guides/how-opportunity-zones-work). **What counts as an eligible interest in a QOF** | Instrument | Eligible interest? | Why | | --- | --- | --- | | Common stock of a QOF corporation | Yes | Equity issued by the QOF | | Preferred stock, including a fixed coupon and liquidation preference | Yes | Regulations expressly include preferred stock | | Partnership or LLC interest with special allocations | Yes | Regulations expressly include special allocations | | Promissory note, bond or convertible loan to the QOF | No | Debt instruments are excluded | | Deemed contribution from an increase in a partner's share of liabilities (§752(a)) | No | Not a cash investment of eligible gain | | Profits interest received for services | No | Treated as a non-qualifying investment | ## What kinds of equity qualify? Almost any true equity interest qualifies, including interests with economic preferences. Practitioner commentary on the regulations notes that QOF equity can carry a fixed coupon and a liquidation preference and still be an eligible interest, so long as it is equity for tax purposes.[^5][^4] That gives sponsors room to offer preferred returns, distribution waterfalls and classes of units with different rights. - Stock in a QOF corporation, common or preferred. - An interest in a QOF partnership, or in an LLC taxed as a partnership, including interests with special allocations. - An interest acquired from another investor, rather than directly from the fund, can also be an eligible interest if the buyer invests eligible gain within its own 180-day period.[^2] The test is substance, not labels. An instrument called "preferred equity" that has a fixed maturity, a mandatory redemption and creditor remedies may be debt for tax purposes. The IRS has declined to say whether a loan later converted into equity would qualify, and has pointed instead to ordinary debt-versus-equity principles.[^5] Treat any hybrid instrument as a question for tax counsel before it is signed. ### Can an investor borrow against the QOF interest? Yes. Under the regulations, using an eligible interest as collateral for a loan, including a purchase-money loan, does not impair its status, provided the investor is the owner of the interest for federal tax purposes.[^2][^4] There is also no tracing requirement: an investor with eligible gain may fund the investment with other cash, including borrowed money, as long as the amount invested does not exceed the gain being deferred and the investment is made within the 180-day period.[^4] ## Does the equity requirement apply below the fund? Yes. When a QOF invests through an operating subsidiary, the QOF's interest in that subsidiary must also be equity. The statute counts as Opportunity Zone property only QOZ stock or a QOZ partnership interest that the fund acquires at original issue, solely in exchange for cash, from an entity that is (or is being organized as) a Qualified Opportunity Zone Business.[^1] A Qualified Opportunity Zone Business (QOZB) is an operating business in which at least 70% of the tangible property it owns or leases is qualified zone business property and which meets the income and asset tests.[^3] A loan from the QOF to its QOZB is not QOZ property. It counts against the fund's 90% asset test, and a large intercompany loan can push the fund below the threshold. See [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test) for the semiannual testing mechanics. **Figure: Equity must flow at each tier; debt enters at the business** - Day 1: Investor (Realizes an eligible capital gain) - then: Equity within 180 days - 90% test: Qualified Opportunity Fund (Issues stock or partnership units) - then: Equity for cash only - 70% test: QOZB (Issues equity at original issue for cash) - then: Equity plus third-party debt - Zone property (Land, building, power and cooling plant) *The investor's gain goes into the QOF as equity, and the QOF must buy newly issued equity in the QOZB for cash. Lenders can still finance the project at the QOZB level without affecting the investors' eligible interests.[^1][^2]* ## What happens when only part of an investment is deferred gain? The investment is split in two. Under §1400Z-2(e)(1), an investment in a QOF only part of which consists of gain covered by a deferral election is treated as two separate investments: one consisting only of the deferred gain, and one consisting of everything else.[^1] Only the first gets the deferral, the five-year basis step-up and the 10-year exclusion. Practitioners call this a mixed-funds investment. For partnership funds, the regulations require a partner holding both kinds of interest to allocate income, gain, loss, deduction and §752 liabilities between the two interests in proportion. A profits interest received for services to the QOF, such as a sponsor's carried interest, is treated as a non-qualifying investment, under special allocation rules keyed to the partner's highest share of residual profits from that interest.[^6] **Figure: Qualifying versus non-qualifying QOF investments** - Qualifying investment (Eligible gain, equity) - Gain deferred until the earlier of a sale or five years - 10% basis step-up at five years (30% in a rural fund) - Elect basis equal to fair market value after 10 years - Reported on Form 8997 every year - Non-qualifying investment (Other cash, services, debt) - No deferral of any gain - No basis step-up - Appreciation taxed under ordinary rules on exit - Includes carried interest received for services *The same fund can hold both kinds of capital. Each piece follows its own tax rules, so the fund must track them separately from the first day.[^1][^6]* ### Worked example: a mixed-funds investment (illustrative) Assume an investor puts $10 million into a QOF partnership: $7 million of eligible capital gain and $3 million of other cash. The fund holds the investment for 10 years and the interest is sold for $20 million. Assume a 20% federal long-term capital gains rate plus the 3.8% net investment income tax (23.8% total), no state tax, and ignore depreciation recapture and the tax on the deferred gain at year five, which applies only to the qualifying piece. - Qualifying piece: 70% of the interest, worth $14 million. The investor elects basis equal to fair market value, so the $7 million of appreciation is excluded. Tax on exit: $0. - Non-qualifying piece: 30% of the interest, worth $6 million, with $3 million of basis. The $3 million of appreciation is taxable: $3 million x 23.8% = $714,000. **Figure: Federal tax on exit after 10 years, by piece** (illustrative) - Qualifying piece ($7M eligible gain): $0 - Non-qualifying piece ($3M other cash): $714k *Illustrative. $10 million invested ($7 million eligible gain, $3 million other cash), sold for $20 million after 10 years, 23.8% federal rate, no state tax. Only the gain-funded portion escapes tax on appreciation.* The tax on the deferred gain itself is separate. For investments made on or after January 1, 2027, the deferred $7 million is included in income on the earlier of a sale or the fifth anniversary, with a 10% basis step-up if the investment has been held five years, so 90% of it is taxed.[^7] See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) and [the 10-year hold](https://ozdatacenters.com/guides/opportunity-zone-10-year-tax-free-gains) for the full math. ## Can an Opportunity Zone project still use debt? Yes, and most do. The equity rule governs how the investor enters the fund, not how the project is financed. A QOF or QOZB can take construction loans, term loans and other financing from third parties. A partnership QOF offers a further advantage: a partner's basis in its QOF interest is increased by its allocable share of the partnership's liabilities, which lets partners use depreciation deductions even though their basis from the deferred gain starts at zero.[^8] Leverage also affects distributions. Practitioner summaries of the final regulations generally read them to mean that a debt-financed distribution made more than two years after the investment, and not exceeding the investor's basis, is not an inclusion event, while a distribution within the first two years risks treatment as a disguised sale of part of the investor's interest under §707.[^8][^2] The rules are fact-specific, so confirm any refinancing distribution with counsel. An inclusion event is a transaction that triggers recognition of the deferred gain early; see [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). > A deemed contribution of money under §752(a), from an increase in a partner's share of fund liabilities, is not itself an investment of eligible gain.[^4] Debt can raise basis, but it never creates a new qualifying investment. For a full treatment of how lenders, credit support and refinancing fit around the equity rule, see [debt and financing in Opportunity Zone projects](https://ozdatacenters.com/guides/opportunity-zone-debt-financing). ## What does the equity rule mean for a data center project? Data centers are capital intensive, so the equity rule shapes the whole capital stack. The Opportunity Zone equity is usually the first money in, funding land, power studies, utility deposits and early design, with construction debt layered on once the project has a tenant and an energization date. The QOF's money must go into the QOZB as newly issued equity for cash, and every dollar of it then needs a written working capital plan if it is not spent at once.[^3] - Sponsor promote. A developer's carried interest in a QOF partnership is non-qualifying. Sponsors who want Opportunity Zone treatment on their own money must invest their own eligible gain alongside investors.[^6] - Non-gain investors. Pension funds, foreign investors and others without eligible gain can still invest, either as a non-qualifying piece of the QOF or directly in the QOZB, but they get no Opportunity Zone benefits. - Tenant contributions. A hyperscale tenant that funds its own fit-out owns that equipment; it does not become QOF equity and does not count in the landlord QOZB's tangible property tests.[^10] - Hybrid instruments. Mezzanine loans and preferred equity offered by third-party capital providers sit below the QOF and do not need to qualify, but they must not be confused with the investors' own eligible interests. OZ Data Centers structures its funds so that investor capital enters as fund equity and project lenders lend at the QOZB level, which keeps the qualifying and non-qualifying pieces cleanly separated. For how those layers stack up in practice, see [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## How do you confirm an investment is a qualifying equity interest? Check the instrument, the timing, the amount and the reporting before funding. Investors report the election on Form 8949 with the QOF's EIN and investment date, and report the holding on Form 8997 each year.[^9] Treasury's request for comments in Notice 2026-55 covers several §1400Z-2 issues, including inclusion events, so watch for changes.[^11] **Figure: Pre-funding checklist for a qualifying QOF investment** - [pass] Instrument is equity: Stock or partnership interest issued by the QOF, not a note or convertible loan - [pass] Amount does not exceed eligible gain: Any excess becomes a separate non-qualifying investment - [watch] Invested within 180 days: Confirm the start date, especially for K-1 and §1231 gains - [watch] Fund has self-certified: QOF files Form 8996 for its first year - [pass] No services-based interest counted: Carried interest is tracked as non-qualifying - [watch] Election made on time: Form 8949 with a timely filed return, then Form 8997 annually *A pass on every row is needed for the investment to be a qualifying investment. Rows marked watch are common failure points that need documents, not assumptions.[^2][^9]* If a single document is ambiguous on debt versus equity, resolve it before the money moves. A qualifying investment cannot be created after the 180-day period closes. Investors evaluating a sponsor should also review the [Opportunity Zone fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence). ## Common questions **Can I lend money to a Qualified Opportunity Fund and still defer my gain?** No. Only an equity interest issued by the QOF is an eligible interest. A loan, note or other debt instrument does not qualify, even if it is funded with capital gain proceeds. **Does preferred equity in a QOF qualify?** Yes, if it is equity for tax purposes. The regulations expressly include preferred stock and partnership interests with special allocations. An instrument with debt-like features such as a fixed maturity and creditor remedies may be recharacterized as debt. **Can I borrow against my QOF interest?** Yes. Using the interest as collateral for a loan does not impair its status as an eligible interest, as long as you remain the owner of the interest for federal tax purposes. **Can the QOF lend money to its operating business?** It can, but the loan is not Opportunity Zone property and counts against the fund's 90% asset test. The fund's qualifying investment in a QOZB must be stock or a partnership interest acquired at original issue for cash. **Does a sponsor's carried interest get Opportunity Zone benefits?** No. A profits interest received for services to a QOF partnership is treated as a non-qualifying investment. A sponsor gets the benefits only on its own eligible gain invested for equity. **Can a QOF partnership distribute refinancing proceeds?** Often, but confirm with counsel. Practitioners generally read the regulations to mean that a debt-financed distribution made more than two years after the investment, and not exceeding the investor's basis, is not an inclusion event. Earlier distributions risk disguised-sale treatment. ## Sources [^1]: GovInfo (U.S. Code), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Federal Register (Treasury, IRS), "Investing in Qualified Opportunity Funds, T.D. 9889, final regulations" (2020). https://www.federalregister.gov/documents/2020/01/13/2019-27846/investing-in-qualified-opportunity-funds [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^4]: Venable LLP, "Opportunity Zone Funds" (2020). https://www.venable.com/-/media/files/publications/2020/opportunity-zone.pdf [^5]: Cleary Gottlieb, "Tax incentives for investments in Opportunity Zones: new regulations (alert memorandum)" (2018). https://www.clearygottlieb.com/-/media/files/alert-memos-2018/tax-incentives-for-investments-in-opportunity-zones-new-regulations.pdf [^6]: Williams Mullen, "Second tranche of Opportunity Zone regulations answers substantially all our questions" (2019). https://www.williamsmullen.com/insights/news/legal-news/second-tranche-opportunity-zone-regulations-answers-substantially-all-our [^7]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^8]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^9]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^10]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^11]: Internal Revenue Service, "Notice 2026-55, Request for additional comments on issues under section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf --- # The capital stack for an Opportunity Zone data center URL: https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack Last reviewed: 2026-10-20 An Opportunity Zone data center is typically financed with Qualified Opportunity Fund equity at the bottom of the stack, third-party construction and permanent debt at the operating business level, and often preferred equity or mezzanine capital in between. With all-in greenfield costs of about $8.9 million to $23.3 million per MW (Cushman & Wakefield, 2026), even a 50 MW project needs hundreds of millions of dollars, so the order in which each layer is committed matters as much as its size. ## Key takeaways - Cushman & Wakefield's 2026 cost guide puts all-in greenfield data center cost at about $8.9 million to $23.3 million per MW, excluding chips and GPUs. - JLL forecasts average shell-and-core cost of $11.3 million per MW in 2026, while AI tenant fit-out can cost up to about $25 million per MW, often more than the building. - Only the QOF equity must be an eligible interest; senior debt, mezzanine loans and third-party preferred equity can sit at the QOZB level. - In a partnership structure, a partner's share of QOZB and QOF debt adds to basis, which lets investors use depreciation and, as practitioners generally read the regulations, receive debt-financed distributions up to basis after two years. - Investors owe tax on their deferred gain at year five, so the stack should plan for a refinancing or distribution around that date. ## What is the capital stack for an Opportunity Zone data center? The capital stack is the ranked list of every source of money in the project, from the safest claim (senior debt) to the riskiest (common equity). In an Opportunity Zone (OZ) data center, the riskiest layer is usually equity from a Qualified Opportunity Fund (QOF), which is the only layer that earns the OZ tax benefits. A QOF is a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property.[^5] The QOF usually invests through a Qualified Opportunity Zone Business (QOZB), an operating company that owns the land, building and plant. The QOZB borrows from lenders and may raise other equity. The QOF's investment in the QOZB must be stock or a partnership interest acquired at original issue solely for cash.[^5] For the rules on what counts as equity, see [why Opportunity Zone investments must be equity](https://ozdatacenters.com/guides/opportunity-zone-equity-requirement). **Figure: A typical Opportunity Zone data center capital stack, senior to junior** 1. Senior construction loan: Secured by the land, building and plant; converts to or is refinanced by permanent debt at stabilization 2. Mezzanine loan (optional): Secured by the equity in the QOZB; fills a gap between senior proceeds and equity 3. Preferred equity (optional): Third-party capital with a fixed preferred return, at the QOZB level 4. QOF common equity: Investors' eligible capital gains, invested as fund equity within 180 days 5. Sponsor co-investment and promote: Sponsor's own gain qualifies; its carried interest does not *Repayment priority runs from top to bottom; risk and expected return run the other way. Only the QOF common equity at the bottom must qualify as an eligible interest for OZ benefits.[^5][^7]* ## How much capital does an Opportunity Zone data center need? A lot, and more each year. Cushman & Wakefield's 2026 Data Center Development Cost Guide puts all-in greenfield cost in the U.S. and Canada at about $8.9 million to $23.3 million per MW, excluding chips and GPUs, up an average of 21% per MW since its previous edition.[^3] JLL forecasts average global shell-and-core cost of $11.3 million per MW in 2026, up from $7.7 million in 2020.[^1] Two pools of cost need to be kept apart. The landlord's pool covers land, sitework, the shell, the substation and the mechanical and electrical plant. The tenant's pool covers the IT fit-out. JLL reports that AI tenant fit-out can cost up to about $25 million per MW, often more than the shell and core.[^1][^2] Who owns each pool decides what the QOZB must fund and what counts in its tangible property tests. See [data center construction costs and Opportunity Zone budgeting](https://ozdatacenters.com/guides/data-center-construction-costs-opportunity-zones). **Figure: The scale of data center capital** - $11.3M: JLL forecast average shell-and-core cost per MW in 2026[^1] - $25M: Up to this much per MW for AI tenant fit-out (JLL)[^2] - Up to $3T: Total data center investment JLL expects globally by 2030[^2] - $700B+: Permanent debt originations JLL expects in North America over about 2.5 years[^4] *Market figures from JLL's 2026 outlook and midyear report; they describe the whole market, not any one project.[^1][^2][^4]* ## What does an illustrative stack look like for a 50 MW project? Here is a simplified example for a single-phase, 50 MW powered-and-cooled building where the tenant funds its own IT. It is illustrative only. Assume a landlord scope of $12 million per MW, inside the Cushman & Wakefield range, for a total of $600 million. **Illustrative 50 MW capital stack, landlord scope only ($600 million)** | Layer | Amount | Share | Where it sits | OZ status | | --- | --- | --- | --- | --- | | Senior construction loan | $360M | 60% | QOZB | Not an OZ investment; adds to partner basis | | Preferred equity | $60M | 10% | QOZB | Not an OZ investment | | QOF common equity | $168M | 28% | QOF, then QOZB | Qualifying investment if eligible gain | | Sponsor co-investment | $12M | 2% | QOF | Qualifying only if sponsor invests its own eligible gain | | Tenant IT fit-out | Outside the stack | n/a | Tenant | Tenant's property; outside the QOZB's tests | **Figure: Sources of funds, illustrative 50 MW project** (illustrative) - Senior construction loan: $360M - Preferred equity: $60M - QOF common equity: $168M - Sponsor co-investment: $12M *Illustrative. $12 million per MW landlord scope, 50 MW, tenant-funded fit-out. Real leverage depends on the tenant's credit, the lease and the lender market.* Lenders rarely fund a speculative data center at that leverage. In a market where CBRE reports more than 80% of capacity under construction in primary markets is preleased, a signed lease with a creditworthy tenant is what turns a land deal into a financeable project.[^13] Until then, the QOF equity carries the project alone. ## In what order is each layer committed? Equity comes first, debt comes last. A typical sequence is: 1. QOF equity funds site control, power studies, utility deposits, engineering and permits. This money is most at risk. 2. A lease or letter of intent with a tenant sets the revenue and the delivery date. 3. Preferred equity or mezzanine capital, if used, closes alongside the construction loan. 4. The senior construction loan funds vertical construction, usually after the equity has been spent. 5. At stabilization, permanent debt or a sale-leaseback refinances the construction loan. The OZ rules add a constraint. Equity the QOZB holds as cash must fit inside a written working capital safe harbor plan, which lets cash be held for up to 31 months (62 months with overlapping plans) if it is designated for building tangible property in the zone, scheduled and spent substantially as planned.[^12] Loan proceeds the QOZB holds as cash count as working capital too. Raising all the equity on day one, when the power date is four years away, can strain the plan. See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## How does debt help Opportunity Zone investors? In a partnership structure, debt creates basis. An OZ investor's basis in a qualifying investment starts at zero. A partner's basis in a QOF partnership interest is increased by its allocable share of partnership liabilities, including liabilities of a lower-tier QOZB partnership, which lets investors deduct depreciation they could not otherwise use.[^8] Data centers produce a lot of depreciation. Public Law 119-21 made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025, which covers MACRS property with a recovery period of 20 years or less; the 39-year building shell does not qualify.[^10] Debt-funded basis lets investors use those deductions early. See [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). > Practitioners generally read the regulations to mean that a debt-financed distribution made more than two years after the investment, and not exceeding the investor's basis, is not an inclusion event. Earlier distributions risk disguised-sale treatment. Confirm any distribution with counsel.[^8] ## How should the stack plan for the year-five tax bill? By building in a liquidity event before the fifth anniversary. For investments made on or after January 1, 2027, the deferred gain is included in income on the earlier of a sale of the QOF interest or five years after the investment, with a 10% basis step-up (30% in a rural fund).[^11] Investors owe real tax that year but have not sold anything. A data center that reaches energization in year three or four and has a signed lease can often support a refinancing around year five, with proceeds distributed to investors up to their basis. That is a practical consideration, not a rule, and it depends on the lender market and on the project being on schedule. A project still waiting for power at year five has no such option, which is one more reason to choose sites with a credible power date. See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral). ## Can investors without capital gains join the stack? Yes, at two levels. They can invest in the QOF as a non-qualifying piece of a mixed-funds investment, which the statute treats as a separate investment with no OZ benefits.[^5][^9] Or they can invest directly in the QOZB alongside the QOF. The QOZB must still pass every test (70% tangible property, 50% gross income, 40% intangibles, under 5% nonqualified financial property) no matter who else owns it, and the QOF's interest in it must still be bought at original issue for cash.[^6] **Figure: Where non-gain capital can enter** - Inside the QOF (Mixed-funds investment) - Treated as a separate, non-qualifying investment - Shares the fund's governance and reporting - Income, loss and liabilities allocated in proportion - Simplest for small amounts - Directly in the QOZB (Co-investor) - Outside the QOF and its 90% test - Can carry different economics, such as a preferred return - QOF's stake must still be acquired for cash at original issue - Common for institutional or tenant-affiliated capital *Both routes are allowed. The choice affects reporting, control and how depreciation and debt are allocated.[^5][^9]* Sponsors comparing structures should also review [Opportunity Zone fund structures](https://ozdatacenters.com/guides/opportunity-zone-fund-structures) and [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). Confirm the final structure with your tax adviser, because allocations of debt and depreciation between layers drive each investor's results. ## Common questions **How much of an Opportunity Zone data center is usually funded with QOF equity?** There is no fixed share. It depends on lease status, tenant credit and lender appetite. A project with a signed investment-grade lease can support far more debt than a speculative one, where QOF equity may fund everything through power approval. **Can the construction lender be paid out of OZ equity?** QOF equity is usually spent first, before construction debt is drawn. Later refinancing can return capital to investors; practitioners generally treat debt-financed distributions made after two years and not exceeding basis as outside the inclusion rules, but confirm with counsel. **Does a hyperscaler's fit-out count as part of the capital stack?** Not the landlord's stack. If the tenant buys and owns its servers and fit-out, that equipment is the tenant's property and sits outside the QOZB's tangible property tests. **Can preferred equity be used in an Opportunity Zone deal?** Yes. Third-party preferred equity can sit at the QOZB level without qualifying. Preferred interests in the QOF itself can also be eligible interests if they are equity for tax purposes. **Why does the year-five date matter to the capital stack?** For investments made on or after January 1, 2027, the deferred gain is taxed at the earlier of a sale or five years. Investors need cash for that tax, so sponsors often plan a refinancing or distribution around year five. ## Sources [^1]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^2]: Data Center Dynamics, "Not a bubble: $3 trillion data center investment supercycle expected by 2030, JLL" (2026). https://www.datacenterdynamics.com/en/news/not-a-bubble-3-trillion-data-center-investment-supercycle-expected-by-2030-despite-challenges-jll/ [^3]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^4]: Building Design + Construction, "Data center demand likely to be strong through at least 2028" (2026). https://www.bdcnetwork.com/building-sector-reports/data-centers/article/55402995/data-center-demand-likely-to-be-strong-through-at-least-2028 [^5]: GovInfo (U.S. Code), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^6]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^7]: Venable LLP, "Opportunity Zone Funds" (2020). https://www.venable.com/-/media/files/publications/2020/opportunity-zone.pdf [^8]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^9]: Williams Mullen, "Second tranche of Opportunity Zone regulations answers substantially all our questions" (2019). https://www.williamsmullen.com/insights/news/legal-news/second-tranche-opportunity-zone-regulations-answers-substantially-all-our [^10]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^11]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^12]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^13]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction # Section: Development & operations Building and running a data center on the Opportunity Zone clock: power, water, fiber, leases and compliance. --- # Opportunity Zone data center development timeline URL: https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline Last reviewed: 2026-10-20 A large data center typically takes three to seven years from site control to energization, and power, not construction, is usually the critical path. The Opportunity Zone rules run on their own clocks: 180 days to invest a gain, a 31-month working capital safe harbor (up to 62 months with overlapping plans), a 30-month substantial improvement window, tax on the deferred gain at year five and the tax-free exit after year 10. A workable project fits each phase of spending inside those clocks. ## Key takeaways - An investor has 180 days from the date of a gain to invest it in a Qualified Opportunity Fund. - A QOZB may hold cash for up to 31 months under a written working capital plan, and up to 62 months with overlapping plans for multiple cash infusions. - Dominion Energy has said connecting data centers above 100 MW in Northern Virginia could take up to seven years in total. - LBNL reports the median time from interconnection request to commercial operation for generators built in 2018 to 2024 was over four years. - For investments made on or after January 1, 2027, the deferred gain is taxed at the earlier of a sale or five years, and the 10-year exclusion requires holding the QOF interest at least 10 years. ## How long does it take to develop an Opportunity Zone data center? Usually three to seven years from site control to a building drawing full power, depending mostly on how quickly the utility can deliver capacity. Vertical construction is the shorter part. Epoch AI's tracking of recent gigawatt-scale campuses found 1 to 3.6 years from start of construction to 1 GW of power, and NTT Facilities puts the traditional design-and-construction period for a large data center at 3 to 4 years.[^3][^4] Power is the long pole. Dominion Energy said in 2024 that connecting data centers above 100 MW could take one to three years longer than before, for total waits of up to seven years in Northern Virginia.[^2] For on-site or co-located generation, Lawrence Berkeley National Laboratory (LBNL) reports that the median time from interconnection request to commercial operation exceeded four years for generators built in 2018 to 2024, up from under two years for those built in 2000 to 2007.[^1] For more on the grid side, see [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). **Typical development phases (illustrative ranges, not a sourced benchmark)** | Phase | What happens | Typical duration | | --- | --- | --- | | Site control and diligence | Option or purchase, zoning, title, environmental, tract confirmation | 3 to 9 months | | Power study and utility commitment | Load study, facilities study, electric service agreement, deposits | 6 to 24 months | | Permits and approvals | Land use, building, air permits for generators, water | 6 to 18 months | | Utility and substation work | Transmission upgrades, substation, feeders | 1 to 4+ years | | Building construction | Shell, mechanical and electrical plant, commissioning | 18 to 30 months | | Energization and ramp | Phased power delivery and tenant move-in | 6 to 24 months | ## Which Opportunity Zone deadlines apply to a data center project? Five clocks matter, and they start at different times. Some run for the investor, some for the operating business and some for individual buildings. - 180-day investment period. An investor generally has 180 days from the date of a sale to invest the gain in a Qualified Opportunity Fund (QOF). For §1231 gains the period starts on the date of sale, and partners in a pass-through can elect other start dates, including the due date of the entity's return.[^8] - QOF 90% asset test. The fund must hold at least 90% of its assets in Opportunity Zone property, averaged over two semiannual testing dates.[^12] - Working capital safe harbor. A Qualified Opportunity Zone Business (QOZB), the operating company that owns the project, may treat cash as reasonable working capital for up to 31 months under a written designation and schedule, and up to 62 months with overlapping or sequential plans for multiple cash infusions.[^6] - Substantial improvement. A purchased existing building must be improved by more than its starting basis within any 30-month period, or by more than 50% of its basis in a wholly rural zone.[^7][^13] - Investor holding periods. For investments made on or after January 1, 2027, the deferred gain is included in income at the earlier of a sale or five years after the investment, with a 10% basis step-up (30% in a rural fund). After 10 years, the investor can elect to step basis up to fair market value on sale.[^9] **Figure: The Opportunity Zone clocks for one investment** - Day 1: Capital gain realized (180-day investment period begins) - Day 180: Last day to invest in a QOF (QOF then invests in the QOZB for cash) - Month 30: Substantial improvement window (For a purchased building, measured from acquisition) - Month 31: First working capital plan ends (Cash must be spent substantially as scheduled) - Year 5: Deferred gain taxed (90% included in a standard fund, 70% in a rural fund) - Month 62: Outer limit with overlapping plans (Requires multiple cash infusions and a consistent plan) - Year 10: Tax-free exit available (Elect basis equal to fair market value on sale) - Year 30: Basis fixed at fair market value (Appreciation after the 30th anniversary is taxable) *Measured from the investor's gain and first QOF investment. The investor's clocks (180 days, years 5, 10 and 30) and the QOZB's clocks (31 and 62 months) run at the same time.[^6][^9]* ## How does the development schedule line up with the OZ clocks? Poorly, unless capital is staged. If the QOF raises all its equity at month 0 and the utility delivers power at month 48, the cash sits idle well past the first 31-month plan. The figure below overlays an illustrative 46-month schedule on the safe harbor periods. **Figure: Illustrative development schedule against the OZ clocks** (illustrative) - Site control and diligence: 0 to 6 months - Power study and utility commitment: 3 to 18 months - Permits and approvals: 6 to 18 months - Building construction: 18 to 42 months - Energization and commissioning: 40 to 46 months - Working capital plan 1 (31 months): 0 to 31 months (First cash infusion) - Overlapping plans, outer limit (62 months): 0 to 62 months (Needs later infusions) - Substantial improvement window (30 months): 0 to 30 months (Only for a purchased building) *Illustrative only. Months from the first QOF investment. The first working capital plan expires before energization, so the project relies on a second plan funded by a later cash infusion, or on raising equity in tranches.* Three points stand out. First, land, power studies and deposits are spent early, which suits the safe harbor. Second, the largest outlays (construction) fall in months 18 to 42, straddling the end of the first plan. Third, a ground-up building on raw land meets the original use test, so the 30-month substantial improvement clock applies only if the project buys and converts an existing building.[^7] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## How should a data center project stage its OZ capital? Raise and deploy equity in tranches that each fit a written plan. The regulations allow overlapping or sequential safe harbor plans up to 62 months from the first infusion, but each needs its own written designation, schedule and non-de minimis cash infusion, and the plans must form an integrated whole.[^6][^5] **Figure: A staged capital plan for an OZ data center** 1. Seed tranche: Land, studies, deposits and design under plan 1 2. Power milestone: Signed electric service agreement and energization date 3. Construction tranche: New infusion and plan 2 sized to the build schedule 4. Construction loan: Debt funds vertical work after equity 5. Energize and lease: Placed in service; plan cash fully spent *Each tranche is matched to work that can be completed within its own safe harbor period. This is a practical approach, not a rule; the documents must match what is actually built.[^6]* Staging affects investors too. Each investor's 180-day period runs from its own gain, so a fund with several closings may take money over many months. Capital called later starts a later five-year and 10-year clock for that investor. See [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). ## What happens if the utility or permits are delayed? Some delays toll the safe harbor and some do not. The regulations toll the period when the delay is attributable to waiting for a government action on a completed application, but only where no other action could be taken to advance the project during the delay. A QOZ in a federally declared disaster area can receive up to an additional 24 months.[^5] Whether a utility's study queue or its construction schedule counts as a governmental permitting delay has not been addressed in guidance. Many utilities are investor-owned companies, not government bodies, so a project should not assume tolling. Notice 2026-55 asks for comments on whether a QOZB should be allowed to modify an existing working capital plan, so this area may change.[^10] > Analysis: the safest approach is to pick sites where power is in hand or has a firm, near-term delivery date, and to delay the large equity tranche until the electric service agreement is signed. ## What happens between energization and year 10? The project shifts from build to operate, and the QOZB must keep passing its tests every testing date. JLL reports tenants are signing leases for 2028 deliveries, which suggests that a project energizing on schedule can have its revenue in place by years four or five.[^11] - Year 5: investors owe tax on 90% of the deferred gain in a standard fund (70% in a rural fund), so many projects plan a refinancing or distribution around this date.[^9] - Years 5 to 10: IT and some mechanical equipment is replaced. Replacements must be bought from unrelated parties and placed in service in the zone to count as qualifying property. - Year 10 and after: the investor can sell the QOF interest and elect basis equal to fair market value. See [Opportunity Zone exit strategies after 10 years](https://ozdatacenters.com/guides/opportunity-zone-exit-strategies). For the investor-level dates in one place, see [Opportunity Zone key dates and timeline](https://ozdatacenters.com/guides/opportunity-zone-key-dates). The 30-year cap fixes basis at fair market value on the 30th anniversary, and Treasury has asked for comments on how that election works without a sale.[^10] ## Common questions **Can a data center be built within the 31-month working capital safe harbor?** The building often can, but the full project, including utility power, often cannot. Projects either stage capital into overlapping plans (up to 62 months) or wait to raise the main equity tranche until power is secured. **Does a utility interconnection delay extend the working capital safe harbor?** Not clearly. Tolling applies to delays waiting for government action on a completed application where nothing else can be done. No guidance says a utility's study or construction queue qualifies, so do not rely on it. **Does the 30-month substantial improvement rule apply to a new data center?** No, not for a ground-up building on raw land, which satisfies the original use test. It applies when a project buys an existing building, such as a warehouse or mill, and converts it. **When does the investor owe tax on the deferred gain?** For investments made on or after January 1, 2027, at the earlier of selling the QOF interest or five years after the investment. A 10% basis step-up applies at five years in a standard fund and 30% in a rural fund. **What is usually the longest phase of a data center project?** Securing and delivering utility power. Dominion has cited total waits of up to seven years for large loads in Northern Virginia, while NTT Facilities puts the traditional design-and-construction period for a large data center at 3 to 4 years. ## Sources [^1]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^2]: Bloomberg via BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^3]: Epoch AI, "Data center buildout speeds" (2026). https://epoch.ai/data-insights/data-centers-buildout-speeds [^4]: W.Media, "NTT targets 2028 to implement modular construction to halve hyperscale completion time" (n.d.). https://w.media/ntt-targets-2028-to-implement-modular-construction-to-halve-hyperscale-completion-time/ [^5]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^6]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^7]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^8]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^9]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^10]: Internal Revenue Service, "Notice 2026-55, Request for additional comments on issues under section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^11]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^12]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^13]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf --- # Data center construction costs and Opportunity Zone budgeting URL: https://ozdatacenters.com/guides/data-center-construction-costs-opportunity-zones Last reviewed: 2026-10-20 Cushman & Wakefield's 2026 cost guide puts all-in greenfield data center cost at about $8.9 million to $23.3 million per MW, excluding chips and GPUs, and JLL forecasts average shell-and-core cost of $11.3 million per MW in 2026. In an Opportunity Zone project, the budget does more than price the work: it becomes the written schedule behind the working capital safe harbor, sets the substantial improvement hurdle for a converted building and determines which assets count toward the 70% tangible property test. ## Key takeaways - Cushman & Wakefield's 2026 guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW, up an average of 21% per MW since its prior edition. - Power infrastructure is the largest component at 21% of greenfield cost, followed by core-and-shell and sitework (17%), contingencies (16%) and site acquisition (about 7%). - JLL's average shell-and-core cost rose from $7.7 million per MW in 2020 to $10.7 million in 2025, with $11.3 million forecast for 2026. - Land is excluded from the substantial improvement test, so a converted building must be improved by more than its own basis (50% in a wholly rural zone) within 30 months. - Cash held by the QOZB must follow a written schedule consistent with the budget, for up to 31 months per plan and 62 months in total. ## How much does it cost to build a data center per MW? About $8.9 million to $23.3 million per MW all-in for a greenfield U.S. or Canadian project, excluding chips and GPUs, according to Cushman & Wakefield's 2026 Data Center Development Cost Guide. That range rose an average of 21% per MW since the previous edition, which covered Q4 2024.[^1][^2] JLL tracks shell-and-core cost (the building and its core infrastructure, usually the landlord's scope). Its average global figure was $7.7 million per MW in 2020 and $10.7 million in 2025, a 7% compound annual rate, and JLL forecasts $11.3 million per MW in 2026.[^3][^4] Tenant fit-out is a separate pool: JLL-derived coverage reports AI fit-out can cost up to about $25 million per MW, often more than the shell and core.[^5] **Figure: Published data center cost benchmarks, $ millions per MW** - JLL shell-and-core, 2020 average: $7.7M - JLL shell-and-core, 2025 average: $10.7M - JLL shell-and-core, 2026 forecast: $11.3M - C&W all-in greenfield, low end (2026): $8.9M - C&W all-in greenfield, high end (2026): $23.3M *Cushman & Wakefield's all-in greenfield range against JLL's average shell-and-core series. The firms measure different scopes, so read them as separate benchmarks, not one trend.[^1][^3]* ## Where does the money go in a data center budget? Power infrastructure is the largest single component. Cushman & Wakefield's breakdown of greenfield cost shows power infrastructure at 21%, core-and-shell and sitework at 17%, contingencies at 16% and site acquisition at about 7%.[^1] The rest covers mechanical and cooling systems, other electrical work and soft costs. **Figure: Share of greenfield data center cost by component** - Power infrastructure: 21% - Core-and-shell and sitework: 17% - Contingencies: 16% - Site acquisition: about 7% *Cushman & Wakefield 2026 cost guide, as reported. The four components shown do not sum to 100%; the remainder covers items not broken out in the reported summary.[^1]* A 16% contingency is a signal. Equipment lead times for transformers, switchgear and generators, and the 21% cost increase in one edition, mean budgets move. For an Opportunity Zone (OZ) project, a budget that moves also moves the working capital schedule, which must stay consistent with what is actually spent. ## What does an illustrative OZ data center budget look like? Below is an illustrative budget for a 40 MW building at $12 million per MW, within the Cushman & Wakefield range, applying its reported component shares. It is not a quote and real budgets vary widely by market, design and density. **Illustrative 40 MW budget at $12 million per MW ($480 million total)** | Component | Share | Amount | OZ treatment | | --- | --- | --- | --- | | Power infrastructure (substation, switchgear, generators, UPS) | 21% | $100.8M | Tangible property; short-life classes may qualify for bonus depreciation | | Core-and-shell and sitework | 17% | $81.6M | Building is 39-year property; sitework often 15-year | | Contingencies | 16% | $76.8M | Must still be scheduled in the working capital plan | | Site acquisition | about 7% | $33.6M | Land: not depreciable, excluded from substantial improvement | | All other (mechanical, cooling, other electrical, soft costs) | 39% | $187.2M | Mostly tangible property; soft costs capitalized into assets | Two OZ consequences follow. First, almost everything except land is depreciable tangible property that the QOZB buys new, which suits the original use test. Second, the timing of each line becomes the schedule in the written working capital plan. For how the money is raised, see [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## How does the budget become a working capital safe harbor plan? The budget is the plan. Under the regulations, a Qualified Opportunity Zone Business (QOZB) may treat cash as reasonable working capital for up to 31 months if it is designated in writing for acquiring, constructing or substantially improving tangible property in the zone, follows a written schedule consistent with ordinary start-up spending, and is spent substantially as planned.[^10] Overlapping or sequential plans can extend the period to 62 months from the first infusion.[^10] - Write the plan from the construction budget and schedule, line by line. - Update the schedule as contracts are signed, with a record of why dates moved. - Keep contingency inside the plan and draw it against identified scope. - Do not park excess cash beyond what the schedule supports; the QOZB must keep nonqualified financial property under 5% of its property, and cash outside the safe harbor counts against that limit.[^13] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) for documentation details and [the development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline) for how the plan lines up with power delivery. ## How much must you spend to convert an existing building in an Opportunity Zone? More than the building's own basis within 30 months, or more than half of it in a wholly rural zone. A purchased building that is not original use must be substantially improved: additions to its basis during any 30-month period after acquisition must exceed its adjusted basis at the start of that period.[^6] For property in a zone made up entirely of rural area, the threshold is 50%, effective since July 4, 2025.[^7] Land is excluded. Rev. Rul. 2018-29 holds that land under a building does not need to be separately improved and that only basis allocated to the building counts toward the hurdle.[^8] The regulations add an anti-abuse rule for unimproved land bought with no intent to improve it by more than an insubstantial amount.[^9] **Figure: Substantial improvement hurdle for a converted warehouse** (illustrative) - Purchase price: 20 $ millions - Less land allocation: -5 $ millions - Rural zone: 50% threshold: -7.5 $ millions - Rural hurdle: additions above $7.5M: 7.5 $ millions *Illustrative. A $20 million purchase with $5 million allocated to land leaves a $15 million building basis. In a standard zone the QOZB must add more than $15 million in 30 months; in a wholly rural zone, more than $7.5 million.* Data center conversions usually clear this easily. A fit-out for power, cooling and structure on a mid-sized warehouse can cost many times the building basis. The purchase price allocation still matters and must be defensible. See [converting industrial buildings into data centers](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones) and [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## How should an OZ budget handle phasing and cost escalation? Phase the build so each phase has its own budget, schedule and cash infusion. Large campuses are usually delivered in buildings or data halls as power arrives. Each phase can be matched to its own working capital plan, as long as the plans together stay within 62 months of the first infusion and each infusion is significant.[^10] Escalation should be priced in, not hoped away. Cushman & Wakefield's 21% average increase between two editions of its guide shows how fast costs can move.[^1] A budget with realistic escalation and a funded contingency is easier to defend as a schedule consistent with ordinary start-up spending than one that is rewritten every quarter. When the scope genuinely changes, document the reason at the time it happens. ## Should the QOZB or the tenant pay for the IT fit-out? Usually the tenant, but the choice has tax consequences on both sides. If the QOZB owns the servers and racks, they count in both the numerator and denominator of its 70% tangible property test, and short-lived equipment must be replaced with new qualifying property over a 10-year hold.[^13] If the tenant owns them, they are outside the QOZB's tests entirely. Ownership also shapes depreciation. 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; the building shell does not qualify.[^11] A cost segregation study separates the shell from shorter-lived electrical and mechanical components so the QOZB can claim bonus depreciation on the latter.[^12] See [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation) and [servers, equipment and the OZ rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). > Analysis: owning more of the mechanical and electrical plant can also support the QOZB's case that it actively operates the facility, which matters under the triple-net lease rule. Confirm the trade-off with your tax adviser. ## Common questions **What is the average cost to build a data center per MW in 2026?** Cushman & Wakefield's 2026 guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW, excluding chips and GPUs. JLL forecasts average shell-and-core cost of $11.3 million per MW in 2026. **Does land count toward the Opportunity Zone substantial improvement test?** No. Only the building's basis sets the hurdle, and land does not need to be separately improved. Land must still be used in the business, and an anti-abuse rule applies to land bought with no intent to improve it. **Can the contingency budget be held under the working capital safe harbor?** Yes, if it is part of the written plan and schedule for building tangible property in the zone and is spent substantially as planned. Cash beyond what the plan supports counts as nonqualified financial property. **Do GPU and server costs belong in the QOZB budget?** Only if the QOZB will own them. In most leased data centers the tenant buys its own IT, which keeps that equipment outside the QOZB's tests. Cost benchmarks such as Cushman & Wakefield's exclude chips and GPUs. **Is the substantial improvement threshold lower in rural zones?** Yes. For property in a zone made up entirely of rural area, additions must exceed 50% of the building's adjusted basis within 30 months, instead of 100%. That rule has applied since July 4, 2025. ## Sources [^1]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^2]: CRE Daily, "Data Center Construction Costs Jump 21% Since 2024" (2026). https://www.credaily.com/briefs/data-center-construction-costs-jump-21-since-2024/?.tsrc=rss [^3]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^4]: Data Center Frontier, "JLL's 2026 Global Data Center Outlook: navigating the AI supercycle, power scarcity and structural market transformation" (2026). https://www.datacenterfrontier.com/cloud/article/55341273/jlls-2026-global-data-center-outlook-navigating-the-ai-supercycle-power-scarcity-and-structural-market-transformation [^5]: Data Center Dynamics, "Not a bubble: $3 trillion data center investment supercycle expected by 2030, JLL" (2026). https://www.datacenterdynamics.com/en/news/not-a-bubble-3-trillion-data-center-investment-supercycle-expected-by-2030-despite-challenges-jll/ [^6]: BDO, "Discussion of the Opportunity Zone Program Including Final Regulations" (n.d.). https://www.bdo.com/insights/tax/discussion-of-the-opportunity-zone-program-including-final-regulations [^7]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas (Notice 2025-50)" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^8]: Internal Revenue Service (hosted by Morris, Manning & Martin), "Revenue Ruling 2018-29" (2018). https://www.mmmlaw.com/files/documents/publications/rr-18-29.pdf [^9]: Stoel Rives, "Treasury Issues New Proposed Qualified Opportunity Zone Regulations" (2019). https://www.stoel.com/insights/publications/treasury-issues-new-proposed-qualified-opportunity [^10]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^11]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^12]: CBIZ, "Cost segregation bonus depreciation benefits under the OBBBA" (2025). https://www.cbiz.com/insights/article/cost-segregation-bonus-depreciation-benefits-under-the-obbba [^13]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 --- # Power interconnection for Opportunity Zone data centers URL: https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers Last reviewed: 2026-10-20 Power is the critical path for most data centers: Dominion Energy has cited total waits of up to seven years for large loads in Northern Virginia, and LBNL reports median generator interconnection times of more than four years. For an Opportunity Zone project, that schedule has to fit the 31-month working capital safe harbor (62 months with overlapping plans), and no guidance says a utility's queue tolls that clock. The practical answer is to secure power before committing most of the OZ equity, and to decide early who will own the substation and any on-site generation. ## Key takeaways - Dominion Energy said in 2024 that connecting data centers above 100 MW could take one to three years longer than before, for total waits of up to seven years in Northern Virginia. - LBNL's Queued Up 2025 reports only 13% of capacity that requested interconnection in 2000 to 2019 reached commercial operation by the end of 2024; 77% withdrew. - New large-load tariffs require long minimum commitments, such as AEP Ohio's requirement to pay for at least 85% of subscribed demand for up to 12 years. - The working capital safe harbor is tolled for government delays on a completed application, but no guidance treats a utility's study or construction queue as such a delay. - Generation and substation assets count in a QOZB's 70% tangible property test only if the QOZB owns or leases them and they are used in the zone. ## Why is power the biggest risk for an Opportunity Zone data center? Because it usually takes longer than anything else and the OZ rules penalize idle capital. Cushman & Wakefield's H1 2026 Americas update says power availability now decides where data center growth can happen, with a record 37.7 GW under construction.[^14] A site with land, fiber and zoning but no firm power date is not yet a project. Dominion Energy said in 2024 that connecting data centers above 100 MW could take one to three years longer than before, for total waits of up to seven years in Northern Virginia.[^2] For an Opportunity Zone (OZ) project, the Qualified Opportunity Zone Business (QOZB), the operating company that owns the project, can hold cash for only 31 months under a single written working capital plan, or 62 months with overlapping plans.[^12] See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## What is the difference between load interconnection and generator interconnection? Load interconnection connects the data center to the grid as a customer; generator interconnection connects a power plant to the grid as a supplier. They run through different processes and timelines. - Load service. The data center applies to its local utility for service. The utility studies the load, may need new transmission or substations, and signs an electric service agreement. Timelines depend on the utility and the local grid. - Generator interconnection. A power plant, including on-site or co-located generation that will export or synchronize with the grid, joins the regional transmission organization's queue. LBNL's Queued Up report tracks these.[^1] **Figure: Median years from interconnection request to commercial operation, generators** - Projects built 2000 to 2007: under 2 years - Projects built 2018 to 2024: over 4 years *Lawrence Berkeley National Laboratory, Queued Up: 2025 Edition. These are generator timelines, not data center load timelines; use them for on-site or co-located generation.[^1]* Queues are also unreliable. LBNL found that only 13% of capacity that requested interconnection from 2000 to 2019 had reached commercial operation by the end of 2024, 77% had withdrawn and 10% was still active.[^1] ## What do new large-load tariffs require from data centers? Long minimum payments and collateral. Utilities and regulators have adopted tariffs that make large new loads pay for capacity they reserve, so other customers do not carry stranded costs. **Selected large-load tariffs (verify final terms against each commission's order)** | Utility | Applies to | Key terms | Status | | --- | --- | --- | --- | | AEP Ohio | New data centers above 25 MW | Pay for at least 85% of subscribed demand for up to 12 years, including a 4-year ramp; financial viability proof, exit fees and collateral | PUCO order, July 9, 2025[^3] | | Georgia Power | New customers above 100 MW | Contract terms of 5 to 15 years, minimum billing, recovery of upstream costs; contracts reviewed by the PSC | Georgia PSC rule, January 23, 2025[^4] | | Dominion Energy Virginia (GS-5) | Loads above 25 MW with a load factor of 75% or more | Minimum payment of 85% of contracted transmission and distribution demand and 60% of generation demand; obligations begin January 2027 | Approved by the SCC, November 2025[^5] | These terms affect the capital stack. Collateral, deposits and minimum bills are real costs before the first tenant pays rent. For OZ purposes, cash posted as collateral is not tangible property, so a QOZB should plan whether collateral is posted as cash, a letter of credit or parent-company credit support (analysis; confirm with counsel). See [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## What are FERC and DOE doing about data center interconnection? They are writing new rules for large loads and co-location, and the results are still arriving. On December 18, 2025, FERC found PJM's tariff unjust and unreasonable for lacking clear rules for co-located load and directed new transmission services for co-located load, with compliance filings due February 16, 2026.[^6] On October 23, 2025, the Secretary of Energy used section 403 of the DOE Organization Act to send FERC a proposed rulemaking on interconnecting loads above 20 MW, including hybrid load-plus-generation facilities, opened as Docket RM26-4-000.[^7][^8] FERC said in April 2026 that it would act by the end of June 2026.[^9] Secondary sources report FERC then issued show-cause orders to the regional grid operators rather than a single final rule; confirm current status on FERC's docket page before relying on any outcome. ## Can on-site or co-located generation shorten the timeline? Sometimes, but it brings its own permits, fuel supply and interconnection questions. Recent large campuses show the range: - Homer City, Pennsylvania: a former coal plant site being converted to a 4.5 GW gas-fired campus on more than 3,200 acres, with first turbine deliveries expected in 2026.[^11] - Talen and Amazon (Susquehanna nuclear): after FERC rejected an amended agreement to expand co-located load from 300 MW to 480 MW, the parties moved to a front-of-meter power purchase agreement ramping to 1,920 MW by 2032.[^10] - Meta Hyperion, Louisiana: the state commission approved three Entergy gas plants of about 2.26 GW, plus a roughly $1.2 billion transmission line, to serve the campus.[^16] **Figure: Grid service versus on-site generation for an OZ data center** - Utility grid service (Most common) - Utility usually owns the substation and lines - Utility-owned assets are outside the QOZB's tests - Timeline set by the utility's studies and upgrades - Large-load tariffs impose minimum bills and collateral - On-site or co-located generation (Behind or in front of the meter) - Can be owned by the QOZB if inside the zone - Counts in the 70% test only if used in the zone - Air permits, fuel supply and turbine lead times - Wind and solar credits limited for later projects *Both paths have long lead times. The OZ consequences depend on who owns the assets and whether they sit inside the zone.[^15][^12]* Credits matter for renewable supply. Public Law 119-21 ends the §45Y and §48E credits for wind and solar facilities placed in service after 2027 unless construction began by July 4, 2026, and Notice 2025-42 tightened the beginning-of-construction rules.[^13] Projects counting on new contracted solar or wind should confirm the supplier's credit position. ## How do the Opportunity Zone rules treat power infrastructure? By ownership and location. A QOZB must have at least 70% of the tangible property it owns or leases be qualified zone business property, which must be acquired by purchase from an unrelated party, meet original use or substantial improvement, and be used in a zone during substantially all of the holding period.[^15] - QOZB-owned substation, switchgear, generators and UPS inside the tract: qualifying tangible property if bought new. - Utility-owned substation or transmission line: the utility's property, outside the QOZB's tests. - Generation outside the tract: owned property that is not used in the zone, which counts against the 70% test. - Payments to a utility for upgrades the utility will own: analysis only; these may not be tangible property of the QOZB at all. Confirm treatment with tax counsel. ### Does a utility delay extend the working capital safe harbor? Not clearly. The regulations toll the safe harbor for delay caused by waiting for government action on a completed application, where no other action can be taken to advance the project, and add up to 24 months in a federally declared disaster area.[^12] Many utilities are investor-owned companies, and no guidance treats their study or construction queues as governmental permitting. See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## What should an OZ data center investor check about power? Ask for documents, not maps. A transmission line near the site says little about available capacity. **Figure: Power diligence for an Opportunity Zone data center** - [pass] Executed electric service agreement: Signed with the utility, with a capacity amount and delivery date - [pass] Load and facilities studies complete: Upgrade scope and cost allocation known - [watch] Tariff obligations priced: Minimum bills, collateral and exit fees in the budget - [watch] Phased energization schedule: Each phase matched to a working capital plan - [watch] On-site generation permits: Air permits, fuel supply, turbine delivery slots - [fail] Relying on queue position alone: Most queued capacity never reaches operation *Rows marked pass are what a financeable project usually has before the main equity tranche. Rows marked watch or fail are common gaps that push the schedule beyond the working capital safe harbor.[^3][^12]* For how power drives site choice, see [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones) and [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). For the full schedule, see [the Opportunity Zone data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## Common questions **How long does it take to get grid power for a large data center?** It varies widely by utility. Dominion Energy has cited total waits of up to seven years for loads above 100 MW in Northern Virginia. Other utilities with spare capacity can be much faster. **Does a power delay extend the Opportunity Zone working capital safe harbor?** Not reliably. Tolling applies to delays waiting for government action on a completed application. No guidance says a utility's queue qualifies, so projects should secure power before deploying most of their equity. **Can a QOZB own its own power plant?** Yes. Generation the QOZB buys new and places in service inside the zone can be qualifying tangible property. Generation located outside the tract counts against the 70% test. **What is a large-load tariff?** A utility rate for very large new customers, usually with long minimum payment terms, collateral and exit fees. AEP Ohio, for example, requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years. **Is the LBNL interconnection data about data centers?** No. LBNL's Queued Up report measures generators seeking to connect to the grid. It is useful for on-site or co-located generation, not for the time to get service as a customer. ## Sources [^1]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^2]: Bloomberg via BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^3]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^4]: Georgia Public Service Commission, "Media advisory: data centers rule" (2025). https://psc.ga.gov/site/assets/files/8617/media_advisory_data_centers_rule_1-23-2025.pdf [^5]: American Action Forum, "Virginia's New Data Center Electricity Rate Class" (2025). https://www.americanactionforum.org/insight/virginias-new-data-center-electricity-rate-class/ [^6]: Morgan Lewis, "FERC Directs Co-Location Reforms in PJM" (2025). https://www.morganlewis.com/pubs/2025/12/ferc-directs-co-location-reforms-in-pjm [^7]: Beveridge & Diamond, "DOE Invokes Rare Authority to Direct FERC to Accelerate Grid Access for Large Loads and Data Centers" (2025). https://www.bdlaw.com/publications/doe-invokes-rare-authority-to-direct-ferc-to-accelerate-grid-access-for-large-loads-and-data-centers/ [^8]: Federal Energy Regulatory Commission, "Interconnection of Large Loads to the Interstate Transmission System, Docket RM26-4-000" (n.d.). https://www.ferc.gov/rm26-4 [^9]: Holland & Knight, "FERC to Act on Large-Load Interconnection Docket in June" (2026). https://www.hklaw.com/en/insights/publications/2026/04/ferc-to-act-on-large-load-interconnection-docket-in-june [^10]: Utility Dive, "Talen, Amazon Susquehanna nuclear data center deal" (2025). https://www.utilitydive.com/news/talen-amazon-aws-susquehanna-nuclear-data-center-t/750440/ [^11]: Data Center Dynamics, "Homer City and Kiewit unveil plans for 4.5GW natural gas-powered AI data center in Pennsylvania" (2025). https://datacenterdynamics.com/en/news/homer-city-and-kiewit-unveil-plans-for-45gw-natural-gas-powered-ai-data-center-in-pennsylvania [^12]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^13]: Jones Day, "IRS Issues New Guidelines for Wind and Solar Tax Credits" (2025). https://www.jonesday.com/en/insights/2025/08/irs-issues-new-guidelines-for-wind-and-solar-tax-credits [^14]: IREI, "Cushman & Wakefield: Power availability redraws data center map as Americas development hits record 37.7GW" (2026). https://irei.com/news/cushman-wakefield-power-availability-redraws-data-center-map-as-americas-development-hits-record-37-7gw/ [^15]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^16]: Data Center Dynamics, "Entergy obtains approval to construct three gas facilities to serve Meta's 2GW data center in Louisiana" (2025). https://www.datacenterdynamics.com/en/news/entergy-obtains-approval-to-construct-three-gas-facilities-to-serve-metas-2gw-data-center-in-louisiana --- # Water and cooling for Opportunity Zone data centers URL: https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers Last reviewed: 2026-10-20 U.S. data centers used about 17.4 billion gallons of water directly in 2023, a figure LBNL expects to double or quadruple by 2028, and rising rack densities (about 120 kW for an NVIDIA GB200 NVL72 rack) are pushing new builds toward liquid and closed-loop cooling. For an Opportunity Zone project, cooling design is both a site question (is there water, and will the community accept its use?) and a tax question: cooling plant the operating business buys new and owns can be qualifying tangible property, and, in practitioners' analysis, landlord-run cooling helps show an active trade or business. ## Key takeaways - LBNL estimates direct on-site water use by U.S. data centers at about 17.4 billion gallons in 2023, plus about 211 billion gallons used indirectly through electricity generation. - Rack density ranges from about 12 kW for a general-purpose CPU rack to about 40 kW for an air-cooled H100 rack and about 120 kW for a liquid-cooled GB200 NVL72 rack. - Microsoft reports a fleet water usage effectiveness of 0.30 L/kWh in FY2024 and says all new designs since August 2024 use closed-loop, zero-evaporation cooling. - Uptime Institute reports global average PUE hovering above 1.5, essentially flat for about six years. - Cooling plant the QOZB buys new from an unrelated party and uses in the zone can count toward the 70% tangible property test; landlord operation of cooling can support the active trade or business position (analysis, not settled law). ## How much water do data centers use? About 17.4 billion gallons (66 billion liters) of direct, on-site use by U.S. data centers in 2023, according to Lawrence Berkeley National Laboratory's 2024 report, with on-site use projected to double or quadruple by 2028.[^1][^2] Indirect use through the electricity data centers consume was far larger: about 211 billion gallons in 2023.[^2] Most direct use comes from evaporative cooling, where water is evaporated to reject heat. Facilities that use air-cooled chillers or closed-loop systems use much less water on site but more electricity, which shifts water use to power plants. LBNL's 2025 update projects data centers at about 649 TWh, or 11.8% of U.S. electricity, in 2030 in its reference case, so both water and power demand are rising.[^10] **Figure: Data center water and efficiency at a glance** - 17.4B gal: Direct on-site water use, U.S. data centers, 2023 (LBNL)[^2] - 211B gal: Indirect water use through electricity generation, 2023[^2] - 0.30 L/kWh: Microsoft fleet water usage effectiveness, FY2024[^3] - above 1.5: Global average PUE, Uptime Institute 2025 survey[^4] *LBNL estimates for U.S. data centers in 2023, Microsoft's reported fleet metric and Uptime Institute's global survey.[^1][^2][^3][^4]* ## What cooling systems do modern data centers use? Three broad approaches, chosen mainly by rack density and climate. Rack density is the power drawn by one rack of servers, and it determines how much heat must be removed from a small space. **Figure: Power per rack by workload type** - General-purpose CPU rack: up to 12 kW - Air-cooled H100 rack: about 40 kW - NVIDIA GB200 NVL72 rack: about 120 kW *As reported by SemiAnalysis. At about 120 kW per rack, the GB200 NVL72 requires liquid cooling; general-purpose racks can still be air cooled.[^5]* **Figure: Cooling approaches and their trade-offs** - Evaporative (cooling towers, adiabatic) - Low electricity use for heat rejection - Highest on-site water consumption - Needs reliable water supply and discharge permits - Most exposed to drought and local opposition - Closed-loop (non-evaporative) - Little or no evaporative water use - Higher electricity use in hot weather - Microsoft says all new designs since August 2024 use closed-loop, zero-evaporation cooling - Shifts water use to the power supply - Direct liquid cooling - Required for the densest AI racks - Coolant loops to the chip or rack - Usually paired with dry coolers or chillers - Higher plant cost per MW *A general comparison based on common industry practice; actual water and power use depend on design and climate. Microsoft's closed-loop designs avoid more than 125 million liters of water per facility per year, by its estimate.[^3]* Efficiency has plateaued. Uptime Institute reports global average power usage effectiveness (PUE), total facility power divided by IT power, hovering above 1.5 and essentially flat for about six years.[^4] New liquid-cooled designs can do better, but older air-cooled fleets keep the average high. ## How does water affect site selection in an Opportunity Zone? Water is a gating factor alongside power. Many Opportunity Zone (OZ) tracts are rural, where water systems may be small and agricultural users compete for supply. Before committing equity, a sponsor should confirm in writing what the local water and wastewater utility can serve, or whether on-site wells and treatment are needed. That is practical analysis, not a rule. Climate and design interact. A closed-loop design reduces water demand but raises peak electricity demand, which may require more grid capacity. In states where EPRI projects data centers could exceed 20% of state electricity use by 2030, including Arizona, Nevada and Oregon, both constraints apply.[^11] See [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones) and [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). ## Why does water use matter for community approval? Because it is one of the most visible local impacts and opposition is growing. Data Center Watch reports that at least 75 projects worth about $130 billion were blocked or delayed in the first quarter of 2026, and that opposition groups grew from 396 to 833 between the end of 2025 and the end of Q1 2026.[^9] Pima County, Arizona adopted a 120-day moratorium on new data center projects in unincorporated areas in September 2026.[^8] Publishing water use estimates, choosing closed-loop cooling and funding local water infrastructure can all help. Opposition delays also carry an OZ cost: a stalled approval can push spending beyond the working capital safe harbor. See [community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers). ## How do the Opportunity Zone rules treat cooling equipment? As tangible property, counted by who owns it and where it is used. A Qualified Opportunity Zone Business (QOZB) must have at least 70% of the tangible property it owns or leases be qualified zone business property: acquired by purchase from an unrelated party, original use in the zone (or substantially improved) and used in a zone for substantially all of the holding period.[^6] - Chillers, cooling towers, coolant distribution units and dry coolers the QOZB buys new and installs in the zone count as qualifying property. - Cooling equipment the tenant buys and owns, such as rack-level liquid cooling, is the tenant's property and outside the QOZB's tests. - Off-site water mains, wells or treatment plants owned by a municipal utility are the utility's property. - Short-lived mechanical equipment acquired after January 19, 2025 may qualify for 100% bonus depreciation; the building shell does not.[^12] ### Why landlord-run cooling helps the active business test The regulations say merely entering into a triple-net lease is not the active conduct of a trade or business, and a final-regulation example treats a landlord as active where on-site employees meaningfully take part in management and operations.[^7] A landlord QOZB that owns and operates the cooling plant, staffs critical facilities and provides cooling as a service has more defensible facts than one that hands the building to a tenant. This is analysis, not settled law; see [data center lease structures in Opportunity Zones](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones). ## What happens when cooling must be upgraded during the 10-year hold? It is new spending that can strengthen the asset base. Rack densities have risen fast, from about 40 kW for air-cooled H100 racks to about 120 kW for GB200 NVL72 racks.[^5] A data center designed for air cooling may need liquid cooling within a 10-year hold to stay leasable. New cooling equipment bought from an unrelated party and placed in service in the zone is itself qualifying property. Replaced equipment that is sold before year 10 does not get the 10-year exclusion, and the fund has 12 months to reinvest any proceeds for its 90% asset test. Plan retrofits in the business plan from the start. See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). **Figure: Water and cooling diligence for an OZ data center** - [pass] Written water and sewer capacity from the utility: Volume, timing and connection costs confirmed - [pass] Cooling design matched to target rack density: Liquid-ready if AI tenants are targeted - [watch] Water use disclosed to the community: Estimates published before hearings - [watch] Drought and supply risk assessed: Backup supply or dry cooling option - [watch] Ownership of cooling plant decided: Affects the 70% test and active business facts - [fail] Local moratorium risk: A pending moratorium can stall approvals for months *Practical checks before the main equity tranche. Watch items are common sources of delay that can push spending past the working capital safe harbor.[^8][^9]* ## Common questions **How much water does a data center use?** It depends on cooling design and climate. LBNL estimates U.S. data centers used about 17.4 billion gallons directly in 2023, mainly through evaporative cooling. Closed-loop and air-cooled designs use far less water on site but more electricity. **Do AI data centers need liquid cooling?** The densest racks do. An NVIDIA GB200 NVL72 rack draws about 120 kW and requires liquid cooling, compared with about 40 kW for an air-cooled H100 rack. **Does cooling equipment count toward the QOZB 70% test?** Yes, if the QOZB owns or leases it, bought it from an unrelated party, placed it in service new in the zone and uses it there. Tenant-owned equipment is outside the QOZB's tests. **Can cooling upgrades during the hold count as Opportunity Zone property?** Yes. New equipment bought from an unrelated party and placed in service in the zone qualifies. Gain on equipment sold before year 10 is not covered by the 10-year exclusion. **Is water use a reason data center projects get blocked?** It is one of several. Data Center Watch reports at least 75 projects worth about $130 billion were blocked or delayed in Q1 2026, and local moratoria such as Pima County's in September 2026 have paused new approvals. ## Sources [^1]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^2]: Honolulu Civil Beat, "Data Centers Consume Massive Amounts Of Water. Companies Rarely Say Exactly How Much" (2025). https://www.civilbeat.org/2025/08/data-centers-consume-massive-amounts-of-water-companies-rarely-say-exactly-how-much/ [^3]: Microsoft, "Sustainable by design: Next-generation datacenters consume zero water for cooling" (2024). https://microsoft.com/en-us/microsoft-cloud/blog/2024/12/09/sustainable-by-design-next-generation-datacenters-consume-zero-water-for-cooling [^4]: Uptime Institute, "Uptime Institute Global Data Center Survey 2025" (2025). https://intelligence.uptimeinstitute.com/resource/uptime-institute-global-data-center-survey-2025 [^5]: SemiAnalysis, "GB200 Hardware Architecture and Component Supply Chain" (2024). https://newsletter.semianalysis.com/p/gb200-hardware-architecture-and-component [^6]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^7]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^8]: KJZZ, "Pima County passes 120-day moratorium on future data center projects" (2026). https://www.kjzz.org/fronteras-desk/2026-09-23/pima-county-passes-120-day-moratorium-on-future-data-center-projects [^9]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^10]: Lawrence Berkeley National Laboratory, "United States Data Center Energy Usage Report: 2025 Update" (2026). https://eta-publications.lbl.gov/publications/united-states-data-center-energy-2025 [^11]: EPRI, "Powering Intelligence 2026: Updated Scenarios of U.S. Data Center Electricity Use and Power Strategies" (2026). https://esca.epri.com/products/3002034696/ [^12]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities --- # Fiber connectivity for rural Opportunity Zone data centers URL: https://ozdatacenters.com/guides/fiber-connectivity-rural-opportunity-zone-data-centers Last reviewed: 2026-10-20 A rural Opportunity Zone data center needs at least two physically diverse, high-capacity fiber routes to reach networks and other campuses, and many sites with land and power fail on this test. Fiber is often the next constraint after power: laterals must be built, rights of way secured and carriers signed. Under the OZ rules, fiber the operating business owns inside the tract is qualifying tangible property, fiber outside the tract is not used in the zone, and long-term fiber rights (IRUs) need careful classification. ## Key takeaways - Data centers need physically diverse fiber routes for resilience; a parcel can clear on land, power and tax incentives and still fail on route diversity. - Light in fiber travels at roughly 200,000 km per second, so each 100 km of route adds about 1 millisecond of round-trip latency. - NTIA's Enabling Middle Mile Broadband Infrastructure Program awarded nearly $980 million for more than 12,500 miles of new fiber across 40 states and Puerto Rico. - One industry estimate cited by TelcoNews puts the cost of delay on a typical 60 MW data center project at up to $14.2 million a month. - Fiber the QOZB buys new and installs inside the zone can count toward the 70% test; fiber outside the tract is owned property not used in the zone. ## What fiber connectivity does a data center need? At least two physically diverse, high-capacity routes into the site, with access to multiple carriers and to long-haul networks. Diverse means the routes do not share a conduit, bridge or right of way, so one backhoe cannot cut both. Proximity to high-capacity fiber routes, interconnection points and diverse paths reduces latency, supports higher throughput and improves resilience.[^9] - Laterals: the last segments from the site to existing fiber routes, often built new for a greenfield campus. - Long-haul routes: regional and national backbones that carry traffic between markets. - Inter-campus links: connections between a tenant's data centers. Kirkwood Infrastructure Group's CEO notes these links, which once ran 2 to 30 miles, can now run 250 miles or more, so long-haul routes act as inter-campus links.[^5] - Carrier access: a meet-me room where several carriers can terminate, so tenants are not tied to one provider. ## Why is fiber harder in rural Opportunity Zones? Because the sites that have land and grid headroom often lack dense, diverse route inventory. Data Center Knowledge reports that in emerging markets, last-mile and long-haul bandwidth often lag behind the needs of large-scale facilities, which complicates site selection, and that many carriers lack strong incentives to build beyond densely populated areas.[^6] Screen route diversity before paying for a land option, not after. Demand is moving to exactly these places. JLL reports that 77% of North American development is in frontier markets such as West Texas, Ohio, Louisiana, Indiana and the Carolinas.[^13] Regional carriers see the opening: Shentel, with more than 19,000 route miles, says data centers moving away from metros for land and power could use its routes.[^7] Many rural Opportunity Zone (OZ) tracts also qualify for the enhanced rural incentives, including a 30% basis step-up for qualified rural funds and a 50% substantial improvement threshold.[^12] See [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). **Figure: Federal middle-mile fiber investment** - ~$980M: Awarded under the middle-mile program[^4] - 12,500+: Miles of new fiber planned[^4] - 370+: Counties covered[^4] - 40 + PR: States plus Puerto Rico[^4] *NTIA's Enabling Middle Mile Broadband Infrastructure Program. NTIA says all funds have been awarded and most projects are in environmental review, so check each route's build status.[^4]* ## How far can a data center be from a major market? It depends on the workload. Light in optical fiber travels at roughly two-thirds of its speed in a vacuum, about 200,000 km per second, so each kilometer of route adds about 5 microseconds one way. Real routes are longer than straight lines, and switching adds more delay. **Figure: Approximate round-trip propagation delay by fiber route length** (illustrative) - 50 km route: about 0.5 ms - 250 km route: about 2.5 ms - 500 km route: about 5 ms - 1,000 km route: about 10 ms *Illustrative physics calculation at about 200,000 km per second in fiber, ignoring equipment and routing delays. Actual latency is higher; get measured figures from carriers.* Analysis: large AI training clusters and batch workloads tolerate distance from users far better than trading systems or interactive applications, which is part of why remote, power-rich sites have become viable. They still need very high capacity to other campuses and to the internet. Edge workloads are the opposite; see [edge data centers in Opportunity Zones](https://ozdatacenters.com/guides/edge-data-centers-opportunity-zones). ## How do you check fiber at a candidate Opportunity Zone site? Start with public tools, then get carrier route maps and quotes under a nondisclosure agreement. Public data shows where networks and interconnection facilities are, but not spare capacity or exact routes. - FCC National Broadband Map: fixed and mobile broadband availability by location, a rough guide to which providers serve an area.[^1] - PeeringDB: a database of interconnection facilities, internet exchanges and networks, with facility data downloadable for mapping.[^2] - CAIDA AS Facilities dataset: a research dataset of interconnection facilities built from PeeringDB.[^3] - NTIA middle-mile awards: planned routes funded by the federal program, many still under environmental review.[^4] **Figure: Fiber diligence for a rural OZ data center site** 1. Screen: Public maps, PeeringDB, middle-mile awards 2. Route maps: Carrier maps under NDA; confirm physical diversity 3. Lateral design: Distance, rights of way, crossings, permits 4. Quotes and timing: Build cost, lead time, IRU or lit service 5. Contract: Signed before the main equity tranche *Fiber should be checked at the start of site selection, alongside power. A consultant writing in TelcoNews argues connectivity belongs at the front end, not after land is chosen.[^8]* Time is money. A TelcoNews piece, citing STL Partners, says delays to a typical 60 MW data center project can cost as much as $14.2 million a month.[^8] For a project in the OZ working capital safe harbor, fiber delays also push spending later; see [the Opportunity Zone data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## How do the Opportunity Zone rules treat fiber assets? By ownership, location and the form of the right. A Qualified Opportunity Zone Business (QOZB), the operating company that owns the data center, must have at least 70% of the tangible property it owns or leases be qualified zone business property used in a zone during substantially all of its holding period.[^10] - Fiber, conduit and meet-me room equipment the QOZB buys new and installs inside the tract is qualifying tangible property. - Lateral fiber the QOZB owns that runs outside the tract is owned tangible property not used in the zone. It counts in the denominator of the 70% test but not the numerator. Treasury's FAQ treats property used in a zone on at least 70% of days as used substantially in the zone, which mainly helps mobile equipment, not fixed fiber outside the tract.[^11] - Lit services bought from a carrier are an operating expense, not property of the QOZB. ### How is an IRU treated? An indefeasible right of use (IRU) is a long-term right to use specific fibers in a carrier's cable, common in the industry. Analysis: depending on its terms, an IRU may be treated for tax purposes as a lease of tangible property, a purchase of tangible property or an intangible right. If it is leased tangible property, it can count under the leased property rules if on market terms; if it is intangible, it falls under the 40% intangibles test. There is no OZ guidance specific to IRUs, so get a tax opinion. See [leased property rules for Opportunity Zone businesses](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). **Figure: Three ways to get fiber to an OZ data center** - Owned lateral and conduit (Built by the QOZB) - Tangible property of the QOZB - Qualifies only for the part inside the zone - Highest upfront cost, most control - Rights of way and permits on the schedule - Dark fiber IRU (Long-term right) - Often prepaid for a long term - Tax character depends on terms - Lease, purchase or intangible analysis - Common for inter-campus routes - Lit carrier service (Bought as a service) - Operating expense, no property - Fastest to procure where routes exist - Outside the QOZB's tangible property tests - Capacity limited by the carrier's network *A general comparison. Most projects combine them: an owned lateral to two carrier routes, with IRUs or lit service beyond. The OZ treatment of IRUs is analysis, not settled law.[^10]* ## Can fiber and interconnection support the QOZB's active business? It can help. Analysis: a landlord QOZB that runs a carrier-neutral meet-me room, sells cross-connects and staffs network operations is providing services beyond a passive lease. That supports the case that it is actively conducting a trade or business, which matters because merely entering into a triple-net lease is not the active conduct of a trade or business under the regulations.[^10] Cross-connect and connectivity revenue for services performed at the facility should generally count as income from the business in the zone for the 50% gross income test, though this too is analysis. For the lease side of that question, see [data center lease structures in Opportunity Zones](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones) and [colocation data centers in Opportunity Zones](https://ozdatacenters.com/guides/colocation-data-centers-opportunity-zones). For site screening that combines power, fiber and zone status, see [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## Common questions **How many fiber routes does a data center need?** At least two physically diverse routes is the common minimum for resilience, with access to several carriers. Large campuses often want more, plus high-capacity links to the tenant's other campuses. **Can a rural data center work for AI if it is far from cities?** Often yes for training and batch workloads, which tolerate distance from users. Each 100 km of fiber adds about 1 millisecond of round-trip delay, which matters more for interactive and edge workloads. **Does fiber outside the Opportunity Zone tract count for the 70% test?** Fiber the QOZB owns outside the tract is not used in the zone, so it counts in the denominator but not the numerator. Usually it is a small share of a data center's tangible property. **How is a dark fiber IRU treated under the OZ rules?** There is no specific guidance. Depending on its terms, an IRU may be a lease, a purchase or an intangible right for tax purposes, which changes which test applies. Get a tax opinion before relying on it. **Where can I see what fiber serves a rural site?** Start with the FCC National Broadband Map, PeeringDB and NTIA middle-mile awards, then obtain carrier route maps under a nondisclosure agreement. Public tools do not show spare capacity or exact routes. ## Sources [^1]: Federal Communications Commission, "How to Use the FCC's National Broadband Map" (n.d.). https://help.bdc.fcc.gov/hc/en-us/articles/10467446103579-How-to-Use-the-FCC-s-National-Broadband-Map [^2]: PeeringDB, "About PeeringDB" (n.d.). https://www.peeringdb.com/about [^3]: CAIDA, "AS Facilities dataset" (n.d.). https://www.caida.org/catalog/datasets/as-facilities/ [^4]: National Telecommunications and Information Administration, "Enabling Middle Mile Broadband Infrastructure Program" (n.d.). https://www.ntia.gov/program/enabling-middle-mile-broadband-infrastructure-program [^5]: Data Center Frontier, "Scott Bergs, CEO of Kirkwood IG: Fiber and the AI Data Center Buildout" (2026). https://www.datacenterfrontier.com/site-selection/podcast/55405238/scott-bergs-ceo-of-kirkwood-ig-fiber-and-the-ai-data-center-buildout [^6]: Data Center Knowledge, "Could Fiber Be the Next Big Bottleneck in Data Center Growth?" (n.d.). https://www.datacenterknowledge.com/networking/could-fiber-be-the-next-big-bottleneck-in-data-center-growth- [^7]: Lightwave, "Shentel sees incremental revenue potential with the rural data center movement" (2026). https://www.lightwaveonline.com/home/article/55382495/shentel-sees-incremental-revenue-potential-with-the-rural-data-center-movement [^8]: TelcoNews US, "Why fibre connectivity must be a front-end consideration in data centre site selection" (2026). https://telconews.com/story/why-fibre-connectivity-must-be-a-front-end-consideration-in-data-centre-site-selection [^9]: Data Center Knowledge, "Urban vs. Rural: Why Data Centers Are Built Where They Are" (n.d.). https://www.datacenterknowledge.com/data-center-site-selection/urban-vs-rural-why-data-centers-are-built-where-they-are [^10]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^11]: Internal Revenue Service, "Opportunity zones frequently asked questions" (n.d.). https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions [^12]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas (Notice 2025-50)" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^13]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html --- # State data center tax incentives and Opportunity Zones URL: https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones Last reviewed: 2026-10-20 NCSL counts 38 states with dedicated data center tax incentives, mostly sales and use tax exemptions on equipment and property tax abatements, and these stack with the federal Opportunity Zone benefits because they reduce different taxes. But 2026 changed the map: Ohio paused new exemption requests on May 27, 2026, Arizona began a three-year moratorium on new applications on July 1, 2026, Illinois announced a two-year suspension effective July 1, 2026, implemented by halting application processing, and Virginia kept its exemption while adding a new electricity tax. A project's state incentive should be confirmed, not assumed, before the OZ equity is committed. ## Key takeaways - NCSL reports 38 states offer dedicated data center tax incentives, and lawmakers in 28 states introduced bills in 2026 to scale back or modify them. - Ohio's governor paused new data center exemption requests on May 27, 2026; Arizona's three-year moratorium on new applications took effect July 1, 2026; Illinois announced a two-year suspension effective July 1, 2026, carried out by halting application processing. - Virginia preserved its sales and use tax exemption, which runs through June 30, 2035, and added a $0.011 per kWh data center electricity tax from July 1, 2026, capped at $600 million a year. - State incentives reduce sales, use and property taxes; Opportunity Zone benefits reduce federal capital gains tax, so the two can apply to the same project. - Some states, including California, do not conform to the federal OZ deferral or exclusion for state income tax. ## Which states offer data center tax incentives? Most of them. The National Conference of State Legislatures (NCSL) reported in April 2026 that 38 states offer dedicated data center tax incentives.[^1][^2] Good Jobs First counts 36 states that exempt data center building materials and IT equipment from sales and use tax, and found only 11 of them name the companies that receive the breaks.[^3] Scrutiny is rising. Good Jobs First estimates states lose more than $3 billion a year to these exemptions.[^4] In the 2026 sessions, lawmakers in 28 states introduced bills to scale back or modify programs; nine considered full repeal and four considered creating new incentives.[^1] **Figure: State data center incentives in numbers** - 38: States with dedicated data center incentives (NCSL, April 2026)[^1] - 28: States where 2026 bills sought to scale back or modify programs[^1] - 36: States exempting equipment from sales and use tax (Good Jobs First)[^3] - $3B+: Estimated annual state revenue loss (Good Jobs First)[^4] *NCSL and Good Jobs First figures; the two organizations count programs differently.[^1][^3][^4]* ## Can you combine state data center incentives with Opportunity Zone benefits? Yes, because they reduce different taxes. Opportunity Zone (OZ) benefits defer and exclude federal capital gains tax for investors in a Qualified Opportunity Fund (QOF). State data center incentives reduce sales and use tax on equipment and construction, property tax on the facility, or tax on electricity. Neither program generally conditions eligibility on the other. See [combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). **Figure: The incentive stack for an OZ data center** 1. Federal Opportunity Zone benefits: Investor: deferral, five-year step-up, 10-year exclusion 2. Federal depreciation: Owner: 100% bonus depreciation on short-life property 3. State sales and use tax exemption: Buyer of equipment and, in some states, construction materials 4. Local property tax abatement or PILOT: Owner of the facility, often through a public-entity structure 5. State OZ conformity: Investor: whether the state follows federal OZ treatment *Each layer reduces a different tax, paid by a different party. The OZ benefit belongs to the investor; most state equipment exemptions benefit whoever buys the equipment.[^2][^15]* Two practical points matter. First, the equipment exemption usually benefits whoever buys the equipment, which in a leased data center is often the tenant. Second, state investment thresholds may not count leased property: Iowa's revenue department held in a 2024 declaratory order that lease value cannot count toward its $200 million minimum.[^12] The landlord-tenant split therefore affects both the OZ tests and the state incentive. ## What are the thresholds in the main data center states? Thresholds combine capital investment, jobs and wages, and they vary widely. The table summarizes selected programs and their 2026 status. **Selected state data center sales and use tax programs (confirm current terms with each state)** | State | Investment and jobs thresholds | Status as of October 2026 | | --- | --- | --- | | Virginia | $150M and 50 jobs at 150% of prevailing wage; $70M and 10 jobs in distressed localities | Exemption kept through June 30, 2035; new electricity tax from July 1, 2026[^5][^6] | | Georgia | Tiered by county population, from $25M and 5 jobs in counties under 30,000 | Sunset reported as December 31, 2031 (one source cites 2033); 2024 pause bill vetoed[^16] | | Texas | $200M over 5 years and 20 jobs at 120% of county average wage | Repeal recommended by the governor, not enacted[^13] | | Ohio | $100M over 3 years and more than $1.5M annual Ohio payroll | New requests paused May 27, 2026[^7][^8] | | Arizona | Program since 2013 | Three-year moratorium on new applications from July 1, 2026[^9] | | Illinois | $250M over 60 months and 20 jobs | Two-year suspension announced effective July 1, 2026, via halted application processing; confirm current status[^10] | | Iowa | $200M within the first 6 years | Electricity exemption limited to 10 or 15 years for new facilities from June 6, 2025[^12] | ## Which states paused or changed data center incentives in 2026? Several, and the changes came quickly. Each of the following is stated as far as the cited sources support; confirm current status with the state agency before relying on it. - Ohio: on May 27, 2026, Gov. DeWine directed the Tax Credit Authority to pause new data center exemption requests while a joint legislative committee studies the sector. The governor's release says this is not a ban on data centers.[^7][^8] - Arizona: Gov. Hobbs signed a budget, effective July 1, 2026, with a three-year moratorium on new data center sales tax exemption applications, including renewals. Existing recipients are not affected.[^9] - Illinois: Gov. Pritzker announced a two-year suspension effective July 1, 2026. Because lawmakers did not act, it works by halting application processing at the Department of Commerce and Economic Opportunity. Whether the pause took effect as announced should be confirmed with the department.[^10] - Virginia: the 2026 budget preserved the sales and use tax exemption and created a Data Center Electricity Consumption Tax of $0.011 per kWh from July 1, 2026, capped at $600 million per fiscal year with refunds above the cap.[^6] Sources differ on whether the governor signed the budget or it took effect when lawmakers accepted her amendments.[^14] - Iowa: H.F. 976, signed June 6, 2025, limits the electricity exemption for new or expanded facilities to 10 years in cities over 30,000 people and 15 years in smaller cities.[^12] - Other states, per secondary roundups: Maine removed business-equipment exemption eligibility for facilities starting operations on or after August 1, 2026; Washington narrowed exemptions from July 1, 2026; North Carolina repealed the exemption on data center electricity; Massachusetts paused new applications; and Nebraska ended access through the ImagiNE Nebraska Act.[^11] **Figure: Key state and federal incentive changes, 2026** - May 27, 2026: Ohio pauses new requests (Tax Credit Authority directed to stop accepting new requests) - Jul 1, 2026: Arizona moratorium begins (Three years, new applications and renewals) - Jul 1, 2026: Illinois suspension announced (Two years, via halted application processing) - Jul 1, 2026: Virginia electricity tax starts ($0.011 per kWh, capped at $600M a year) - Aug 1, 2026: Maine equipment exemption change (For facilities starting operations on or after this date) - Sep 16, 2026: Federal bill on OZ and data centers (No Tax Breaks for Data Centers Act introduced in the Senate) *Dates as reported by state releases and press. Programs were still moving in October 2026.[^7][^9][^10][^6][^17]* ## How do property tax abatements and PILOTs interact with the OZ rules? Through who holds title. Many local deals use a payment in lieu of taxes (PILOT), often with a public entity holding title and leasing the facility back. Proposed or approved examples include Amazon's proposed 30-year PILOT in Wilmington, Ohio, at 30% of the property taxes otherwise owed.[^15] Analysis: if a port authority or development agency holds title, the Qualified Opportunity Zone Business (QOZB) may hold the facility as leased property rather than owned property for OZ purposes. Leased tangible property can count toward the 70% test if the lease is on market terms, and related-party leases face extra limits, including a ban on prepaying more than 12 months of rent.[^18] Whether tax ownership stays with the QOZB under the PILOT documents is a question for counsel. See [leased property rules for Opportunity Zone businesses](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). ## Do states follow the federal Opportunity Zone tax treatment? Not all of them. OZ benefits are federal, and each state decides whether its income tax follows them. California does not conform to the federal OZ deferral or exclusion and has no similar provision.[^19] Other states have been reported as non-conforming or partly conforming, but lists differ across sources and may not reflect 2026 sessions. See [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). Federal policy is also in play. On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act, which would exclude data centers from OZ benefits; it was referred to the Senate Finance Committee and has not been enacted.[^17] See [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). ## How should an OZ data center project plan around state incentives? Treat the state incentive as a condition to confirm before the main equity tranche, not an assumption in the model. Compliance is being checked: in Texas, only 20 of 138 qualified data centers had been audited as of a July 2026 hearing, and 6 of those 20 were out of compliance.[^13] **Figure: State incentive checklist for an OZ data center** - [watch] Program open to new applicants: Ohio, Arizona and Illinois paused in 2026 - [watch] Investment threshold counts owned property: Iowa excludes lease value from its minimum - [pass] Jobs and wage targets achievable: Virginia requires targets within three years or repayment - [watch] Who claims the exemption: Landlord QOZB, tenant or both - [watch] PILOT title structure reviewed for OZ: Owned versus leased property - [fail] Incentive assumed without approval: Model only what is approved or statutory *Practical checks; each state's terms differ. Investment and job deadlines should be lined up with the OZ working capital plan.[^5][^13]* Align timelines as well. Virginia, for example, requires a memorandum of understanding with its economic development partnership and repayment if targets are not met within three years.[^5] Those dates should sit inside the project's [development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## Common questions **How many states offer data center tax incentives?** NCSL reports 38 states offer dedicated data center incentives as of April 2026. Good Jobs First counts 36 states that exempt data center equipment from sales and use tax. **Which states paused data center incentives in 2026?** Ohio paused new exemption requests on May 27, 2026, Arizona began a three-year moratorium on new applications on July 1, 2026, and Illinois announced a two-year suspension effective July 1, 2026, by halting application processing. Massachusetts was also reported to have paused new applications. **Can a data center get both a state sales tax exemption and Opportunity Zone benefits?** Generally yes. The state exemption reduces sales and use tax on equipment, while the OZ benefits reduce the investor's federal capital gains tax. Check each state's rules on who may claim the exemption. **Did Virginia end its data center tax exemption?** No. Virginia preserved the sales and use tax exemption, which runs through June 30, 2035, and added a data center electricity consumption tax of $0.011 per kWh from July 1, 2026, capped at $600 million a year. **Does a PILOT affect Opportunity Zone qualification?** It can. If a public entity holds title and leases the facility back, the QOZB may hold leased rather than owned property, which brings in the leased property rules. Have counsel review the documents. **Do states tax Opportunity Zone gains differently?** Some do. California does not conform to the federal OZ deferral or exclusion, and other states partly conform. Check the investor's state of residence. ## Sources [^1]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^2]: National Conference of State Legislatures, "Does your state offer data center tax incentives?" (2026). https://www.ncsl.org/resources/details/does-your-state-offer-data-center-tax-incentives [^3]: Good Jobs First, "Most States Fail to Disclose which Data Center Companies Get Huge Tax Breaks (Cloudy Data, Costly Deals)" (2025). https://goodjobsfirst.org/most-states-fail-to-disclose-which-data-center-companies-get-huge-tax-breaks/ [^4]: Bloomberg Tax, "State Losses From Data Center Tax Breaks Top $3 Billion Annually" (2025). https://news.bloombergtax.com/daily-tax-report-state/state-losses-from-data-center-tax-breaks-top-3-billion-annually [^5]: Virginia Economic Development Partnership, "Data Center Retail Sales & Use Tax Exemption" (n.d.). https://www.vedp.org/incentive/data-center-retail-sales-use-tax-exemption [^6]: Williams Mullen, "Virginia Budget Creates New Electricity Consumption Tax for Data Centers" (2026). https://www.williamsmullen.com/insights/news/legal-news/virginia-budget-creates-new-electricity-consumption-tax-data-centers [^7]: Office of the Ohio Governor, "Data center tax exemption pause" (2026). https://content.govdelivery.com/accounts/OHIOGOVERNOR/bulletins/419304d [^8]: WOSU, "Gov. DeWine freezes controversial data center tax break, for now" (2026). https://www.wosu.org/2026-05-27/gov-dewine-freezes-controversial-data-center-tax-break-for-now [^9]: Bloomberg Law, "Arizona Data Center Tax Incentive Pause Signed by Governor Hobbs" (2026). https://news.bloomberglaw.com/ip-law/arizona-data-center-tax-incentive-pause-signed-by-governor-hobbs [^10]: NRDC, "Pritzker Announces Two Year Suspension of State Tax Incentives for New Data Center Developments" (2026). https://www.nrdc.org/press-releases/pritzker-announces-two-year-suspension-state-tax-incentives-new-data-center [^11]: MultiState, "State Data Center Policy: Governors Restrict Tax Exemptions" (2026). https://www.multistate.us/insider/2026/6/22/state-data-center-policy-shifts-as-governors-impose-new-restrictions [^12]: Iowa Department of Revenue, "Data Centers (sales and use tax guidance)" (n.d.). https://revenue.iowa.gov/taxes/tax-guidance/sales-use-excise-tax/data-centers [^13]: Texas Public Radio, "Texas lawmakers question whether multibillion-dollar data center tax break still benefits the state" (2026). https://www.tpr.org/government-politics/2026-07-28/texas-lawmakers-question-whether-multibillion-dollar-data-center-tax-break-still-benefits-the-state [^14]: Virginia Mercury, "Virginia General Assembly approves Spanberger's budget amendments, ending monthslong impasse" (2026). https://virginiamercury.com/2026/06/29/virginia-general-assembly-approves-spanbergers-budget-amendments-ending-monthslong-impasse/ [^15]: WVXU, "Amazon proposes $4B data center in Wilmington, seeks tax abatement" (2025). https://www.wvxu.org/2025-12-02/amazon-proposes-4b-data-center-in-wilmington-seeks-tax-abatement [^16]: Georgia Department of Revenue, "Data Centers Sales & Use Tax Exemption, Aggregate Expenditures by County" (n.d.). https://dor.georgia.gov/data-centers-sales-use-tax-exemption-aggregate-expenditures-county [^17]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^18]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^19]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html --- # Data center lease structures in Opportunity Zones URL: https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones Last reviewed: 2026-10-20 Under the Opportunity Zone regulations, owning and leasing real property can be an active trade or business, but merely entering into a triple-net lease is not. In practitioners' analysis, that makes the classic hyperscale deal, a single-tenant powered shell leased triple-net, the highest-risk structure for a data center QOZB. Turnkey, colocation and operator-run models, where the landlord's own staff run power, cooling and security, appear to fit the active business requirement more naturally, but no guidance addresses data center leases specifically, so this is analysis rather than authority. ## Key takeaways - Treas. Reg. §1.1400Z2(d)-1(d)(5)(ii)(B) provides that merely entering into a triple-net lease is not the active conduct of a trade or business for QOZB purposes. - A final-regulation example treats a landlord that leases an entire building to one tenant on a triple-net basis as not active, even with an on-site office handling lease issues. - Another example treats a landlord as active where only part of the building is triple-net leased and on-site employees meaningfully manage and operate the rest. - No IRS guidance addresses hyperscaler or data center leases specifically; the analysis rests on the general rule and its examples. - Equipment a tenant buys and owns is the tenant's property and does not count in the landlord QOZB's 70% tangible property test. ## Is leasing a data center an active trade or business under the OZ rules? It can be, but not if the landlord merely enters into a triple-net lease. A Qualified Opportunity Zone Business (QOZB), the operating company a Qualified Opportunity Fund invests in, must be engaged in the active conduct of a trade or business. The final regulations treat the ownership and operation, including leasing, of real property as an active trade or business, but provide that merely entering into a triple-net lease with respect to real property is not.[^1][^3] A triple-net (NNN) lease is one where the tenant pays the property's taxes, insurance and maintenance in addition to rent and utilities. Commentary on the regulations points to the description in Notice 2019-07, issued under a different provision, of a lease where the tenant pays taxes, fees and insurance and is responsible for maintenance.[^2][^7] The OZ regulations do not define the term themselves, which leaves the label less important than the facts. ### What do the regulation examples say? - Not active: a landlord leases an entire building to a single tenant on a triple-net basis. It is not engaged in an active trade or business even though it keeps an on-site office with staff to handle issues under the lease.[^3][^5] - Active: a landlord leases part of a building triple-net and actively manages and operates the rest through on-site employees who meaningfully participate in management and operations. It is treated as active for the whole building.[^3][^4] ## What are the main data center lease structures? Four structures cover most deals. These definitions reflect common industry usage rather than a legal standard. **Common data center lease structures and their OZ risk** | Structure | What the landlord delivers | Who operates | Active business risk | | --- | --- | --- | --- | | Powered shell | Land, building and utility power to the site; tenant builds mechanical, electrical and IT | Tenant | Highest: usually single-tenant and triple-net style | | Build-to-suit | A custom building for one user, often on a long single-tenant lease | Usually tenant | High if triple-net; lower if landlord retains operations | | Turnkey or wholesale | Fully fitted data halls leased by the MW | Landlord runs power and cooling plant | Lower: landlord provides ongoing services | | Retail colocation | Racks, cages or kW on shorter contracts | Landlord | Lowest: multi-tenant with landlord-run operations | Lease terms are generally longer than standard commercial leases. Digital Realty reported in its FY2023 10-K that its average remaining lease term across the portfolio was about five years as of December 31, 2023, a mix that includes shorter colocation contracts.[^8] Rents have risen sharply: JLL reports data center rents up nearly 70% since 2020.[^13] For the deal type with the most risk, see [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). **Figure: Powered shell versus turnkey versus colocation** - Powered shell (NNN) (Highest risk) - One hyperscale tenant runs the building - Tenant pays taxes, insurance and maintenance - Landlord owns land, shell and site power - Textbook triple-net fact pattern - Turnkey or wholesale (Moderate risk) - Landlord owns and runs the electrical and cooling plant - Critical facilities staff on site - Leased by the MW, often to a few tenants - Stronger active business facts - Colocation (Lowest risk) - Many tenants on shorter contracts - Landlord provides security, power, cooling, remote hands - Service revenue alongside rent - Closest to an operating business *The more the landlord operates, the stronger its active business facts and the more tangible property it owns. The trade-off is operating cost and staffing. This is analysis, not a ruling.[^6][^3]* ## How risky is a single-tenant hyperscale lease for a QOZB? It is the textbook risk case. Commentary from Dentons in April 2026 highlights the triple-net issue for hyperscaler data center deals, and no authority addresses hyperscaler leases specifically.[^6] A single-tenant powered shell where the tenant pays all costs and runs the building matches the regulation's "not active" example closely. **Figure: Where data center lease structures fall on the active business test** - Multiple tenants Tenancy, Tenant runs everything Landlord operating services: Multi-tenant, passive (Several triple-net leases; weak facts unless staff manage common systems) - Multiple tenants Tenancy, Landlord staff operate the plant Landlord operating services: Colocation or multi-tenant turnkey (Strongest facts: active operation across the building) - Single tenant Tenancy, Tenant runs everything Landlord operating services: Single-tenant powered shell (Highest risk: matches the regulation's not-active example) - Single tenant Tenancy, Landlord staff operate the plant Landlord operating services: Single-tenant, landlord-operated (More defensible if landlord employees run power, cooling and security) *Analysis based on the regulation examples. Landlord services and tenant count are the two facts the examples turn on; the final answer is fact-specific.[^3][^4]* Analysis: a landlord QOZB in a single-tenant deal can strengthen its position by providing real operating services through its own employees, such as critical facilities staff, power and cooling plant operation, physical security and remote hands, and by using a modified-gross lease in which the landlord bears operating responsibilities. Alternatively, the QOZB can operate the data center itself and sell capacity as a service. This is a fact-specific question for tax counsel. ## Who owns the equipment, and why does it matter for the 70% test? Ownership decides which property counts. A QOZB must have at least 70% of the tangible property it owns or leases be qualified zone business property.[^1] Equipment the tenant buys and owns, such as servers and, in a powered shell, the mechanical and electrical fit-out, is the tenant's property and sits outside the landlord QOZB's test entirely. - Landlord-owned shell, substation and plant: counted by the QOZB if bought new and used in the zone. - Tenant-owned IT and fit-out: outside the landlord's test. Tenant improvements made by a lessee are treated as purchased property in the tenant's hands.[^9] - QOZB-owned servers: count in both the numerator and the denominator and must be replaced with qualifying property as they age. The regulations apply the same owned and leased tangible property rules to servers as to the shell, power and cooling, with no rule written for data center equipment.[^11] See [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules) and [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test). ## What if the QOZB is the tenant, for example under a ground lease? Then the leased property rules apply. Leased tangible property can count as qualified zone business property if the lease was entered into after the statutory start date and is on market-rate, arm's-length terms. The original use requirement does not apply to leased property.[^1][^10] Related-party leases face extra limits: no prepayment of rent for more than 12 months, and, for previously used property, a requirement that the lessee buy an equal amount of qualifying property.[^10] Analysis: ground-leasing land from an unrelated owner on market terms can let the land count as qualifying leased property without tying up OZ equity in non-depreciable land, while the building the QOZB constructs on it is purchased property. See [leased property rules for Opportunity Zone businesses](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules) and [related-party rules](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## How does lease income affect the 50% gross income test? Rent counts toward the test only if it comes from the active conduct of a trade or business in the zone. A QOZB must derive at least 50% of its gross income from the active conduct of a trade or business in the zone, with safe harbors based on hours of services, amounts paid for services, location of tangible property and management functions, and a facts-and-circumstances test.[^12] For a single-asset data center QOZB, nearly all income is rent or service fees from the facility, and the property is in the zone, so the location prong of the test is usually met. The weak point is the word "active": if the leasing is a mere triple-net lease, the business may not be an active trade or business at all, and every test that depends on that status is in doubt.[^3] That is why the lease structure must be settled before the QOF invests. ## How should a data center lease be structured for an OZ project? Decide the operating model first and draft the lease to match what the landlord actually does. OZ Data Centers favors structures in which the operating business itself runs the critical infrastructure, because those facts are easier to defend than a passive lease. **Figure: Lease structuring checklist for a data center QOZB** - [pass] Landlord employees on site in operating roles: Critical facilities, security, network operations - [pass] Landlord owns and runs power and cooling plant: Services delivered, not just space - [watch] Lease is modified gross or service-based: Landlord bears operating responsibilities - [watch] Multiple tenants or customers: Stronger facts, but not required - [fail] Single-tenant NNN with tenant operating everything: Matches the regulation's not-active example - [watch] Lease and operations consistent: Documents should match what staff actually do *Analysis of factors the regulation examples emphasize. Passing every row does not settle the question, but failing several leaves the QOZB close to the not-active example.[^3][^6]* Confirm the structure with your tax adviser before signing, because rewriting a 15-year lease after the fund invests is rarely practical. For the broader picture, see [data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Common questions **Can a data center leased on a triple-net basis qualify as an Opportunity Zone business?** It is risky. The regulations say merely entering into a triple-net lease is not the active conduct of a trade or business. A single-tenant triple-net powered shell is the highest-risk structure; landlord-run operations improve the facts. **Is a hyperscaler lease specifically addressed by the IRS?** No. There is no guidance on hyperscaler or data center leases. The analysis rests on the general triple-net rule and the two building examples in the final regulations. **Does colocation qualify more easily than a powered shell?** In most practitioners' analysis, yes. Colocation involves many customers and landlord-provided services such as power, cooling, security and remote hands, which fits the active business requirement more naturally. No guidance addresses data centers specifically. **Do the tenant's servers count in the landlord QOZB's 70% test?** No. Equipment the tenant buys and owns is the tenant's property, so it is outside the landlord QOZB's tangible property test. **Can a QOZB ground-lease its land?** Yes. Leased land can count as qualifying property if the lease is on market terms and was entered into after the statutory start date. Related-party leases face extra limits, including no prepayment of more than 12 months of rent. ## Sources [^1]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^2]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^3]: Novogradac, "Opportunity Zones Final Regulations: A Detailed Look" (2020). https://www.novoco.com/notes-from-novogradac/opportunity-zones-final-regulations-detailed-look [^4]: Varnum, "QOZ Final Rules Part III: Additional Clarity for QOF and QOZ Business Qualifications" (2020). https://www.varnumlaw.com/insights/qoz-final-rules-part-iii-additional-clarity-for-qof-and-qoz-business-qualifications/ [^5]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^6]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^7]: Baker Tilly, "What's in a name? Recent definitions of a triple net lease across three different programs" (n.d.). https://www.bakertilly.com/insights/recent-definitions-triple-net-lease [^8]: Digital Realty Trust, "Form 10-K for fiscal year 2023" (2024). https://www.sec.gov/Archives/edgar/data/1297996/000155837024001575/dlr-20231231x10k.htm [^9]: BDO, "IRS and Treasury Release Second Set of Opportunity Zone Guidance" (2019). https://www.bdo.com/insights/tax/irs-and-treasury-release-second-set-of-opportunity-zone-guidance [^10]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^11]: Tax Notes, "26 CFR 1.1400Z2(d)-2: Qualified opportunity zone business property" (n.d.). https://taxnotes.com/research/federal/cfr26/1.1400Z2d-2 [^12]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^13]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html --- # Managing a data center QOZB URL: https://ozdatacenters.com/guides/qozb-management-data-centers Last reviewed: 2026-10-20 Managing a data center Qualified Opportunity Zone Business means passing the same tests every testing date for a decade or more: at least 70% of tangible property qualifying, at least 50% of gross income from the active business in the zone, at least 40% of intangibles used there, and less than 5% nonqualified financial property. It also means keeping the working capital plan current, replacing short-lived equipment with qualifying property, running the facility actively rather than as a passive triple-net lease, and preparing for new QOF and QOZB reporting that carries penalties of $500 per day. ## Key takeaways - A QOZB must have at least 70% of its owned or leased tangible property qualify, earn at least 50% of gross income from the active business in the zone, use at least 40% of intangibles there and hold under 5% nonqualified financial property. - The parent QOF must hold at least 90% of its assets in Opportunity Zone property, averaged over two semiannual testing dates. - Cash held for construction must follow a written working capital plan for up to 31 months per plan, and up to 62 months with overlapping plans. - New IRC §6039K and §6039L reporting carries a §6726 penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets over $10 million; the implementing regulations are proposed, not final. - A QOZB that fails the 70% test has a one-time six-month cure period, according to practitioner commentary. ## What does managing a data center QOZB involve? Running the facility as an active business while proving, on every testing date, that it still meets the Opportunity Zone tests. A Qualified Opportunity Zone Business (QOZB) is the operating company, owned by a Qualified Opportunity Fund (QOF), that holds the land, building and plant.[^1] If the QOZB fails, the QOF's interest in it stops counting toward the fund's 90% asset test, and the fund can owe a monthly penalty.[^5] A data center adds specific pressures: a long build that tests the working capital safe harbor, short-lived equipment that must be replaced over a 10-year hold, and leases that must not reduce the business to a passive triple-net landlord. For the basics, see [what is a Qualified Opportunity Zone Business](https://ozdatacenters.com/guides/what-is-a-qualified-opportunity-zone-business). ## Which tests must a data center QOZB pass? Five numerical tests and two qualitative ones, applied at the QOF's testing dates. **Figure: The Opportunity Zone tests a data center QOZB and its QOF must pass** - QOF: Opportunity Zone property: at least 90% (Average of two semiannual testing dates) - QOZB: qualifying tangible property: at least 70% (Of tangible property owned or leased) - QOZB: gross income from active business in the zone: at least 50% (Four safe harbors available) - QOZB: intangibles used in the zone: at least 40% (A substantial portion of intangible property) - QOZB: nonqualified financial property: less than 5% (Less than 5% of average unadjusted basis) *Minimums except nonqualified financial property, which is a maximum. Working capital within the safe harbor does not count as nonqualified financial property.[^1][^2][^3]* - Active trade or business: merely entering into a triple-net lease is not the active conduct of a trade or business.[^1] See [data center lease structures in Opportunity Zones](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones). - Not a sin business: the QOZB may not be a golf course, country club, massage parlor, hot tub or suntan facility, racetrack or other gambling facility, or a store whose principal business is selling alcohol for off-premises use.[^13] Data centers are not on the list. Qualifying tangible property must be acquired by purchase from an unrelated party, meet original use or substantial improvement, and be used in a zone during substantially all (90%) of the holding period.[^2] See [the QOZB 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [gross income, intangibles and financial property tests](https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests). ## How should a QOZB manage its working capital safe harbor? As a living document tied to the construction budget. Cash counts as reasonable working capital for up to 31 months if it is designated in writing for acquiring, constructing or substantially improving tangible property in the zone, covered by a written schedule consistent with ordinary start-up spending, and spent substantially as planned. Overlapping or sequential plans can extend the period to 62 months from the first cash infusion.[^4] - Adopt the written plan before or when cash arrives, not after. - Reconcile spending to the schedule at least at every testing date. - Record reasons for delays, especially government permitting delays on completed applications, which can toll the period. - Do not assume a utility's queue tolls the period; no guidance says it does. Treasury asked in Notice 2026-55 whether a QOZB should be allowed to modify an existing plan; comments are due November 23, 2026, so this rule may change.[^12] See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## When are the tests measured and reported? Twice a year for the fund, and every year on the forms. The QOF tests its 90% standard on the last day of the first six months of its taxable year and on the last day of the taxable year, and averages the two.[^5] For a calendar-year fund, that is June 30 and December 31. The QOF certifies and reports on Form 8996 with its return every year; investors report their holdings on Form 8997.[^10][^14] **Figure: An annual compliance calendar for a calendar-year QOF and its data center QOZB** - Quarterly: Working capital reconciliation (Spending compared with the written schedule) - Jun 30: First testing date (QOF 90% test; QOZB 70%, 50%, 40% and 5% tests) - Dec 31: Second testing date (Year-end asset values and income) - Q1: QOZB data to the QOF (Asset values, tract, employees and other data) - Return date: Form 8996 filed (Self-certification and 90% computation) - Investor returns: Form 8997 filed (Each investor reports QOF holdings) *Illustrative calendar based on the semiannual testing dates. Return due dates depend on the entity type and extensions; the proposed regulations would make Form 8996 a separate information return.[^5][^8]* ## What are the new QOF and QOZB reporting requirements? Public Law 119-21 added annual information reporting for QOFs (IRC §6039K) and QOZB-level information (§6039L), with penalties. Proposed regulations published September 11, 2026 would make Form 8996 a separate information return, require census-tract-level reporting and collect information about each applicable QOZB; they are not final.[^8][^11] **Penalties under IRC §6726 for failing to report** | Situation | Per-day penalty | Cap per return | | --- | --- | --- | | Standard failure | $500 | $10,000 | | Standard failure, QOF with gross assets over $10 million | $500 | $50,000 | | Intentional disregard | $2,500 | $50,000 | | Intentional disregard, large QOF | $2,500 | $250,000 | Commentary on the proposal lists NAICS codes, census tracts and employee counts among the QOZB items to be reported; confirm the final list when the rules are adopted.[^11] RSM reports the penalty applies to taxable years beginning after the date of enactment.[^9] See [Opportunity Zone reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## How should a data center QOZB handle equipment replacement and operations? Plan replacements as qualifying purchases and keep the operating staff that make the business active. Servers depreciate over about five to six years in hyperscaler filings, so equipment the QOZB owns will turn over during a 10-year hold. Each replacement must be bought from an unrelated party and placed in service in the zone to count as qualifying property. - Proceeds at the QOF level: a QOF has 12 months to reinvest proceeds from selling qualified property before they count against the 90% test, holding them in cash, cash equivalents or short-term debt in the meantime. This relief is for the asset test only and does not defer gain.[^7] - Gain on equipment sold before year 10 is not covered by the 10-year exclusion. - Cure period: a QOZB that fails the 70% test has a one-time six-month period to cure, according to practitioner commentary.[^6] - Operations: keep on-site staff in real operating roles and document what they do; that record supports the active business position. For equipment rules in detail, see [servers, equipment and the Opportunity Zone rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules). ## Who should manage a data center QOZB's compliance? Someone who sits between the operators, the accountants and the fund. Compliance failures in OZ projects are usually documentation failures: a missing working capital plan, an asset register that does not show acquisition dates and sellers, or a lease that does not match operations. OZ Data Centers works with QOZB Management LLC, its partner for QOZB management and compliance, so that testing, records and reporting are handled alongside day-to-day operations. **Figure: Data center QOZB management health check** - [pass] Written working capital plan current: Matches the latest budget and schedule - [pass] Asset register with seller and date for each item: Shows unrelated-party purchase and placed-in-service dates - [watch] Nonqualified financial property under 5%: Excess cash outside the plan counts against the limit - [watch] Equipment replacement plan: Replacements bought new from unrelated parties - [watch] Operating staff and services documented: Supports the active trade or business position - [watch] Reporting data ready for §6039L: Tract, employees and asset data collected each year *Items marked watch are the most common data center problem areas. A fail on the working capital plan or the lease structure puts the whole QOZB at risk.[^4][^1]* Investors should ask for this evidence as part of [Opportunity Zone fund due diligence](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and expect it in [fund investor reporting](https://ozdatacenters.com/guides/opportunity-zone-fund-investor-reporting). ## Common questions **What happens if a data center QOZB fails the 70% tangible property test?** Practitioner commentary describes a one-time six-month cure period. If the failure is not cured, the QOF's interest in the QOZB stops counting toward the fund's 90% test, which can trigger a penalty at the fund level. **How often are the Opportunity Zone tests measured?** The QOF tests its 90% standard on two semiannual dates, the end of the first six months and the end of the taxable year. The QOZB's tests are applied on those same dates. **Do the new reporting penalties apply now?** IRC §6726 imposes $500 per day, capped at $10,000 per return or $50,000 for large funds. The implementing regulations published September 11, 2026 are proposed, not final, so the exact data items and applicability dates are pending. **Does replacing servers keep the QOZB compliant?** It can, if each replacement is bought from an unrelated party and placed in service in the zone. Gain on equipment sold before year 10 is not covered by the 10-year exclusion. **Can a QOZB change its working capital plan?** Plans must be followed substantially as written. Treasury's Notice 2026-55 asks whether modifications should be allowed, with comments due November 23, 2026, so the answer may change. ## Sources [^1]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^2]: National Law Review, "The QOZB Tangible Property Test" (n.d.). https://natlawreview.com/article/tangible-property-test [^3]: Orrick, "Final Tax Regulations Offer More Certainty to Opportunity Zone Fund Managers and Investors" (2020). https://www.orrick.com/en/Insights/2020/02/Final-Tax-Regulations-Offer-More-Certainty-to-Opportunity-Zone-Fund-Managers-and-Investors [^4]: ArentFox Schiff, "Qualified Opportunity Zones, the Final Regulations: What's New, What's Changed, and What's Stayed the Same" (2020). https://www.afslaw.com/perspectives/alerts/qualified-opportunity-zones-the-final-regulations-what-s-new-what-s-changed-and-what-s-stayed-the-same [^5]: KPMG, "Qualified Opportunity Funds: Mid-2022 Asset Testing Considerations" (2022). https://tax.kpmg.us/articles/2022/qof-asset-testing.html [^6]: Hunton Andrews Kurth, "Qualified Opportunity Zone Investments: Overview" (n.d.). https://www.hunton.com/media/publication/61870_Qualified_Opportunity_Zone_Investments_Overview.pdf [^7]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^8]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^9]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^10]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^11]: EY Tax News, "Proposed regulations would expand Opportunity Zone reporting requirements and establish QOF decertification procedures" (2026). https://taxnews.ey.com/news/2026-2003-proposed-regulations-would-expand-opportunity-zone-reporting-requirements-and-establish-qof-decertification-procedures [^12]: Internal Revenue Service, "Notice 2026-55, Request for additional comments on issues under section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^13]: GovInfo (U.S. Code), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^14]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms --- # Buying land for an Opportunity Zone data center URL: https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center Last reviewed: 2026-10-20 Buy land for an Opportunity Zone data center only after confirming five things: the parcel sits in a designated zone for the years you need, utility power at the required megawatts has a credible date, water and fiber can reach the site, local zoning allows the use, and the seller is not a related party. Under the rules, land does not have to meet the original use or substantial improvement tests, but it must be bought from an unrelated person and actually used in the business. Land is only about 7% of a typical greenfield data center budget, so a site with power in hand is usually worth a premium. ## Key takeaways - Land is excluded from the original use and substantial improvement tests; only building basis sets the improvement hurdle (Rev. Rul. 2018-29). - The land must be acquired by purchase from an unrelated person, and related means 20% or more common ownership under §1400Z-2(e)(2). - Newly designated zones take effect January 1, 2027 and run through December 31, 2036; a parcel in a zone that is not redesignated generally will not qualify for property bought after 2026. - Large-load power service can take up to seven years in constrained markets, far longer than the 31-month working capital safe harbor. - Site acquisition is roughly 7% of all-in greenfield cost in Cushman & Wakefield's 2026 guide, while power infrastructure is the largest line at 21%. ## How do the Opportunity Zone rules treat land? Land gets lighter treatment than buildings: it does not need to be original use or substantially improved, but it must be bought from an unrelated person and used in the zone business. The IRS said in Rev. Rul. 2018-29 that the original use requirement does not apply to land, and that a fund buying an existing building need not separately improve the land under it[^1]. The final regulations carry this into the operating rules for a Qualified Opportunity Zone Business (QOZB), the operating company a fund invests in[^2]. There is one guardrail. Treasury added an anti-abuse rule for unimproved land: if land is bought with the expectation that it will not be improved by more than an insubstantial amount within 30 months, the land cannot rely on the favorable treatment[^3]. A data center site that will host a powered building is the opposite fact pattern, but a land bank held for an undefined later phase is not. Each parcel should have a documented development plan. **How land and buildings are tested inside a QOZB** | Test | Land | Building | | --- | --- | --- | | Acquired by purchase from an unrelated person | Required | Required | | Original use or substantial improvement | Not required | Required (new build is original use) | | Substantial improvement hurdle | Excluded from the basis measured | 100% of building basis in 30 months, or 50% in a wholly rural zone | | Used in the business in the zone | Required; idle land is a problem | Required | | Depreciation and bonus depreciation | Not depreciable | Shell is 39-year property; many systems are shorter-lived | The related-party rule matters most for land, because landowners often want to join the deal. Under §1400Z-2(e)(2), persons are related if they share 20% or more common ownership, a tighter test than the usual 50%[^4]. If the seller will own 20% or more of the QOZB, the land fails the purchase requirement. See [related-party rules in Opportunity Zone deals](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules) and the separate guide for [landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). ## How do you confirm a parcel is in an Opportunity Zone? Confirm the census tract for every parcel with the official CDFI Fund mapping tool, then confirm that tract will be designated for the period your project runs[^5]. A parcel that straddles a tract line needs each portion checked. Download Census TIGER/Line tract boundaries if your engineer is overlaying the site plan in GIS[^19]. Timing is the hard part right now. Newly designated zones take effect January 1, 2027 and run through December 31, 2036. Under Notice 2026-40, property acquired after 2026 in a currently designated zone that is not redesignated generally does not qualify as QOZ business property, with narrow exceptions for working capital plans already under way[^6]. As of October 2026, Treasury had not published a consolidated national list of the new zones. Until it does, treat a parcel as qualifying only if its tract appears on the state's nomination list and you can close after certification. Our guides to [checking if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone) and the [new maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) walk through the lookup. Check rural status at the same time. A zone made up entirely of rural area lowers the substantial improvement threshold to 50% and lets a Qualified Rural Opportunity Fund offer investors a 30% basis step-up. Rural means outside any city or town of more than 50,000 people and its adjacent urbanized area[^7]. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## What power due diligence should you do before buying? Power decides whether the land is a data center site at all, so get a utility answer on capacity and date before you close. In Northern Virginia, Dominion Energy said connecting loads above 100 MW could take one to three years longer than before, for total waits of up to seven years[^9]. Utilities are also adding large-load tariffs. AEP Ohio's approved tariff requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years[^10]. - A written capacity response or will-serve letter naming megawatts, voltage and an energization window. - Distance to transmission lines of 115 kV and above. EIA notes that transmission line data come from the HIFLD dataset, while substation locations are not published, so ask the utility directly[^11]. - Status of any required load study, and who pays for the substation and line extension. - Tariff terms: minimum demand charges, contract length, collateral and exit fees. - If on-site generation is planned, its permitting path and fuel supply. The Opportunity Zone clock makes this sharper. A QOZB can hold cash for 31 months under a written working capital plan, extended to 62 months with overlapping plans, and utility delays are not clearly the government permitting delays that toll that clock[^2]. Buying land years before power arrives can strand equity. Read the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and [power interconnection](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers) guides before signing. **Figure: Land is cheap; power and time are not** - ~7%: Share of greenfield cost spent on site acquisition - 21%: Share spent on power infrastructure, the largest line - Up to 7 yrs: Reported wait for 100 MW+ service in Northern Virginia - 200 acres: Minimum site in one 400 MW hyperscaler request *Site acquisition is a small share of cost[^8], while large-load waits can run years[^9]. One hyperscaler RFI sought 200 acres with 400 MW[^18].* ## How do you check water and fiber before buying? Confirm water supply and discharge capacity in writing, and map at least two independent fiber routes to the site. Water use depends on the cooling design. U.S. data centers used about 17.4 billion gallons of water directly in 2023, and LBNL projected that could double or quadruple by 2028[^12]. A closed-loop or air-cooled design cuts the requirement but usually raises power use. - Water: municipal capacity letter or groundwater rights, drought restrictions, wastewater and blowdown discharge permits, and any local water ordinance aimed at large users. - Fiber: long-haul routes near the site, carrier-neutral facilities and exchanges within reach (PeeringDB lists facilities and carriers[^14]), lateral construction cost, and route diversity. - Last-mile broadband data from the FCC National Broadband Map helps show which providers serve the area, though it is built for consumer service rather than wholesale fiber[^13]. Our guides to [water and cooling](https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers) and [fiber for rural sites](https://ozdatacenters.com/guides/fiber-connectivity-rural-opportunity-zone-data-centers) cover design options and costs in detail. ## What zoning, permitting and hazard checks matter? Confirm the use is allowed, find out whether approval is by right or discretionary, and check for pending moratoria. Discretionary approvals are where projects stall. Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026 alone[^17]. Pima County, Arizona adopted a 120-day moratorium on new data center projects in unincorporated areas in September 2026[^16]. - Zoning district, height limits, setbacks, noise standards and generator rules. - Air permits for backup generators or on-site gas turbines. - FEMA flood zone status from the National Flood Hazard Layer[^15]. - Environmental site assessment, wetlands and endangered species review. - Road access for construction loads and transformer deliveries. - Local tax abatement or PILOT practice, which can affect title structure. Engage the community before you are committed. The [community engagement guide](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers) explains how. ## Should the QOZB buy the land, option it or ground lease it? Most sponsors option the land first, close only when power and zoning are clear, and consider a ground lease when the landowner will not sell. Each choice interacts with the rules. **Ways to control a data center site** | Approach | OZ effect | Main watch item | | --- | --- | --- | | Option, then QOZB buys | Land is purchased property once the QOZB closes | Close inside a valid zone and after equity is in the fund | | QOZB buys at once | Land counts in the 70% tangible property test if used | Idle land and the 30-month anti-abuse rule | | Ground lease from unrelated owner | Leased land can count if the lease is at market rate | Arm's-length terms; no large prepayments | | Ground lease from related owner | Extra limits apply | No prepayment over 12 months; tight documentation | | Owner contributes land for equity | Generally not a purchase, so land may not qualify | Get tax counsel before agreeing | Leased property can count toward the QOZB's 70% tangible property test if the lease is on market terms[^2]. Ground leasing keeps fund equity out of non-depreciable land. Details are in the [leased property rules](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). For a building conversion, the purchase price allocation between land and building matters, because only the building's basis sets the [substantial improvement](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement) hurdle. The allocation must be supported by an appraisal. **Figure: A practical land acquisition sequence** 1. Confirm tract: CDFI tool plus 2027 designation status 2. Utility answer: MW, voltage, date, tariff 3. Water and fiber: Capacity letters and routes 4. Zoning path: By right or discretionary; moratoria 5. Seller check: Unrelated under the 20% test 6. Close: QOZB buys or leases at market terms *Spend option money on power and zoning answers before you spend fund equity on dirt.* ## What does a ready Opportunity Zone data center site look like? A ready site passes on tract, power, water, fiber, zoning and seller independence, with any open item tied to a dated plan. The scorecard below shows a typical candidate partway through diligence. For how sponsors rank whole regions, see [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). **Figure: Example site diligence scorecard** (illustrative) - [watch] Tract designated for 2027 to 2036: On state nomination list; Treasury certification pending - [pass] Wholly rural zone: 50% improvement threshold and QROF eligibility possible - [watch] Power capacity and date: Utility study under way; 300 MW indicated for phase one - [pass] Water supply: Closed-loop design; municipal letter received - [pass] Fiber routes: Two long-haul routes within five miles - [watch] Zoning: Special use permit needed; hearing scheduled - [pass] Seller unrelated: Seller takes no equity in the QOZB *A watch item is acceptable at option stage; a fail on tract or power should stop the purchase.* ## Common questions **Does land count toward the substantial improvement test?** No. Land is excluded. When a QOZB buys an existing building, only the basis allocated to the building must be doubled (or increased by 50% in a wholly rural zone) within 30 months. The land does not need to be separately improved. **Can a QOZB buy land and hold it for a later phase?** It can, but idle land is a risk. Land bought with no expectation of more than insubstantial improvement within 30 months cannot rely on the favorable land rule, and land must be used in the business. Document a phased plan for every parcel. **Can I buy land now in a current zone that may not be redesignated?** Be careful. Under Notice 2026-40, property acquired after 2026 in a zone that is not redesignated generally does not qualify, with narrow exceptions for existing working capital plans. Confirm the tract is on the new list before closing. **Can the landowner sell the land to the QOZB and also invest?** Only if the landowner stays below the related-party line. Persons with 20% or more common ownership are related, and land bought from a related person fails the purchase requirement. **Is ground leasing better than buying?** Often, for capital efficiency. Land is not depreciable, so ground leasing at market terms keeps fund equity in the building and systems. Leased land can count as qualifying property, but related-party leases face extra limits. **How many acres does a data center need?** It varies widely with density and on-site power. One hyperscaler request sought at least 200 acres for 400 MW, but there is no authoritative public benchmark. Size the site from the power plan and phasing. ## Sources [^1]: Internal Revenue Service (hosted by Morris, Manning & Martin), "Revenue Ruling 2018-29" (2018). https://www.mmmlaw.com/files/documents/publications/rr-18-29.pdf [^2]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^3]: Stoel Rives, "Treasury Issues New Proposed Qualified Opportunity Zone Regulations" (2019). https://www.stoel.com/insights/publications/treasury-issues-new-proposed-qualified-opportunity [^4]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^5]: CDFI Fund, U.S. Department of the Treasury, "CIMS Mapping Tool" (n.d.). https://www.cdfifund.gov/cims [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^8]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^9]: Bloomberg via BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^10]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^11]: U.S. Energy Information Administration, "Does EIA publish the location of electric power plants and transmission lines?" (n.d.). https://www.eia.gov/tools/faqs/faq.php?id=567&t=3 [^12]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^13]: Federal Communications Commission, "How to Use the FCC's National Broadband Map" (n.d.). https://help.bdc.fcc.gov/hc/en-us/articles/10467446103579-How-to-Use-the-FCC-s-National-Broadband-Map [^14]: PeeringDB, "About PeeringDB" (n.d.). https://www.peeringdb.com/about [^15]: Federal Emergency Management Agency, "National Flood Hazard Layer search" (n.d.). https://hazards.fema.gov/femaportal/NFHL/searchResult/ [^16]: KJZZ, "Pima County passes 120-day moratorium on future data center projects" (2026). https://www.kjzz.org/fronteras-desk/2026-09-23/pima-county-passes-120-day-moratorium-on-future-data-center-projects [^17]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^18]: Data Center Dynamics, "Hyperscaler seeks 200-acre site for 400MW data center in US" (n.d.). https://www.datacenterdynamics.com/en/news/hyperscaler-seeks-200-acre-site-for-400mw-data-center-in-us/ [^19]: U.S. Census Bureau, "Where can I download Shapefiles?" (n.d.). https://www.census.gov/data/what-is-data-census-gov/guidance-for-data-users/frequently-asked-questions/where-can-i-download-shapefiles.html --- # Community engagement for Opportunity Zone data centers URL: https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers Last reviewed: 2026-10-20 Community engagement for an Opportunity Zone data center means telling residents early and plainly what the project will use (power, water, land) and what it will return (taxes, construction work, a modest number of permanent jobs), then putting those commitments in writing. It matters because local opposition now stops projects: Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in the first quarter of 2026. Projects in Opportunity Zones face extra scrutiny because the program exists to help low-income communities. ## Key takeaways - Data Center Watch counted at least 75 data center projects worth about $130 billion blocked or delayed in Q1 2026, and opposition groups rose from 396 to 833 in one quarter. - Brookings found counties that got their first large data center saw private employment rise 4% to 5% over five to six years, with construction employment up 11%. - Virginia's JLARC found a typical data center employs about 50 full-time workers, about half of them contractors, so overstating permanent jobs damages credibility. - Property tax and PILOT payments are the largest durable local benefit; Loudoun County reports that data centers yield about 38% of its General Fund revenue. - New QOF and QOZB reporting rules will collect tract-level data including employee counts, so community commitments will be easier to check. ## Why does community engagement decide whether a data center gets built? Engagement matters because local approval, not capital, is now the binding constraint for many projects. Data Center Watch reported that at least 75 projects worth about $130 billion were blocked or delayed in the first quarter of 2026, roughly matching all of 2025, and that local opposition groups grew from 396 to 833 across 49 states[^1]. Statewide moratorium bills were introduced in 14 states in early 2026[^1]. Local governments are acting. St. Charles, Missouri adopted a one-year moratorium on new or expanded data center applications in August 2025[^2]. Tucson's city council voted unanimously to end Project Blue the same month[^3]. Pima County, Arizona passed a 120-day moratorium in September 2026[^4]. In Jay, Maine, a mill-to-data-center conversion collapsed after local opposition[^5]. **Figure: Local opposition is growing fast** - 75+: Projects blocked or delayed in Q1 2026 - ~$130B: Value of those projects - 833: Opposition groups at end of Q1 2026, up from 396 - 14: States with statewide moratorium proposals in early 2026 *Counts are Data Center Watch's own estimates; the group is funded by an AI-industry-affiliated research firm[^1].* Opportunity Zone projects carry an extra burden. The program targets low-income census tracts, and federal lawmakers have questioned whether data centers belong in it. In September 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act, which would exclude data centers from Opportunity Zone benefits; it had been referred to the Senate Finance Committee and was not law[^6]. Expect residents and reporters to ask what the zone gets in return. ## What do residents worry about with data centers? The recurring concerns are electricity bills, water, noise and land use, and the cost of tax breaks. Each one has a factual answer a developer should prepare before the first public meeting. **Common concerns and what a developer should be ready to show** | Concern | What residents ask | What to bring | | --- | --- | --- | | Power bills | Will my rates rise to pay for your substation? | The utility's large-load tariff terms and who pays for upgrades | | Water | Will you draw down our aquifer? | Cooling design, annual water estimate, source and discharge plan | | Noise and generators | Will we hear it at night? | Noise study at property lines, generator test schedule, air permits | | Land and views | Is this farmland becoming an industrial zone? | Site plan, setbacks, landscaping buffers, height limits | | Tax breaks | Are we subsidizing a giant company? | Expected property tax or PILOT revenue by year and by taxing body | | Jobs | How many local jobs, really? | Construction headcount by phase and a realistic permanent staffing plan | Power is often the first question. Utilities have started shifting cost risk onto large loads. AEP Ohio's approved tariff makes new data centers above 25 MW pay for at least 85% of subscribed demand for up to 12 years[^7]. Showing that kind of protection answers the rate question directly. Water use depends on cooling design: U.S. data centers used about 17.4 billion gallons directly in 2023[^8], and closed-loop designs cut on-site use sharply. See [water and cooling for Opportunity Zone data centers](https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers). ## What does the evidence say about data center jobs and taxes? The best evidence shows real but modest job gains and large property tax gains, so lead with taxes and construction, not permanent headcount. Brookings researchers found that counties receiving their first large data center saw total private employment rise 4% to 5% over five to six years, with construction employment up 11%; they also found naive estimates overstate the effect about threefold[^9]. Virginia's legislative auditor (JLARC) found a typical data center employs about 50 full-time workers, about half of them contractors, and that most of the industry's economic footprint is tied to construction[^10]. On the tax side, Loudoun County reports that data centers yield about 38% of its General Fund revenue on about 4% of commercial parcels, and the county has cut its real property tax rate from $1.145 per $100 in tax year 2016 to $0.805 in tax year 2026[^11]. State sales tax exemptions are a different story: Good Jobs First estimates each permanent data center job costs at least $1 million in state subsidies[^12]. **Figure: Benefits and costs a community should weigh** - Benefits - Property tax or PILOT revenue for schools and services - Hundreds of construction jobs during build-out - Roughly 50 permanent jobs at a typical facility - Utility and fiber upgrades that can serve other users - Costs and risks - Large power demand and possible grid upgrade costs - Water use, depending on cooling design - Noise, generator emissions and industrial land use - State sales tax exemptions with low job yield *An honest presentation names both columns. Local property tax is usually the largest lasting benefit.* For a fuller treatment, see [the economic impact of data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-center-economic-impact-opportunity-zones). ## How should a developer engage the community, step by step? Engage before the land closes, disclose the hard numbers early, and convert promises into signed agreements. The sequence below fits most projects. **Figure: A community engagement sequence for a data center** 1. Listen first: Meet officials, schools, utility, neighbors 2. Publish facts: Power, water, noise, jobs, taxes 3. Public sessions: Before the zoning application 4. Adjust design: Setbacks, cooling, generator testing 5. Sign commitments: PILOT, host or benefits agreement 6. Report results: Annual jobs and tax updates *Start at option stage. Opposition that forms after a zoning filing is much harder to reverse.* - Name a single local contact who answers questions for the life of the project. - Use plain units: gallons per day, decibels at the fence line, dollars to each taxing body. - Separate construction jobs from permanent jobs in every document. - Explain the Opportunity Zone role honestly: it lowers investors' taxes in exchange for long-term equity in the zone. - Offer local hiring and training targets you can meet, with reporting. ## What goes into a community benefit agreement or PILOT? A good agreement fixes payments and commitments in writing, with remedies if the project underdelivers. Payments in lieu of taxes (PILOTs) are common. In Genesee County, New York, PILOT and host-community payments for a Stream Data Centers project were projected at about $285 million over 30 years, slightly more than unabated property tax would have been[^13]. In Independence, Missouri, the city's analysis estimated $651.5 million in PILOT revenue from a Nebius project, including $463.4 million for the school district, with payments rising if investment falls short[^13]. **Common terms in data center community agreements** | Term | What it does | | --- | --- | | PILOT schedule | Sets annual payments by year and allocates them to schools, county and city | | Clawback or true-up | Raises payments if promised investment or jobs fall short | | Water and noise limits | Caps annual water use or fence-line noise, with monitoring | | Local hiring | Targets for local construction and operations hiring, with reports | | Community fund | Fixed annual contribution to local programs | | Decommissioning | Bond or plan for removal if the facility closes | > Where a PILOT works by having a public authority hold title and lease the property back, the QOZB's owned versus leased property and related-party lease positions must be checked against the Opportunity Zone rules before signing. See [leased property rules](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules). ## How do the Opportunity Zone reporting rules affect community commitments? Funds and their operating businesses must now report more data, which makes community claims checkable. The law added IRC §6039K and §6039L, requiring annual information about Qualified Opportunity Funds and the businesses they own, backed by a penalty of $500 per day, capped at $10,000 per return or $50,000 for funds with more than $10 million in gross assets[^14]. Proposed regulations published September 11, 2026 would require census-tract-level reporting and items such as employee counts; they are not final[^15]. Treasury must also report to Congress on the impacts and outcomes of designations every five years[^16]. The Government Accountability Office found the effects of the incentive to date were mostly unknown[^16]. Developers who publish their own jobs and tax data each year will be ahead of that scrutiny. See [Opportunity Zone reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## Is engagement different at rural sites? Yes. Rural sites have fewer officials, fewer existing industrial users and closer neighbors per decision, so a single hearing can decide a project. The rules make rural zones attractive: a zone made up entirely of rural area halves the substantial improvement threshold to 50%, and a Qualified Rural Opportunity Fund gives investors a 30% basis step-up after five years[^17]. Pew Research Center found that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today[^18]. That attention means rural projects should expect questions about who benefits. Practical points for rural engagement: brief the county commission, school board and electric cooperative separately; address farmland and road use; and explain fire and emergency response needs. Our guides to [rural data centers](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones) and [buying land](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center) cover site issues. Communities can read the companion guide for [economic developers and communities](https://ozdatacenters.com/guides/opportunity-zones-for-communities). ## Common questions **How many permanent jobs does a data center create?** Fewer than many residents expect. Virginia's JLARC found a typical facility employs about 50 full-time workers, about half of them contractors. Construction employment is much larger but temporary. **Do data centers raise local electricity rates?** They can if upgrade costs are spread across all customers. Many utilities now use large-load tariffs; AEP Ohio's requires new data centers above 25 MW to pay for at least 85% of subscribed demand for up to 12 years. **What is the biggest local benefit of a data center?** Usually property tax or PILOT revenue. Loudoun County reports that data centers yield about 38% of its General Fund revenue. The size depends on local abatements. **When should a developer start engaging the community?** At the option stage, before the zoning filing. Concerns raised after an application is filed tend to harden into organized opposition. **Are data centers allowed in Opportunity Zones?** Yes. Data centers are not on the excluded business list. A bill introduced in September 2026 would exclude them, but it had not been enacted. ## Sources [^1]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^2]: KCUR, "St. Charles one-year data center moratorium (report)" (2025). https://www.kcur.org/housing-development-section/2025-08-23/st-charles-data-center-year-ban [^3]: AZFamily, "Tucson City Council votes to end Project Blue" (2025). https://www.azfamily.com/2025/08/06/tucson-city-council-votes-end-project-blue/ [^4]: KJZZ, "Pima County passes 120-day moratorium on future data center projects" (2026). https://www.kjzz.org/fronteras-desk/2026-09-23/pima-county-passes-120-day-moratorium-on-future-data-center-projects [^5]: Site Selection, "Maine Shutdown 2.0: Mill Redevelopment Project Stymied by Data Center Resistance" (n.d.). https://siteselection.com/maine-shutdown-2-0-mill-redevelopment-project-stymied-by-data-center-resistance/ [^6]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^7]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^8]: Lawrence Berkeley National Laboratory, "2024 United States Data Center Energy Usage Report" (2024). https://eta-publications.lbl.gov/publications/2024-lbnl-data-center-energy-usage-report [^9]: Brookings Institution, "New evidence on data center employment effects" (2026). https://www.brookings.edu/articles/new-evidence-on-data-center-employment-effects/ [^10]: Joint Legislative Audit and Review Commission (Virginia), "Data Centers in Virginia, Report 598" (2024). https://jlarc.virginia.gov/pdfs/reports/Rpt598.pdf [^11]: Loudoun County, Virginia, "Data Centers: Tax Revenues and County Budget" (n.d.). https://www.loudoun.gov/6409/Tax-Revenues-County-Budget [^12]: Good Jobs First, "Most States Fail to Disclose which Data Center Companies Get Huge Tax Breaks" (2025). https://goodjobsfirst.org/most-states-fail-to-disclose-which-data-center-companies-get-huge-tax-breaks/ [^13]: The Batavian, "Proposed incentive package for data center includes higher property taxes" (2025). https://www.thebatavian.com/howard-owens/proposed-incentive-package-for-data-center-includes-higher-property-taxes-savings-on [^14]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^15]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^16]: U.S. Government Accountability Office, "GAO-26-108132, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132.pdf [^17]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^18]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ # Section: Guides by role Where to start if you are an investor, landowner, developer, adviser or community leader. --- # Opportunity Zones for investors with capital gains URL: https://ozdatacenters.com/guides/opportunity-zones-for-investors Last reviewed: 2026-10-20 If you have a capital gain, you can invest that gain (not the whole sale proceeds) in a Qualified Opportunity Fund within 180 days and defer federal tax on it for up to five years. At year five, a 10% basis step-up (30% for a Qualified Rural Opportunity Fund) means only 90% (or 70%) of the deferred gain is taxed. Hold the fund interest at least 10 years and the appreciation on it can be excluded from tax entirely; for holdings beyond 30 years, basis is fixed at fair market value on the 30th anniversary. ## Key takeaways - Only the capital gain needs to be invested, within 180 days of the date the gain is recognized; the return of your original basis is free to use. - For gains invested on or after January 1, 2027, the deferred gain is taxed on the earlier of a sale of the fund interest or five years after the investment date. - Holding five years adds a 10% basis step-up, or 30% for a Qualified Rural Opportunity Fund, so 90% or 70% of the deferred gain is taxed. - After 10 years you can elect to step basis up to fair market value on sale, excluding the appreciation; appreciation after year 30 is taxable. - The deferred tax comes due at year five while the fund is still illiquid, so plan cash for that bill from day one. ## Do Opportunity Zones apply to your gain? They apply if you have a capital gain that would be recognized for federal income tax and you can invest an equal amount in a Qualified Opportunity Fund (QOF) within 180 days. A QOF is a corporation or partnership that self-certifies on Form 8996 and holds at least 90% of its assets in Opportunity Zone property[^9]. Both short-term and long-term capital gains qualify, as does gross §1231 gain from business property, but depreciation recapture taxed as ordinary income does not[^5]. **Common gains and whether they can be deferred** | Gain | Eligible? | 180-day period starts | | --- | --- | --- | | Stock, crypto or fund shares sold at a gain | Yes | Date of sale | | Sale of a business (capital gain portion) | Yes | Date of sale; for an installment sale, each payment date or, by election, the last day of the tax year | | Real estate held for investment or business (§1231) | Yes, gross §1231 gain | Date of sale | | Depreciation recapture taxed as ordinary income | No | Not applicable | | Capital gain on a partnership or S corporation K-1 | Yes | Year-end, sale date, or the entity return's unextended due date | | Gain from a sale to a related person | No | Not applicable | Individuals, C corporations, partnerships, S corporations, trusts and estates can all invest. Many private funds are offered only to accredited investors; check each fund's offering terms. For detail, see [which gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral) and [who can invest](https://ozdatacenters.com/guides/who-can-invest-in-an-opportunity-zone-fund). ## How much tax can an Opportunity Zone investment save? On a $1 million gain, the step-up alone saves about $23,800 at five years in a standard QOF and about $71,400 in a rural fund, and the 10-year exclusion can save far more if the investment grows. The statute sets the rules: deferral under §1400Z-2(a), the five-year inclusion and step-up under §1400Z-2(b), and the 10-year basis election under §1400Z-2(c)[^1]. For investments after December 31, 2026, the deferred gain is included on the earlier of a sale or the fifth anniversary of the investment[^2]. **Figure: How a $1 million deferred gain is taxed at year five** (illustrative) - Gain deferred: 1000000 $ - 10% step-up at year 5 (standard QOF): -100000 $ - Extra 20% step-up in a rural fund (QROF): -200000 $ - Gain taxed in a QROF: $700,000: 700000 $ *Illustrative. Assumes $1,000,000 of gain invested in 2027 and a fund interest worth at least that amount at year five. A standard QOF stops at $900,000 taxed ($214,200 at 23.8%); a rural fund reaches $700,000 ($166,600). The 23.8% rate is 20% plus 3.8% NIIT, with no state tax.* **Illustrative outcomes on a $1,000,000 gain (23.8% federal rate, no state tax)** | Strategy | Tax on original gain | Tax on growth to $2,000,000 at year 10 | After-tax value at year 10 | | --- | --- | --- | --- | | Pay tax now, invest $762,000 elsewhere at the same return | $238,000 now | About $181,400 | About $1,342,600 | | Standard QOF | $214,200 at year 5 | $0 with the 10-year election | About $1,785,800 | | Qualified Rural Opportunity Fund | $166,600 at year 5 | $0 with the 10-year election | About $1,833,400 | **Figure: After-tax value at year 10 on a $1 million gain** (illustrative) - Pay tax now: $1.34M - Standard QOF: $1.79M - Rural QOF (QROF): $1.83M *Illustrative. Same assumptions as the table: the investment roughly doubles over 10 years in every case, and the year-five tax is paid from other cash and ignored for time value.* Most of the value comes from the 10-year exclusion, not the deferral. That means the investment itself has to perform. A weak project with full tax benefits can lose to a strong taxable investment. Our [worked tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example) varies the assumptions. ## What are the key dates for an Opportunity Zone investor? Five dates govern the investment: the sale date, day 180, year five, year 10 and year 30. The 180-day window runs from the date your gain would be recognized, with special start dates for flow-through gains and installment sales[^5]. **Figure: The Opportunity Zone investor timeline** - Day 1: Gain recognized (Sale of stock, property or business) - Day 180: Investment deadline (Cash into a QOF; elect on Form 8949) - Year 5: Deferred gain taxed (Less 10% step-up, or 30% for a QROF) - Year 10: Exclusion available (Elect basis equal to fair market value on sale) - Year 30: Basis fixed (Appreciation after the 30th anniversary is taxable) *Year five triggers tax on the deferred gain even if you have not sold. Year 10 opens the exclusion. Year 30 fixes basis for later growth.* > Timing around January 1, 2027 matters. The five-year rolling deferral and the 10% or 30% step-up apply to gains invested on or after January 1, 2027. Money invested in a QOF on or before December 31, 2026 falls under transition rules, and its deferred gain is included on December 31, 2026. A gain realized in late 2026 can still be invested in 2027 if the investment is inside its 180-day window[^3]. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule), [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) and [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). The 30-year mechanics without a sale are among the questions Treasury asked about in Notice 2026-55, so that detail is pending[^10]. ## How do you invest a capital gain in an Opportunity Zone fund? You buy an equity interest in a QOF with cash equal to the gain, then make the deferral election on your tax return. The interest must be equity, not debt[^1]. 1. Confirm the gain amount, character and 180-day start date with your tax adviser. 2. Choose a fund and complete diligence before day 150 or so, leaving time to wire. 3. Wire cash for an equity interest; keep the subscription documents showing the investment date. 4. Elect deferral on Form 8949 with your return for the year of the gain, listing the fund's EIN and investment date. 5. File Form 8997 every year you hold the investment, reporting deferred gains held at the start and end of the year[^7]. 6. Reserve cash for the year-five tax and check state treatment. Form mechanics are covered in [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained). Novogradac's guide to the forms describes how the deferral appears as a negative adjustment on Form 8949[^8]. ## What are the main pitfalls for Opportunity Zone investors? The common mistakes are missing the 180-day window, triggering an early inclusion event, ignoring state tax, and underestimating the year-five tax and the illiquidity. - Missed deadline: a wire on day 181 is not a qualifying investment. - Inclusion events: selling or gifting the interest (other than to a grantor trust) or taking distributions above basis can trigger the deferred gain early. Death is not an inclusion event[^11]. See [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). - State tax: California does not conform to federal deferral or exclusion, so California residents still owe state tax on the gain[^14]. See [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). - Year-five cash: tax is owed on 90% (or 70%) of the deferred gain even though the fund interest may not be sellable. - Fund compliance: funds now face reporting penalties of $500 per day, capped at $10,000 per return or $50,000 for large funds, under §6726[^6]. - Investment risk: the tax benefit does not rescue a bad project. Read [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). ## What questions should an investor ask an Opportunity Zone sponsor? Ask about the asset, the compliance plan, the exit and the people, in that order. **Questions to ask before investing** | Topic | Question | | --- | --- | | Zone status | Is every property in a tract designated for the full hold, including after January 1, 2027? | | Rural | Is the fund a QROF, holding at least 90% of assets in wholly rural zones[^4]? | | Compliance | Who tests the 90% asset test and the QOZB tests each period, and who files Form 8996? | | Capital plan | Is there a written working capital plan and schedule? What happens if construction slips? | | Liquidity | Will the fund distribute cash before year five to help pay the tax, without exceeding basis? | | Exit | How will the fund exit after 10 years: sale of interests, asset sale or refinancing? | | Track record | What has the sponsor built, leased and sold, and what fees apply? | Our [fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) and [how to choose a sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor) go further. ## Why do some investors choose data center Opportunity Zone funds? Data centers combine long-lived real assets with contracted demand, which suits a 10-year hold, but they also bring power, lease-structure and equipment-cycle risks that investors should probe. Tracked QOFs had raised $43.61 billion of equity through the first quarter of 2026, according to Novogradac[^13], and GAO found that most Opportunity Zone investment to date has gone to real estate in urban areas[^12]. The rural incentives aim to shift that mix, and rural sites near transmission are common for large data centers. Rules on rural funds are summarized by the IRS[^4] and in our guide to the [Qualified Rural Opportunity Fund](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). OZ Data Centers sponsors funds of this kind. For a full treatment of the asset class, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). Note that a bill introduced in September 2026 would exclude data centers from Opportunity Zone benefits; it was not law as of this review[^15]. ## Common questions **Do I have to invest all of my sale proceeds?** No. Only the amount of gain you want to defer needs to be invested. If you sell stock for $1.5 million with a $500,000 basis, investing the $1 million gain defers all of it. **Can I invest only part of my gain?** Yes. You defer whatever amount you invest within 180 days, and the rest is taxed normally. **When do I pay the deferred tax?** For investments made on or after January 1, 2027, on the earlier of selling the fund interest or the fifth anniversary of the investment. The tax applies to 90% of the deferred gain in a standard QOF, or 70% in a rural fund, if held five years. **Is the gain on my Opportunity Zone investment tax-free?** Appreciation on the fund interest can be excluded if you hold at least 10 years and make the basis election on sale. Appreciation after the 30th anniversary is taxable. **Can I invest in an Opportunity Zone fund through my IRA?** An IRA has no taxable capital gains to defer, so the benefits do not apply in the same way. Opportunity Zone investing is designed for taxable gains. **What happens if I die before year 10?** Death is not an inclusion event. Your heir takes over the deferred gain and your holding period, so the 10-year benefit can still be reached. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^3]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^4]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^5]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^6]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^7]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^8]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^9]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^10]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^11]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^12]: U.S. Government Accountability Office, "GAO-26-108132 Highlights, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132-highlights.pdf [^13]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 [^14]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^15]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones --- # Opportunity Zones for landowners URL: https://ozdatacenters.com/guides/opportunity-zones-for-landowners Last reviewed: 2026-10-20 A landowner has three Opportunity Zone paths: sell the land and invest the gain in any Qualified Opportunity Fund within 180 days, contribute the land to a fund for equity, or ground lease it to a Qualified Opportunity Zone Business. Selling for cash and reinvesting the gain is usually the cleanest route, because contributed land generally gives only a partial qualifying investment and may not count as purchased property for the buyer. Land itself is excluded from the substantial improvement test, which is part of why developers value zone parcels. ## Key takeaways - Selling land and investing just the gain in a QOF within 180 days defers the tax; the landowner does not have to invest in the fund that buys the land. - If the landowner will own 20% or more of the buyer's QOZB, the parties are related and the land fails the purchase requirement. - Contributed property gives a qualifying investment only up to the lesser of its adjusted basis or value, and only if the owner has eligible gain to elect to defer; built-in gain above that is a non-qualifying investment. - Land does not need to be substantially improved and is excluded from the building-basis hurdle, but the buyer must use it in the business. - A market-rate ground lease to an unrelated QOZB can count as qualifying leased property; related-party leases cannot prepay more than 12 months of rent. ## What are a landowner's Opportunity Zone options? You can sell, contribute or lease, and each gives a different mix of cash, tax deferral and upside. The Opportunity Zone benefits attach to investors who put capital gains into a Qualified Opportunity Fund (QOF), not to land itself[^1]. So the question for a landowner is how to turn the land into a qualifying investment, or into a reliable income stream, without breaking the buyer's compliance. **Figure: Sell, contribute or lease** - Sell and reinvest gain (Most common) - Cash at closing; tax on gain deferred if invested in any QOF within 180 days - Basis returned tax-free and free to use - 10-year exclusion on the fund interest's growth - Stay below 20% of the buyer if investing alongside it - Contribute land for equity (Complex) - No cash at closing - Qualifying portion limited to the lesser of basis or value - Built-in gain portion gets no OZ benefits - Land may not count as purchased property for the fund - Ground lease (Keep the land) - Rent for decades; no sale gain to defer - Lease must be at market terms to count for the QOZB - Related-party leases face prepayment limits - Land reverts to you at lease end *Selling for cash and reinvesting the gain is usually the cleanest route. Contribution needs specialist tax advice.* ## How does selling land and reinvesting the gain work? You sell, recognize a capital gain or §1231 gain, and invest an amount up to that gain in any QOF within 180 days of the sale. Land held for investment produces capital gain; land used in a trade or business, such as farmland, produces §1231 gain, and the gross §1231 gain qualifies with the 180-day period starting on the sale date[^10]. Land is not depreciable, so a land sale rarely carries depreciation recapture, though improvements on it can[^8]. **Figure: A land sale: what must be invested** (illustrative) - Sale price: 3000000 $ - Original land cost (basis): -400000 $ - Capitalized acquisition costs (basis): -100000 $ - Gain to invest: $2,500,000: 2500000 $ *Illustrative. Farmland with a $500,000 basis ($400,000 price plus $100,000 of capitalized acquisition, survey and legal costs) is sold for $3,000,000. Only the $2,500,000 gain needs to go into a QOF; the $500,000 basis is returned free of tax.* At a 23.8% federal rate, tax on that $2.5 million gain would be $595,000 if paid now. Invested in a standard QOF on or after January 1, 2027 and held five years, 90% of it ($2.25 million) is taxed in year five, for $535,500. In a Qualified Rural Opportunity Fund, 70% is taxed, for $416,500[^13]. Growth on the fund interest after 10 years can be excluded entirely[^1]. Seller financing changes the timing. Gain on an installment sale is reported as payments arrive, and the final regulations let each 180-day period start on the date a payment is received or, by election, on the last day of the tax year[^10]. Depreciation recapture, if any, is taxed in the year of sale regardless[^9]. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule) and [which gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). > Related-party trap. Persons are related under §1400Z-2(e)(2) if they share 20% or more common ownership. If you take 20% or more of the buyer's QOZB, the land fails the requirement that QOZ business property be purchased from an unrelated person, and your gain from a sale to a related person is not eligible gain either[^1]. Investing your gain in a different fund, or keeping a small stake, avoids this. See [related-party rules](https://ozdatacenters.com/guides/opportunity-zone-related-party-rules). ## Can a landowner contribute land to an Opportunity Zone fund? You can, but contributed land usually delivers less than a sale. Under the final regulations, when property other than cash goes into a QOF in a carryover-basis transaction, the qualifying investment is the lesser of your adjusted basis in the property or the value of the equity received, and it qualifies only to the extent you have eligible gain (from some other sale) to elect to defer; any excess is a non-qualifying investment with no Opportunity Zone benefits[^4]. Land with a low basis and high value is mostly built-in gain, so most of it falls in the non-qualifying portion. There is a second problem on the fund side. Qualified Opportunity Zone business property must be acquired by purchase[^3]. Land the fund receives as a contribution, with your carryover basis, is generally not purchased property, so it may not count toward the fund's 90% asset test or a QOZB's 70% tangible property test. Practitioner commentary on the property-contribution rules flags these limits[^5]. Treat a contribution as a specialist transaction and get tax counsel involved before any letter of intent. **Example: $3,000,000 parcel with a $500,000 basis** | Route | Qualifying OZ investment | Non-qualifying | Cash to owner | | --- | --- | --- | --- | | Sell, invest gain in a QOF | $2,500,000 | $0 | $500,000 basis | | Contribute land for fund equity | Up to $500,000, and only if you have $500,000 of other eligible gain to defer | About $2,500,000 | $0 | ## Why don't land values count toward substantial improvement? Because land is excluded from the test. The IRS said in Rev. Rul. 2018-29 that the original use requirement does not apply to land and that land under a purchased building need not be separately improved; only the building's basis must be doubled within 30 months[^2]. In a zone made up entirely of rural area, the building hurdle is 50% rather than 100%[^13]. For a landowner this cuts both ways. The buyer does not have to spend more because your land is valuable, which helps you sell. But land bought with no expectation of more than insubstantial improvement within 30 months cannot rely on the land exception, under an anti-abuse rule in the regulations[^6]. Buyers will want a real development plan, so expect options with diligence periods rather than quick closings. See [the substantial improvement test](https://ozdatacenters.com/guides/opportunity-zone-substantial-improvement). ## Can a landowner lease land to an Opportunity Zone business? Yes. A QOZB can count leased land as qualifying property if the lease is at market rate, and original use does not apply to leased property[^7]. Many data center operators prefer ground leases because land is not depreciable and keeping fund equity out of it improves returns. Nautilus Data Technologies, for example, used a 99-year lease at a former mill site in Millinocket, Maine[^12]. - Unrelated landlord: market-rate terms are the main requirement. - Related landlord (20% or more common ownership): no prepayment of rent for more than 12 months, and extra conditions apply to previously used property[^7]. - Rent is ordinary income to you; a lease creates no capital gain to defer. - The active-business concern about triple-net leases applies to the QOZB's own leasing of the building, not to you as ground lessor. Read [leased property rules](https://ozdatacenters.com/guides/opportunity-zone-leased-property-rules) and [data center lease structures](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones) before negotiating. ## What makes land valuable to an Opportunity Zone data center buyer? Power, scale and a clean approval path matter more than location inside the zone alone. One hyperscaler request sought at least 200 acres with 400 MW available by mid-2027[^14]. Buyers will test the tract's designation for 2027 to 2036, distance to high-voltage transmission, water, fiber, zoning and flood status. Newly designated zones take effect January 1, 2027, and property bought after 2026 in a zone that is not redesignated generally will not qualify[^11]. **Figure: How land value becomes an Opportunity Zone investment** - Landowner (Sells parcel for cash) - then: Recognizes gain - Eligible: Capital gain (Sale price minus basis) - then: Invests gain - Qualified Opportunity Fund (Any QOF, within 180 days) - then: Equity into QOZB - Zone investment (Held 10+ years) *The landowner's gain, not the land, is what enters the fund. The buyer's QOZB holds the land as purchased property.* Our guide to [buying land for an Opportunity Zone data center](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center) shows the buyer's checklist, which is a good preview of what diligence will cover. ## What should a landowner watch for and ask? - Is my tract on the state's nomination list, and has Treasury certified it? - Is the zone wholly rural, so a buyer can use the 50% threshold or a rural fund? - Will I take equity in the buyer? If so, how do we stay below 20%? - Is the deal an option? What are the extension fees and diligence deadlines? - If seller-financed, how will I schedule QOF investments for each payment? - Does my state conform to federal Opportunity Zone treatment? The tax result depends on how long you have held the land and how it was used, so confirm with your tax adviser before signing. See also [Opportunity Zones for real estate investors selling property](https://ozdatacenters.com/guides/opportunity-zones-for-real-estate-sellers) and the Opportunity Zone rules summary from RSM[^15]. ## Common questions **Do I have to invest in the fund that buys my land?** No. You can invest your gain in any Qualified Opportunity Fund within 180 days. Investing in the buyer's own structure at 20% or more creates a related-party problem. **Is contributing my land better than selling it?** Usually not. The qualifying portion of a property contribution is limited to the lesser of your basis or value, and only if you have other eligible gain to defer, so low-basis land gets little benefit, and the fund may not be able to count it as purchased property. **Does land have to be improved in an Opportunity Zone?** Land does not need to be separately improved, and it is excluded from the substantial improvement test. It must be used in the business, and land bought with no plan to improve it cannot rely on that rule. **Can I lease my land to a data center and still get Opportunity Zone benefits?** Leasing gives you rent, not a capital gain to defer, so the benefits go to the fund's investors. The lease helps the QOZB if it is at market rate. **What if I sell with seller financing?** Under the installment method, you can invest the gain within 180 days of receiving each payment or, by election, within 180 days of the last day of the tax year. Recapture income, if any, is taxed in the sale year. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service (hosted by Morris, Manning & Martin), "Revenue Ruling 2018-29" (2018). https://www.mmmlaw.com/files/documents/publications/rr-18-29.pdf [^3]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^4]: Mayer Brown, "IRS Issues Final Qualified Opportunity Fund Regulations" (2019). https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2019/12/irsissuesfinalqualifiedopportunityfundregulations.pdf [^5]: Cherry Bekaert, "IRS Releases Proposed Regulations on Qualified Opportunity Funds" (2019). https://www.cbh.com/insights/alerts/irs-releases-proposed-regulations-on-qualified-opportunity-funds/ [^6]: Stoel Rives, "Treasury Issues New Proposed Qualified Opportunity Zone Regulations" (2019). https://www.stoel.com/insights/publications/treasury-issues-new-proposed-qualified-opportunity [^7]: Nelson Mullins, "Qualified Opportunity Zones Guidance: Second Set of Proposed Regulations Released" (2019). https://www.nelsonmullins.com/insights/insights/tax-report-qualified-opportunity-zones-guidance-second-set-of-proposed-regulations-released-insights [^8]: Internal Revenue Service, "Publication 544, Sales and Other Dispositions of Assets" (2025). https://www.irs.gov/publications/p544 [^9]: Internal Revenue Service, "Topic no. 705, Installment Sales" (n.d.). https://www.irs.gov/taxtopics/tc705 [^10]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^11]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^12]: Nautilus Data Technologies, "Nautilus Data Technologies to Develop the First Sustainable Digital Infrastructure in a Qualified Opportunity Zone" (2021). https://nautilusdt.com/nautilus-data-technologies-to-develop-the-first-sustainable-digital-infrastructure-in-a-qualified-opportunity-zone/ [^13]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^14]: Data Center Dynamics, "Hyperscaler seeks 200-acre site for 400MW data center in US" (n.d.). https://www.datacenterdynamics.com/en/news/hyperscaler-seeks-200-acre-site-for-400mw-data-center-in-us/ [^15]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html --- # Opportunity Zones for data center developers URL: https://ozdatacenters.com/guides/opportunity-zones-for-data-center-developers Last reviewed: 2026-10-20 For a data center developer, Opportunity Zones offer patient equity from investors who must hold at least 10 years to get the main benefit, in exchange for running the project as a Qualified Opportunity Zone Business that passes the 70% tangible property, 50% gross income, 40% intangibles and under-5% financial property tests. The hardest fits are timing (power can take longer than the 31-month working capital safe harbor) and lease structure (a bare triple-net lease to one tenant is not an active business). Projects that own and operate their facilities, phase capital to power, and sit in wholly rural zones fit best. ## Key takeaways - A QOZB must have at least 70% of its tangible property qualify, earn at least 50% of gross income from active business in the zone, use at least 40% of intangibles there, and hold under 5% nonqualified financial property. - Merely entering into a triple-net lease is not the active conduct of a trade or business, so a single-tenant powered shell leased NNN is the highest-risk structure. - The working capital safe harbor allows 31 months per plan and up to 62 months with overlapping plans, while large-load power service can take up to seven years in constrained markets. - In a zone made up entirely of rural area, an existing building needs only 50% added basis within 30 months to be substantially improved. - Servers typically depreciate over five to six years, so IT equipment will turn over within a 10-year hold and each replacement must also qualify. ## What do Opportunity Zones offer a data center developer? They offer long-dated equity from investors who are deferring capital gains and want a 10-year hold. Investors who put gains into a Qualified Opportunity Fund (QOF) get a five-year deferral, a 10% basis step-up (30% for a Qualified Rural Opportunity Fund) and exclusion of appreciation after 10 years[^2]. That matches the life of a powered building and its electrical plant. In return, the fund and its operating company must pass annual tests. Data centers are not on the excluded business list, though a bill introduced in September 2026 would add them; it was not law at this review[^18]. **Figure: A typical data center Opportunity Zone structure** - Investors (Capital gains within 180 days) - then: Equity - QOF (Partnership; 90% asset test) - then: Equity (90%+ of fund assets) - Data center QOZB (Owns and operates the facility) - then: Buys, builds, operates - Zone property (Land, building, power and cooling plant) *Most projects use a two-tier structure so the operating company can rely on the 70% test and the working capital safe harbor.* See [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund) and [the capital stack for an Opportunity Zone data center](https://ozdatacenters.com/guides/data-center-opportunity-zone-capital-stack). ## Which tests must a data center QOZB pass? The operating company must clear four percentage tests plus the active business and excluded-business rules in the regulations[^1]. The QOF above it must hold at least 90% of its assets in qualifying property, averaged over two semiannual testing dates. **Figure: The QOZB tests a data center must clear** - Tangible property that is QOZ business property: at least 70% (Owned or leased, measured by value) - Gross income from active business in the zone: at least 50% (Four safe harbors, including hours and services) - Intangibles used in the zone business: at least 40% (Software, contracts and similar) - Nonqualified financial property: less than 5% (Share of average unadjusted basis) *Working capital held under a valid safe harbor plan is not counted as nonqualified financial property.* QOZ business property must be acquired by purchase from an unrelated person, meet original use or substantial improvement, and be used in the zone for substantially all of the holding period[^1]. Detailed guides: [the 70% tangible property test](https://ozdatacenters.com/guides/qozb-70-percent-tangible-property-test) and [gross income, intangibles and financial property tests](https://ozdatacenters.com/guides/qozb-gross-income-and-intangibles-tests). ## Can a QOZB lease a data center to a hyperscaler on a triple-net basis? It is the riskiest structure, because the regulations say merely entering into a triple-net lease is not the active conduct of a trade or business[^3]. A final-regulation example treats a landlord that leases a whole building to one tenant on a triple-net basis as not active, even with an on-site office; a landlord that actively manages other parts of the building with its own employees is active[^4]. No guidance addresses hyperscaler data center leases specifically, and Dentons flagged the issue for these deals in April 2026[^5]. **Lease and operating models ranked by active-business risk (analysis, not settled law)** | Model | Who runs the plant | Risk | | --- | --- | --- | | QOZB owns and operates the facility for its own services | QOZB | Lowest | | Multi-tenant colocation | QOZB staff run power, cooling, security | Low | | Turnkey wholesale with landlord operations | QOZB operates MEP; tenant leases capacity | Moderate | | Modified gross lease to one tenant | Shared; landlord keeps real duties | Moderate to high | | Single-tenant powered shell, triple-net | Tenant | Highest | Fact-specific advice from tax counsel is essential here. See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones) and [data center lease structures](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones). ## Does the 31-month working capital safe harbor fit data center timelines? Only if power is in hand or near-term, or capital is phased so each tranche has its own plan. A QOZB can hold cash for up to 31 months under a written plan and schedule, and overlapping plans can stretch to 62 months from the first infusion; government action on a completed application can toll the period[^6]. Utility study and construction delays are not clearly government permitting delays. Dominion Energy has said waits for loads above 100 MW could reach seven years in Northern Virginia[^7], and median generator interconnection times now exceed four years[^8]. **Figure: Safe harbor windows against a phased data center build** (illustrative) - Plan 1 safe harbor: 0 to 31 months (Phase one equity) - Phase one power: 0 to 24 months (Substation and service) - Phase one build: 6 to 30 months - Plan 2 safe harbor: 24 to 55 months (Phase two equity) - Phase two build: 30 to 54 months *Illustrative. A two-phase project with power for phase one in about two years. Each equity tranche gets its own 31-month plan, and the combined period stays inside 62 months.* Our guides to the [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and [power timelines](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines) cover the mechanics. ## How do servers, equipment and conversions fit the rules? Short-lived equipment and building conversions both work, but each needs a plan. Hyperscalers depreciate servers over about five to six years; Meta, for example, uses 5.5 years[^9]. Equipment the QOZB owns counts in its 70% test, and each replacement must itself be purchased from an unrelated person and placed in service in the zone. Equipment the tenant owns is outside the QOZB's test. Proceeds from selling property inside a QOF can be reinvested within 12 months without failing the 90% test, but that relief does not defer the gain[^17]. Permanent 100% bonus depreciation applies to qualifying property acquired after January 19, 2025, though not to the 39-year building shell[^10]. For conversions, an existing building is substantially improved when added basis within 30 months exceeds its starting basis. In a zone made up entirely of rural area, that threshold is 50% under the law and Notice 2025-50[^11]. Husch Blackwell notes the rule's relevance to adaptive reuse in rural zones[^12]. Land is excluded from the hurdle. See [servers, equipment and the rules](https://ozdatacenters.com/guides/data-center-equipment-opportunity-zone-rules) and [converting industrial buildings](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones). **Cost pools and how they usually sit in an OZ structure** | Cost pool | Typical scale | Usual owner | OZ treatment | | --- | --- | --- | --- | | Land | About 7% of greenfield cost[^15] | QOZB or ground lessor | Excluded from improvement test; not depreciable | | Shell and core | About $11.3M per MW in 2026 (JLL global average)[^16] | QOZB | Original use for new build | | Power and cooling plant | Power is about 21% of greenfield cost[^15] | QOZB | Long-lived; carries the 10-year story | | IT fit-out and servers | Up to about $25M per MW for AI fit-out[^16] | Often the tenant | Counts only if the QOZB owns or leases it | ## What compliance and reporting does a developer take on? Expect semiannual asset testing, annual Form 8996 filings, written working capital plans, and new information reporting with daily penalties. Form 8996 certifies the QOF and reports its 90% test each year[^13]. New §6039K and §6039L reporting adds a penalty of $500 per day, capped at $10,000 per return or $50,000 for funds above $10 million of gross assets[^14]. Proposed regulations published September 11, 2026 set out the data items; they are not final. OZ Data Centers runs its QOZBs with QOZB Management LLC handling this compliance work. Whoever does it, budget for it. See [managing a data center QOZB](https://ozdatacenters.com/guides/qozb-management-data-centers) and [reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements). ## What should a developer check before taking OZ equity? **Figure: Developer readiness for Opportunity Zone equity** (illustrative) - [pass] Site in a tract designated for 2027 to 2036: Certified tract; wholly rural - [watch] Power date inside the safe harbor plan: Phase one service expected in 22 months - [pass] Active operations, not bare NNN: QOZB staff operate MEP and security - [pass] Equipment ownership mapped: Tenant owns servers; QOZB owns plant - [pass] Seller and lessor unrelated: Below 20% common ownership - [watch] Written working capital plan: Draft schedule; needs board adoption *Example of a project ready to raise. Any fail should be resolved before the first investor closes.* Developers new to the program should also read [Opportunity Zone data center development timeline](https://ozdatacenters.com/guides/opportunity-zone-data-center-development-timeline). ## Common questions **Can a data center be a Qualified Opportunity Zone Business?** Yes. Data centers are not an excluded business. The business must pass the 70%, 50%, 40% and 5% tests and conduct an active trade or business, which is where lease structure matters. **Is a triple-net lease to a hyperscaler allowed?** Merely entering into a triple-net lease is not an active trade or business under the regulations. A single-tenant NNN powered shell is the highest-risk structure; landlord-operated models are more defensible. **What if power takes longer than 31 months?** Overlapping plans can extend the safe harbor to 62 months, and government delays on a completed application can toll it. Utility delays may not count, so phase capital to power. **Do servers count as Opportunity Zone property?** If the QOZB buys them from an unrelated party for use in the zone, they can. If the tenant owns them, they are outside the QOZB's tests. Treatment of short-lived IT gear is less settled than the shell and plant. **Why are rural zones attractive for data centers?** Rural zones offer a 50% substantial improvement threshold and allow a rural fund whose investors get a 30% step-up, and many large sites sit near rural transmission. ## Sources [^1]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(d)-1 [^2]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^3]: The Tax Adviser (AICPA), "IRS issues second set of proposed regulations on opportunity zones" (2019). https://www.thetaxadviser.com/issues/2019/aug/irs-regs-opportunity-zones/ [^4]: Mondaq, "Treasury Issues Final Regulations On Qualified Opportunity Zone Program" (2020). https://www.mondaq.com/unitedstates/leasing/878446/treasury-issues-final-regulations-on-qualified-opportunity-zone-program [^5]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers [^6]: Wipfli, "Final opportunity zone regulations released" (2020). https://www.wipfli.com/insights/articles/cre-tax-final-opportunity-zone-regulations-released [^7]: Bloomberg via BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^8]: Lawrence Berkeley National Laboratory, "Queued Up: 2025 Edition" (2025). https://emp.lbl.gov/publications/queued-2025-edition-characteristics [^9]: Accounting Today, "Meta's accounting move on AI servers to boost profit" (2025). https://www.accountingtoday.com/articles/metas-accounting-move-on-ai-servers-to-boost-profit [^10]: BDO, "One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities" (2025). https://bdo.com/insights/tax/one-big-beautiful-bill-act-expands-100-depreciation-expensing-opportunities [^11]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^12]: Husch Blackwell, "What the New 50% Substantial Improvement Rule Means for Real Estate Investors in Rural Opportunity Zones" (2025). https://www.huschblackwell.com/newsandinsights/unlocking-opportunity-what-the-new-50-substantial-improvement-rule-means-for-real-estate-investors-in-rural-opportunity-zones [^13]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^14]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^15]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^16]: JLL, "2026 Global Data Center Outlook" (2026). https://www.jll.com/en-us/insights/market-outlook/data-center-outlook [^17]: Legal Information Institute, Cornell Law School, "26 CFR 1.1400Z2(f)-1, Administrative rules" (n.d.). https://www.law.cornell.edu/cfr/text/26/1.1400Z2(f)-1 [^18]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones --- # Opportunity Zones for family offices URL: https://ozdatacenters.com/guides/opportunity-zones-for-family-offices Last reviewed: 2026-10-20 Family offices suit Opportunity Zones because the program rewards patient capital: gains invested in a Qualified Opportunity Fund within 180 days are deferred up to five years, get a 10% or 30% basis step-up, and growth on the fund interest can be excluded after 10 years; for holdings beyond 30 years, basis is fixed at fair market value on the 30th anniversary. The key decisions are which family entity makes the investment, whether to form a captive fund or invest with a sponsor, and how gifts and estate plans interact with the inclusion rules. Death is not an inclusion event, but most gifts are. ## Key takeaways - Individuals, partnerships, S corporations, C corporations, trusts and estates can all elect deferral, and a flow-through entity's owners can elect if the entity does not. - A family office can form its own QOF by self-certifying on Form 8996, but it then carries the 90% asset test, QOZB testing and the new §6726 reporting penalties. - Gifting a QOF interest is generally an inclusion event unless it goes to a grantor trust; death is not, and heirs keep the holding period. - The 10-year exclusion can reach up to 30 years of appreciation; after the 30th anniversary, basis is fixed at fair market value on that date. - For flow-through QOFs held 10 years, investors can also elect to exclude gain from the fund's or QOZB's asset sales, which suits phased exits. ## Why do Opportunity Zones suit family offices? They suit family offices because the largest benefit, tax-free appreciation after 10 years, goes to investors who can wait, and family capital can wait longer than most. The program is permanent under IRC §1400Z-2 as amended by Public Law 119-21[^1]. For gains invested on or after January 1, 2027, the deferred gain is taxed on the earlier of a sale or the fifth anniversary of the investment, with a 10% step-up (30% for a Qualified Rural Opportunity Fund) at five years[^2]. Appreciation is excludable for holds of 10 to 30 years[^12]. **Figure: A multi-decade Opportunity Zone hold** - Day 180: Invest gain (From the investing entity's sale date) - Year 5: Tax on 90% or 70% (Step-up of 10% or 30%) - Year 10: Exclusion opens (Elect basis equal to fair market value) - Year 20: Possible handoff (Interest passes at death without inclusion) - Year 30: Basis fixed (Later growth is taxable) *The family pays tax on the deferred gain at year five, then can let the asset compound to year 30 before basis is fixed.* How the 30-year basis is determined without a sale is one of the open questions in Notice 2026-55, so plan for that detail to change[^10][^11]. See [the 30-year limit](https://ozdatacenters.com/guides/opportunity-zone-30-year-limit). ## Which family entity should make the Opportunity Zone investment? The entity that recognizes the gain makes the election, unless it passes that choice to its owners. Under the final regulations, a partnership, S corporation, estate or non-grantor trust can elect to defer at the entity level. If it does not, each owner can elect, with a 180-day period starting at the entity's year-end, the date of the entity's sale, or the unextended due date of the entity's return[^3]. **Who invests and when the 180-day clock starts** | Gain recognized by | Who can elect | 180-day start options | | --- | --- | --- | | Individual family member | That individual | Date of sale | | Family partnership or LLC | The partnership, or each partner | Sale date, partnership year-end, or unextended return due date | | S corporation | The S corporation, or each shareholder | Same as partnership | | Non-grantor trust or estate | The trust or estate, or beneficiaries | Same as partnership | | Grantor trust | The grantor (treated as owner) | Date of sale | | C corporation (family holding company) | The corporation | Date of sale | Choosing the investing entity also sets who pays the year-five tax and who can later make the 10-year election. Match it to the family's estate plan before the first wire. Details: [partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains). ## Should a family office form its own QOF or invest with a sponsor? Form a captive fund when the family has its own deal flow and compliance staff; invest with a sponsor when it wants diversification or a specialist asset such as data centers. Any partnership or corporation can become a QOF by self-certifying on Form 8996 and must report its 90% asset test each year[^7]. The IRS describes how to certify and maintain a fund[^6]. **Figure: Captive fund, sponsor fund or co-investment** - Captive family QOF (Most control) - Family picks every asset and the exit - Family owns the 90% test and QOZB testing - Bears §6726 reporting penalty exposure - Best with existing real estate or operating teams - Co-investment (Shared control) - Family invests in a sponsor's single-asset QOF - Negotiated governance and reporting - Concentration in one project - Useful for large data center deals - Sponsor fund (Least work) - Sponsor runs compliance and reporting - Diversified or specialist portfolio - Fees and limited control - Diligence the sponsor's OZ track record *Control and cost trade off against diversification and specialist execution.* The compliance load is real. A QOF that fails the 90% test pays a monthly penalty, and new §6726 information-reporting penalties run $500 per day, capped at $10,000 per return or $50,000 for funds with gross assets above $10 million[^8]. Proposed regulations published September 11, 2026 would require tract-level reporting and a formal decertification process; they are not final[^9]. See [how to set up a QOF](https://ozdatacenters.com/guides/how-to-set-up-a-qualified-opportunity-fund) and [single-asset vs. multi-asset funds](https://ozdatacenters.com/guides/single-asset-vs-multi-asset-opportunity-zone-funds). ## How do gifts, trusts and estates interact with Opportunity Zone investments? Gifts usually trigger the deferred gain, death does not, and grantor trusts are the main planning exception. Under the final regulations, a gift of a QOF interest is an inclusion event unless the recipient is a grantor trust of the donor[^4]. At death, the deferred gain passes to the heir as income in respect of a decedent under §691, and the heir keeps the decedent's holding period toward the 10-year benefit[^5]. **Common transfers and their Opportunity Zone result** | Transfer | Inclusion event? | Planning note | | --- | --- | --- | | Gift to a child outright | Yes | Deferred gain taxed to the donor | | Transfer to the donor's grantor trust | No | Trust holds the interest; benefits continue | | Grantor trust status ends during the donor's life | Generally yes | Model before switching off grantor status | | Death of the investor | No | Heir takes the deferred gain as income in respect of a decedent | | Distribution from the fund above basis | Yes, to that extent | Watch refinance distributions before year five | These rules are technical and depend on trust terms, so have estate counsel review any transfer before it happens. For the full list of triggers, see [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events). ## How should a family office plan cash and exits? Plan for the year-five tax from outside cash, and decide early whether the exit will be a sale of fund interests or of assets. At year five, tax is due on 90% of the deferred gain in a standard fund or 70% in a rural fund, measured against the value of the investment if lower[^2]. On a $5 million gain at a 23.8% federal rate, that is $1,071,000 in a standard fund and $833,000 in a rural fund (illustrative; no state tax). On exit, a flow-through QOF gives more flexibility. After a 10-year hold, investors in partnership or S corporation QOFs can elect to exclude gain from the fund's or a lower-tier QOZB's sale of assets, including depreciation recapture, with an exception for inventory[^13]. That allows a data center fund to sell assets one at a time. Check state tax treatment too: California, for example, does not conform to federal deferral or exclusion[^15]. See [exit strategies after 10 years](https://ozdatacenters.com/guides/opportunity-zone-exit-strategies) and [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ## What questions should a family office ask before committing? - Which entity has the gain, and which entity should own the QOF interest given the estate plan? - Do we have the staff to run a captive fund's testing and reporting, or should a sponsor do it? - Is the fund a Qualified Rural Opportunity Fund, holding 90% of assets in wholly rural zones[^14]? - How is year-five tax funded? Will the fund make distributions without exceeding basis? - What is the exit plan at year 10 and the plan if the family wants to hold past year 30? - How will interests pass between generations without triggering inclusion? Data center funds are one way to put long-hold capital into infrastructure with contracted demand; tracked QOFs had raised $43.61 billion through Q1 2026, mostly in real estate[^16]. See [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) and [the fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence). If you would like to discuss a co-investment, [talk to our team](https://ozdatacenters.com/#contact). ## Common questions **Can a family limited partnership invest in an Opportunity Zone fund?** Yes. The partnership can elect to defer its own gain, or let partners elect individually with flexible 180-day start dates. **Is gifting a QOF interest to my children an inclusion event?** Generally yes, unless the gift goes to your grantor trust. A gift triggers tax on the remaining deferred gain. **What happens to an Opportunity Zone investment when the investor dies?** Death is not an inclusion event. The heir inherits the deferred gain as income in respect of a decedent and keeps the holding period toward the 10-year exclusion. **Should a family office create its own QOF?** Only if it has deal flow and compliance capacity. A captive fund carries the 90% asset test, QOZB testing and daily reporting penalties. **How long can a family hold an Opportunity Zone investment and keep the benefit?** As long as it likes, but appreciation is excludable only up to the 30th anniversary. After that, basis is fixed at fair market value on that date. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^3]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^4]: Nixon Peabody, "QOZ final regulations: new opportunities for estate planning" (2020). https://www.nixonpeabody.com/en/ideas/articles/2020/01/29/qoz-final-regulations-new-opportunities-for-estate-planning [^5]: Greenberg Traurig, "Qualified Opportunity Zones: Final Treasury Regulations Released" (2019). https://www.gtlaw.com/ar/insights/2019/12/qualified-opportunity-zones-final-treasury-regulations-released [^6]: Internal Revenue Service, "Certify and maintain a Qualified Opportunity Fund" (n.d.). https://www.irs.gov/credits-deductions/businesses/certify-and-maintain-a-qualified-opportunity-fund [^7]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^8]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^9]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^10]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^11]: Current Federal Tax Developments, "IRS Solicits Technical Comments on Opportunity Zone Regulations (Notice 2026-55)" (2026). https://www.currentfederaltaxdevelopments.com/blog/2026/9/22/irs-solicits-technical-comments-on-opportunity-zone-regulations-post-obbba-administrative-focus-on-interim-gains-single-family-housing-and-working-capital-safe-harbors [^12]: Seyfarth Shaw, "7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act" (2025). https://www.seyfarth.com/news-insights/7-key-changes-to-the-qualified-opportunity-zone-incentive-under-the-one-big-beautiful-bill-act.html [^13]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways [^14]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^15]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^16]: Novogradac, "QOFs Report Additional $850 Million in Equity in First Quarter of 2026" (2026). https://www.novoco.com/notes-from-novogradac/qofs-report-additional-850-million-in-equity-in-first-quarter-of-2026 --- # Opportunity Zones for CPAs and financial advisers URL: https://ozdatacenters.com/guides/opportunity-zones-for-cpas-and-advisers Last reviewed: 2026-10-20 Advisers add the most value on Opportunity Zones at three points: identifying eligible gain and the correct 180-day start date, making the deferral election correctly on Form 8949 and filing Form 8997 every year, and planning for the year-five inclusion, when 90% of the deferred gain (70% in a rural fund) becomes taxable. For gains invested on or after January 1, 2027, deferral rolls for five years from each investment date. Fund clients also face new §6039K and §6039L reporting with penalties of $500 per day. ## Key takeaways - Eligible gain is capital gain that would be recognized for federal tax, including gross §1231 gain, but not depreciation recapture taxed as ordinary income or gain from a sale to a related person. - The 180-day period generally starts on the sale date; flow-through owners can also use entity year-end or the entity return's unextended due date, and installment sellers can start from each payment. - The investor elects on Form 8949 and files Form 8997 annually; the fund self-certifies and tests the 90% standard on Form 8996. - Under Notice 2026-40, gain included on December 31, 2026 from an earlier QOF investment is not eligible gain and cannot be re-deferred. - New §6726 penalties for fund and QOZB reporting failures are $500 per day, capped at $10,000 per return or $50,000 for funds above $10 million of gross assets. ## How do you identify a client's eligible gain and 180-day start date? Start with character and timing: the gain must be capital gain (or gross §1231 gain) that is recognized for federal income tax, from a sale to an unrelated person, and the 180-day window begins when the gain would be recognized. The statute sets the 180-day rule in §1400Z-2(a)[^1], and the final regulations fill in start dates and character rules[^2][^3]. **180-day start dates under the final regulations** | Situation | Default start | Elective alternatives | | --- | --- | --- | | Direct sale of a capital asset | Sale date | None | | Gross §1231 gain | Sale date | None (no netting against §1231 losses) | | Partnership, S corporation, trust or estate gain passed to owner | Last day of entity's tax year | Entity's sale date, or unextended due date of entity return | | Installment sale | Each payment date | Last day of the year the gain is recognized | Depreciation recapture taxed as ordinary income under §1245 or §1250 is not eligible[^4]. Installment method reporting follows the general rules; recapture is reported in the year of sale even on an installment sale[^15]. See [which gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral) and [section 1231 gains](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones). ## How is the deferral election made and reported? The client invests cash for QOF equity within 180 days, then elects deferral on Form 8949 with a timely filed return and files Form 8997 every year the investment is held. On Form 8949 the client reports the sale, then a deferral line with the fund's EIN and investment date, showing the deferred amount as a negative adjustment[^6]. Form 8997 reports QOF investments and deferred gain at the start and end of the year, gains deferred during the year, and dispositions[^5]. The fund itself files Form 8996 to self-certify and report its 90% test[^7]. **Figure: Adviser workflow for an Opportunity Zone deferral** 1. Confirm gain: Character, amount, related-party check 2. Fix the window: Default or elective 180-day start 3. Verify the fund: Form 8996 filer; equity interest 4. Elect: Form 8949 with timely return 5. Track yearly: Form 8997; inclusion events 6. Plan year 5: Estimated tax on 90% or 70% *Most errors come from the first two steps: the wrong start date or an investment that is not equity in a certified fund.* Form details are in [Form 8996 and Form 8997, explained](https://ozdatacenters.com/guides/form-8996-form-8997-explained). ## How much is included at year five? At the earlier of a sale or the fifth anniversary of the investment, the client includes the excess of the lesser of the deferred gain or the investment's fair market value over the client's basis in the investment[^1]. Basis starts at zero and rises by 10% of the deferred gain (30% for a Qualified Rural Opportunity Fund) after five years, so 90% or 70% is taxed if the investment has held its value[^8]. CohnReznick's guide to mandatory inclusion walks through the formula and the fair market value limit[^16]. Illustration: a client invests a $400,000 gain in March 2027. In March 2032 the client includes $360,000 in a standard fund ($85,680 of tax at 23.8%) or $280,000 in a rural fund ($66,640). If the investment is worth only $300,000 at that date, inclusion is $300,000 less basis. Build estimated payments for the year that includes the fifth anniversary, since the fund interest itself is usually illiquid. See [the five-year deferral](https://ozdatacenters.com/guides/opportunity-zone-five-year-deferral) and [the basis step-up](https://ozdatacenters.com/guides/opportunity-zone-basis-step-up). ## What transition points should advisers watch around January 1, 2027? Two rules from Notice 2026-40 matter most for current clients[^10]. First, gain still deferred from a QOF investment made on or before December 31, 2026 is included on that date, and that included gain is not eligible gain for a new deferral, because the original election remains in effect[^11]. Second, a gain realized in 2026 but invested in a QOF on or after January 1, 2027, inside its 180-day window, gets the five-year rolling deferral and the 10% or 30% step-up[^11]. > Practical result: for a client with a gain in the second half of 2026, investing in January 2027 rather than December 2026 can be the difference between immediate inclusion and five years of deferral. Confirm the 180-day window still covers the January date. Notice 2026-55 asked for comments by November 23, 2026 on interim gains, inclusion events, working capital plan changes and the 30-year election[^12]. Expect further guidance. See [key dates and timeline](https://ozdatacenters.com/guides/opportunity-zone-key-dates). ## What compliance applies to fund and QOZB clients? Fund clients must pass the 90% asset test on semiannual dates, keep their QOZBs within the 70%, 50%, 40% and 5% tests, and now meet new information reporting. A QOF that falls short of 90% owes a monthly penalty based on the shortfall and the underpayment rate, unless it shows reasonable cause[^1]. The law also added §6039K and §6039L reporting and a §6726 penalty[^8]. **Figure: Reporting penalties under §6726** - $500: Per day while a failure continues - $10,000: Cap per return - $50,000: Cap for funds over $10 million of gross assets *Higher amounts apply for intentional disregard. Proposed regulations would let a late or corrected filing stop the daily penalty[^8][^9].* Proposed regulations published September 11, 2026 would make Form 8996 a separate information return, require census-tract-level data and create a single decertification procedure; they are not final[^9]. See [reporting requirements and penalties](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements) and [the QOF 90% asset test](https://ozdatacenters.com/guides/qof-90-percent-asset-test). ## Which client situations come up most often? Four situations account for most Opportunity Zone conversations: a large securities gain, the sale of a business, the sale of investment real estate, and a capital gain reported on a K-1. Each has its own timing and character issues, summarized below with links to the detailed guides. **Common client situations and the main adviser issue** | Situation | Main issue | Detailed guide | | --- | --- | --- | | Concentrated stock or fund gain | Window runs from trade date; consider partial investment | [Investors with capital gains](https://ozdatacenters.com/guides/opportunity-zones-for-investors) | | Sale of a business | Asset sale mixes ordinary income with capital gain; installment and earnout timing | [Business owners selling](https://ozdatacenters.com/guides/opportunity-zones-for-business-owners-selling) | | Sale of rental or commercial property | Gross §1231 gain eligible; ordinary recapture is not; compare with a 1031 exchange | [Real estate sellers](https://ozdatacenters.com/guides/opportunity-zones-for-real-estate-sellers) | | Capital gain on a K-1 | Choose among year-end, sale-date and return-due-date windows | [Partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains) | In each case, confirm the client can hold for at least 10 years. The deferral and step-up are modest on their own; the exclusion of appreciation after 10 years drives most of the value, and it depends on the underlying investment performing. ## How do state taxes affect the advice? State treatment can erase part of the benefit, so check the client's state of residence and the fund's states. California does not conform to the federal deferral or exclusion[^13]. Other states are reported as non-conforming or partly conforming, and lists differ across sources, so verify each state for the year in question[^14]. See [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). ## What should an adviser confirm before a client invests? **Figure: Client readiness check** (illustrative) - [pass] Gain character and amount confirmed: Long-term capital gain from broker statement - [pass] 180-day window mapped: Sale date start; deadline on calendar - [pass] Fund certified and investing in equity: Form 8996 filer; LP interest - [watch] Year-five tax funded: Liquidity plan needed outside the fund - [watch] State conformity: Client may move states before year five - [pass] Suitability and concentration: Under 10% of liquid net worth *Example for a client with a large stock gain. A watch item needs resolution before the wire.* Advisers should also be ready to discuss sponsor quality and fees; see [how to choose a sponsor](https://ozdatacenters.com/guides/choosing-an-opportunity-zone-sponsor). The final rules on Opportunity Zones remain T.D. 9889 and related regulations at 26 CFR 1.1400Z2, summarized by EY when issued[^3]. Notice 2025-50 sets the rural definitions used for the 50% improvement rule[^17]. ## Common questions **Can a client invest the gain in installments?** Yes. Each investment made within its 180-day window is a separate qualifying investment with its own five-year date for gains invested on or after January 1, 2027. **Does a client need to invest the full sale proceeds?** No. Only the amount of gain to be deferred needs to be invested. The return of basis is free to use. **Where is the deferral election made?** On Form 8949 with the return for the year the gain would be recognized, showing the fund's EIN and investment date and the deferred amount as a negative adjustment. Form 8997 follows every year. **Can gain included on December 31, 2026 be invested in a new QOF?** No. Notice 2026-40 says that gain is not eligible gain because the original election remains in effect. **What if a partnership client sold property and did not elect?** Each partner can elect, with a 180-day period starting on the partnership's year-end, the sale date, or the unextended due date of the partnership return. **Is ordinary recapture from a cost segregation study eligible?** No. Recapture taxed as ordinary income under §1245 or §1250 is not eligible gain, even when the rest of the §1231 gain is. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^3]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^4]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^5]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^6]: Novogradac, "Interpreting and Completing OZ-Related Tax Forms" (n.d.). https://novoco.com/periodicals/articles/interpreting-and-completing-oz-related-tax-forms [^7]: Internal Revenue Service, "About Form 8996, Qualified Opportunity Fund" (n.d.). https://www.irs.gov/forms-pubs/about-form-8996 [^8]: RSM US, "New penalties for taxpayers in the One Big Beautiful Bill Act" (2025). https://rsmus.com/insights/tax-alerts/2025/new-penalties-for-taxpayers-in-the-one-big-beautiful-bill-act.html [^9]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^10]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^11]: Spidell, "New Qualified Opportunity Zone guidance clarifies gain recognition rules" (2026). https://spidell.com/news/hot-news-and-notes/new-qualified-opportunity-zone-guidance-clarifies-gain-recognition-rules/ [^12]: Internal Revenue Service, "Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2" (2026). https://www.irs.gov/pub/irs-drop/n-26-55.pdf [^13]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^14]: Business Facilities, "Opportunity Zones 2.0: Federal Policy Meets State Implementation" (2026). https://businessfacilities.com/opportunity-zone-2-0-federal-policy-meets-state-implementation/ [^15]: Internal Revenue Service, "Topic no. 705, Installment Sales" (n.d.). https://www.irs.gov/taxtopics/tc705 [^16]: CohnReznick, "Opportunity Zones mandatory gain inclusion guide" (n.d.). https://www.cohnreznick.com/insights/opportunity-zones-mandatory-gain-inclusion-guide/ [^17]: Internal Revenue Service, "Notice 2025-50, rural areas and substantial improvement" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf --- # Opportunity Zones for economic developers and communities URL: https://ozdatacenters.com/guides/opportunity-zones-for-communities Last reviewed: 2026-10-20 For a community, an Opportunity Zone is a census tract where private investors get federal tax benefits for long-term equity investment, which can draw projects such as data centers that would not otherwise come. The evidence on data centers is mixed but specific: large facilities add substantial property tax and construction work, raise county private employment by about 4% to 5% over five to six years, and employ about 50 permanent workers each, while drawing heavily on power and sometimes water. Opposition and local moratoria are rising, so communities that set clear terms early get better outcomes. ## Key takeaways - Newly designated zones take effect January 1, 2027 and last through December 31, 2036; governors could designate up to 25% of eligible low-income tracts. - Brookings found counties with their first large data center saw private employment rise 4% to 5% over five to six years, with construction up 11%. - Virginia's JLARC found a typical data center employs about 50 full-time workers, about half contractors; property tax is usually the larger local gain. - State sales tax exemptions for data centers are under review: NCSL found lawmakers in 28 states introduced bills to scale back or modify programs in 2026. - Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed in Q1 2026, and several localities adopted moratoria. ## What does an Opportunity Zone designation mean for a community? It means investors who put capital gains into Qualified Opportunity Funds that invest in your tract get federal tax benefits, which can make marginal projects financeable. The designation itself brings no grant money. A tract qualifies as a low-income community if its median family income is no more than 70% of the area median, or if its poverty rate is at least 20% and its median family income is no more than 125% of the area median[^2]. Governors may designate up to 25% of eligible tracts, or 25 tracts if greater[^3]. Treasury's eligible-tract list for this cycle contains 25,332 low-income tracts, 8,334 of them wholly rural[^1]. Newly designated zones take effect January 1, 2027 and run through December 31, 2036, with new designations every 10 years. See [how Opportunity Zones are designated](https://ozdatacenters.com/guides/how-opportunity-zones-are-designated) and [how governors choose zones](https://ozdatacenters.com/guides/how-governors-choose-opportunity-zones). Rural communities have extra tools. In a zone made up entirely of rural area, existing buildings need only 50% added basis to be substantially improved, and a Qualified Rural Opportunity Fund gives investors a 30% basis step-up after five years[^18]. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## What do data centers add to local jobs and the tax base? They add a lot of taxable property and construction work, and a modest number of permanent jobs. Brookings researchers found counties that got their first large data center saw total private employment rise 4% to 5% over five to six years, with construction employment up 11%, and warned that naive estimates overstate the effect by about three times[^5]. Virginia's JLARC found a typical data center employs about 50 full-time workers, about half of them contractors, and that most of the industry's economic footprint ties to construction[^6]. **Figure: What the evidence says about data center benefits** - 4% to 5%: Rise in county private employment over 5 to 6 years - 11%: Rise in county construction employment - ~50: Full-time workers at a typical facility, about half contractors - ~38%: Share of Loudoun County General Fund revenue from data centers *Brookings measured county employment effects[^5]; JLARC measured Virginia facilities[^6]; the Loudoun figure is from the county's budget page[^7].* Property tax is the durable benefit. Loudoun County, Virginia reports that data centers yield about 38% of its General Fund revenue, and the county has lowered its real property tax rate from $1.145 per $100 in tax year 2016 to $0.805 in tax year 2026[^7]. Negotiated PILOTs can be large: in Genesee County, New York, PILOT and host payments for one project were projected at about $285 million over 30 years[^15]. See [the economic impact of data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-center-economic-impact-opportunity-zones). ## What are the costs and why is local opposition growing? The costs are power and water demand, land use, and the price of state tax breaks, and they have driven a sharp rise in organized opposition. Good Jobs First estimates states lose more than $3 billion a year to data center tax exemptions and that each permanent job costs at least $1 million in subsidies[^8]. NCSL found that in 2026 lawmakers in 28 states introduced bills to scale back or modify data center incentives[^9]. Ohio's governor paused new data center exemption requests on May 27, 2026[^13]. **Recent local and state responses** | Place | Action | Date | | --- | --- | --- | | St. Charles, Missouri | One-year moratorium on new or expanded data center applications[^11] | August 2025 | | Pima County, Arizona | 120-day moratorium in unincorporated areas[^12] | September 2026 | | Ohio | Pause on new data center sales tax exemption requests[^13] | May 2026 | | 14 states | Statewide moratorium proposals introduced[^10] | Early 2026 | Data Center Watch, which is funded by an AI-industry-affiliated research firm, counted at least 75 projects worth about $130 billion blocked or delayed in Q1 2026 and 833 opposition groups across 49 states[^10]. At the federal level, a September 2026 Senate bill would exclude data centers from Opportunity Zone benefits; it was not law at this review[^17]. ## How should a community weigh a data center proposal? Weigh revenue against resource demand, and push the project toward the high-revenue, low-demand corner through design and contract terms. Power is the largest demand. Large-load tariffs, such as AEP Ohio's requirement that new data centers above 25 MW pay for at least 85% of subscribed demand for up to 12 years, protect other ratepayers from stranded costs[^14]. **Figure: Sorting data center proposals** - High Local tax revenue, Low Local resource demand (power, water, roads): Best fit (Full property tax or strong PILOT; closed-loop cooling; tariff covers grid costs) - High Local tax revenue, High Local resource demand (power, water, roads): Negotiate hard (Big revenue but heavy water or grid needs; set caps and cost recovery) - Low Local tax revenue, Low Local resource demand (power, water, roads): Limited upside (Small edge facility; low impact, low revenue) - Low Local tax revenue, High Local resource demand (power, water, roads): Decline or redesign (Deep abatements plus high water and power demand) *Most proposals can be moved up and left with closed-loop cooling, large-load tariffs and PILOT terms that track investment.* ## What can economic developers do to get good outcomes? Prepare sites, set terms before a specific project arrives, and write commitments into enforceable agreements. **Figure: An economic developer's playbook** 1. Map sites: Zone tracts with power, water, fiber 2. Set zoning: Districts, noise and setback standards 3. Utility terms: Large-load tariff and upgrade cost rules 4. Incentive policy: PILOT formulas with clawbacks 5. Engage residents: Before any hearing 6. Track results: Jobs, taxes, water use each year *Communities that publish their terms early spend less time fighting over each proposal.* - Tie PILOT payments to actual investment, with true-ups if it falls short. - Separate construction and permanent job commitments, and require annual reports. - Set water use caps or require closed-loop cooling where supply is tight. - Require decommissioning plans or bonds. - Ask whether the project relies on Opportunity Zone equity, and from which fund. Developers' side of this is covered in [community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers). Incentive stacking is covered in [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones). ## How can a community attract Opportunity Zone investment? Make it easy for funds to find, underwrite and close on projects in your designated tracts. Designation is only the first step. Governors nominated tracts in a 90-day window that opened July 1, 2026, with a 30-day extension available, and Treasury then certifies the nominations[^1]. Tracts designated earlier and not redesignated generally stop qualifying for new property acquired after 2026, and those designations expire at the end of 2028, so confirm which of your tracts are on the new list before marketing them[^19]. - Publish a short prospectus for each designated tract: available sites, utility capacity, zoning, incentives and contacts. - Assemble or option larger parcels near transmission, since large users need scale and power more than any single tax benefit. - Keep local approvals predictable; funds working against the 31-month working capital safe harbor cannot absorb open-ended delays. - Coordinate with the electric utility on large-load tariff terms so upgrade costs are settled before a project arrives. - Track which Qualified Opportunity Funds are active in your state and region and brief them directly. Developers judge sites on the same factors covered in [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones) and [buying land for an Opportunity Zone data center](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center). A community that has answered those questions in advance competes well. ## How will communities know whether Opportunity Zone investment helped? Through new federal reporting, which for the first time collects tract-level data from funds and their businesses. The law added information reporting for Qualified Opportunity Funds and the businesses they own, and proposed regulations published September 11, 2026 would require census-tract-level reporting including items such as employee counts[^16]. The Government Accountability Office found in August 2026 that QOFs held more than $108 billion in assets at the end of 2024 but that the effects of the incentive were mostly unknown; Treasury must now report on impacts every five years[^4]. Communities can use that data, along with their own permit and tax records, to hold projects to their promises. See [Opportunity Zone reporting requirements](https://ozdatacenters.com/guides/opportunity-zone-reporting-requirements) and [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## Common questions **Does an Opportunity Zone bring grant money to a community?** No. The designation gives federal tax benefits to investors in qualifying funds. Any public money comes from separate state or local programs. **How many permanent jobs does a data center create?** Typically about 50 full-time workers, about half of them contractors, according to Virginia's JLARC. Construction employment is far larger but temporary. **Can a community stop a data center in an Opportunity Zone?** Yes. Zoning and permitting remain local. Several localities, including St. Charles, Missouri and Pima County, Arizona, adopted temporary moratoria. **When do the new Opportunity Zones take effect?** January 1, 2027, running through December 31, 2036. As of October 2026, Treasury had not published a consolidated national list. **Do data centers raise residents' electric bills?** They can if grid costs are socialized. Large-load tariffs that require minimum payments for many years are the main protection. ## Sources [^1]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^2]: Office of the Law Revision Counsel, "26 USC 1400Z-1: Designation" (n.d.). https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-section1400Z-1&num=0&edition=prelim [^3]: Economic Innovation Group, "Opportunity Zones 2.0: Where Things Stand After the One Big Beautiful Bill Act" (2025). https://eig.org/opportunity-zones-2-0-where-things-stand/ [^4]: U.S. Government Accountability Office, "GAO-26-108132 Highlights, Opportunity Zones" (2026). https://www.gao.gov/assets/gao-26-108132-highlights.pdf [^5]: Brookings Institution, "New evidence on data center employment effects" (2026). https://www.brookings.edu/articles/new-evidence-on-data-center-employment-effects/ [^6]: Joint Legislative Audit and Review Commission (Virginia), "Data Centers in Virginia, Report 598" (2024). https://jlarc.virginia.gov/pdfs/reports/Rpt598.pdf [^7]: Loudoun County, Virginia, "Data Centers: Tax Revenues and County Budget" (n.d.). https://www.loudoun.gov/6409/Tax-Revenues-County-Budget [^8]: Bloomberg Tax, "State Losses From Data Center Tax Breaks Top $3 Billion Annually" (2025). https://news.bloombergtax.com/daily-tax-report-state/state-losses-from-data-center-tax-breaks-top-3-billion-annually [^9]: National Conference of State Legislatures, "2026 legislative agendas put data center incentives in the spotlight" (2026). https://www.ncsl.org/news/details/2026-legislative-agendas-put-data-center-incentives-in-the-spotlight [^10]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^11]: KCUR, "St. Charles one-year data center moratorium (report)" (2025). https://www.kcur.org/housing-development-section/2025-08-23/st-charles-data-center-year-ban [^12]: KJZZ, "Pima County passes 120-day moratorium on future data center projects" (2026). https://www.kjzz.org/fronteras-desk/2026-09-23/pima-county-passes-120-day-moratorium-on-future-data-center-projects [^13]: WOSU, "Gov. DeWine freezes controversial data center tax break, for now" (2026). https://www.wosu.org/2026-05-27/gov-dewine-freezes-controversial-data-center-tax-break-for-now [^14]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^15]: The Batavian, "Proposed incentive package for data center includes higher property taxes" (2025). https://www.thebatavian.com/howard-owens/proposed-incentive-package-for-data-center-includes-higher-property-taxes-savings-on [^16]: Federal Register (GovInfo), "Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, 91 FR 57968" (2026). https://www.govinfo.gov/content/pkg/FR-2026-09-11/pdf/2026-18574.pdf [^17]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^18]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^19]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf --- # Opportunity Zones for business owners selling a company URL: https://ozdatacenters.com/guides/opportunity-zones-for-business-owners-selling Last reviewed: 2026-10-20 A business owner who sells a company can defer federal tax on the capital gain by investing that gain, not the full price, in a Qualified Opportunity Fund within 180 days of closing. Installment sales get a separate 180-day window for each payment, and a stock sale usually produces more eligible gain than an asset sale, where part of the price is ordinary income. For gains invested on or after January 1, 2027, the deferred gain is taxed after five years with a 10% or 30% step-up, and growth on the fund interest can be tax-free after 10 years. ## Key takeaways - Only the capital gain needs to be invested; the return of your basis and any cash for taxes on ordinary income are free to use. - The 180-day window starts on the closing date for a direct sale, and on each payment date (or year-end, if elected) for an installment sale. - In an asset sale, amounts taxed as ordinary income, such as depreciation recapture and inventory, are not eligible; goodwill and other capital or §1231 gain are. - If an S corporation or partnership sells assets, owners who receive the gain on a K-1 can choose a 180-day window starting at year-end, the sale date, or the entity return's unextended due date. - A sale closing in the second half of 2026 can still be invested on or after January 1, 2027 within its window, which gets the five-year rolling deferral and step-up. ## Can the gain from selling a business go into an Opportunity Zone fund? Yes, to the extent the sale produces capital gain or §1231 gain that is recognized for federal tax, and the buyer is not a related person. The statute lets a taxpayer defer gain invested in a Qualified Opportunity Fund (QOF) within 180 days[^1], and the final regulations confirm that both capital gain and gross §1231 gain qualify while ordinary income does not[^2]. You only need to invest the gain. If you sell a company for $12 million and your stock basis is $2 million, the gain is $10 million, and investing $10 million defers all of it. You can also invest less and defer less. Gain excluded from income under §1202 (qualified small business stock) bears no federal tax, so there is nothing to defer; practitioners generally treat only the taxable remainder as eligible gain. Confirm the split with your adviser. See [which capital gains qualify](https://ozdatacenters.com/guides/what-gains-qualify-for-opportunity-zone-deferral). ## When does the 180-day window start after a business sale? For a direct sale, the window starts on the closing date when the gain is recognized. For an installment sale, each payment can start its own 180-day window. For gain passed through a partnership or S corporation, the owner can choose among three start dates[^2][^12]. **Figure: Key dates after a business sale** - Closing: Gain recognized (Day 1 of the 180-day window) - Day 180: Last day to invest (Cash for QOF equity) - Tax return: Elect deferral (Form 8949; Form 8997 yearly) - Year 5: Deferred gain taxed (90%, or 70% in a rural fund) - Year 10: Growth excludable (Basis election on sale) *Schedule fund diligence before closing. A wire on day 181 does not qualify.* > Closing in 2026? The five-year rolling deferral and the 10% or 30% step-up apply to amounts invested in a QOF on or after January 1, 2027. A QOF investment made on or before December 31, 2026 falls under transition rules, and its deferred gain is included on December 31, 2026. If your 180-day window reaches into 2027, investing in 2027 gets the current rules[^6][^7]. Escrows and holdbacks add a timing question. Amounts held back are often reported under the installment method when paid, giving them their own windows. Confirm the treatment of each piece of consideration with your tax adviser. See [the 180-day rule](https://ozdatacenters.com/guides/opportunity-zone-180-day-rule). ## Does a stock sale or an asset sale work better with Opportunity Zones? A stock sale usually produces more eligible gain, because the seller's gain on shares held more than a year is generally all long-term capital gain[^4]. An asset sale splits the price among the assets sold: inventory and receivables produce ordinary income, depreciation recapture on equipment is ordinary income under §1245, and goodwill and other capital assets produce capital or §1231 gain[^5]. Only the capital and §1231 parts can be deferred[^2]. **Figure: Stock sale vs. asset sale for an Opportunity Zone investor** - Stock sale (More eligible gain) - Seller's gain on shares is generally capital gain - 180-day window from closing for the shareholder - No recapture at the seller level - Buyer inherits the company's tax basis - Asset sale (Mixed character) - Price allocated across assets; recapture and inventory are ordinary - Goodwill and capital assets give eligible gain - C corporation sells: the corporation can invest its own gain - S corporation or partnership sells: owners can elect on K-1 gain *Buyers often prefer asset deals for the basis step-up; sellers using Opportunity Zones usually prefer stock deals for gain character.* If a C corporation sells its assets, the gain belongs to the corporation, which can make its own QOF investment within 180 days. If an S corporation or partnership sells, the entity can elect, or each owner can elect with a window starting on the entity's year-end, the sale date, or the unextended due date of the entity's return[^2]. See [partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains) and [section 1231 gains](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones). ## How much gain can a seller defer, in numbers? In an asset sale, start with the price, subtract basis, then subtract the ordinary income pieces; what remains is the eligible gain. **Figure: From sale price to eligible gain in an asset sale** (illustrative) - Sale price: 12000000 $ - Asset basis returned: -2000000 $ - Equipment recapture (ordinary): -1000000 $ - Inventory and receivables (ordinary): -500000 $ - Eligible gain: $8,500,000: 8500000 $ *Illustrative. A $12,000,000 asset sale with $2,000,000 of total asset basis, $1,000,000 of equipment recapture and $500,000 of inventory and receivables income taxed as ordinary income.* **Federal tax on the $8,500,000 eligible gain (23.8% rate, no state tax, illustrative)** | Choice | Gain taxed | Federal tax | When paid | | --- | --- | --- | --- | | Pay tax at sale | $8,500,000 | $2,023,000 | Year of sale | | Invest in a standard QOF in 2027 | $7,650,000 | $1,820,700 | Year 5 | | Invest in a Qualified Rural Opportunity Fund | $5,950,000 | $1,416,100 | Year 5 | Growth on the QOF interest after a 10-year hold can then be excluded. The rural figures assume the fund holds at least 90% of its assets in zones made up entirely of rural area[^15]. The step-up rules for investments after 2026 are summarized by RSM[^8]. The $1,500,000 of ordinary income is taxed at ordinary rates in the year of sale either way. For a full model, see [the tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## How do installment sales and earnouts work with Opportunity Zones? Each installment payment's gain can be invested within 180 days of receipt, or the seller can elect a single window starting at the end of the tax year[^13][^14]. An installment sale is one where at least one payment arrives after the year of sale; gain is reported as payments are received on Form 6252, but any depreciation recapture is reported in the year of sale, and interest is ordinary income[^3]. - Seller note: invest the gain portion of each principal payment as it arrives; interest is not eligible. - Earnout: contingent payments are typically installment payments, each with its own window. - Escrow release: confirm whether the release is a payment for installment purposes. - Election out: if you elect out of the installment method, all gain is recognized at closing and one window applies. - Each investment date starts its own five-year clock for gains invested on or after January 1, 2027. ## What steps should a selling owner take, and what are the pitfalls? 1. Before signing the LOI, model stock versus asset structures for after-tax proceeds and eligible gain. 2. Have your adviser estimate the eligible gain and list every 180-day start date. 3. Choose a fund and complete diligence before closing; see the [fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence). 4. Invest cash for QOF equity within each window and keep proof of the investment date. 5. Elect on Form 8949 for the year of the gain and file Form 8997 every year[^10]. 6. Set aside cash for the year-five tax and check state conformity. - Rolling equity into the buyer is not a QOF investment and may be a related-party issue. - Selling to a related person (20% or more common ownership) makes the gain ineligible[^1]. - California does not conform to federal deferral or exclusion[^11]; see [state tax treatment](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). - The year-five tax is due even though the fund interest is illiquid. - Sponsor quality matters more than the tax benefit; see [the risks of Opportunity Zone investing](https://ozdatacenters.com/guides/opportunity-zone-investment-risks). Steptoe's summary of the final regulations covers the eligible-gain rules in more depth[^9]. Data center funds are one long-hold option for a large business-sale gain; see [how a data center Opportunity Zone fund works](https://ozdatacenters.com/guides/data-center-opportunity-zone-fund). ## Common questions **Do I need to reinvest the entire sale price?** No. Only the capital gain you want to defer needs to be invested. Your basis and any amounts taxed as ordinary income are not part of the investment. **When does my 180-day window start if I sell my company?** On the closing date for a direct sale. For an installment sale, on each payment date or the end of the tax year if elected. For gain on a K-1, at year-end, the sale date or the entity's unextended return due date. **Is depreciation recapture eligible for Opportunity Zone deferral?** No. Recapture taxed as ordinary income under §1245 or §1250 is not eligible gain, and on an installment sale it is reported in the year of sale. **Can my C corporation invest the gain itself?** Yes. If the corporation sells assets and recognizes the gain, it can invest in a QOF within 180 days and elect deferral on its own return. **Can I invest earnout payments as they come in?** Generally yes. Earnout payments reported under the installment method can each be invested within 180 days of receipt. **Is QSBS-excluded gain eligible?** Gain excluded from income under §1202 bears no federal tax, so there is nothing to defer. Any taxable capital gain above the exclusion can generally be invested; confirm with your adviser. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^3]: Internal Revenue Service, "Topic no. 705, Installment Sales" (n.d.). https://www.irs.gov/taxtopics/tc705 [^4]: Internal Revenue Service, "Topic no. 409, Capital gains and losses" (n.d.). https://www.irs.gov/taxtopics/tc409 [^5]: Internal Revenue Service, "Publication 544, Sales and Other Dispositions of Assets" (2025). https://www.irs.gov/publications/p544 [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Spidell, "New Qualified Opportunity Zone guidance clarifies gain recognition rules" (2026). https://spidell.com/news/hot-news-and-notes/new-qualified-opportunity-zone-guidance-clarifies-gain-recognition-rules/ [^8]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^9]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^10]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^11]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^12]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^13]: Akerman, "Treasury and IRS Issue Final Opportunity Zone Tax Regulations" (2020). https://www.akerman.com/en/perspectives/treasury-and-irs-issue-final-opportunity-zone-tax-regulations.html [^14]: Goulston & Storrs, "Qualified Opportunity Zones: Final Regulations Provide Clarity" (2020). https://www.goulstonstorrs.com/content/uploads/pdf/publication/qualified-opportunity-zones-final-regulations-provide-clarity.pdf [^15]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas --- # Opportunity Zones for real estate investors selling property URL: https://ozdatacenters.com/guides/opportunity-zones-for-real-estate-sellers Last reviewed: 2026-10-20 A real estate investor who sells property can defer federal tax on the gain by investing it in a Qualified Opportunity Fund within 180 days of the sale date. The gross §1231 gain qualifies without netting against §1231 losses, but any depreciation recapture taxed as ordinary income under §1245 or §1250 does not. Compared with a 1031 exchange, an Opportunity Zone investment requires reinvesting only the gain rather than all proceeds, offers tax-free growth after 10 years, but taxes the deferred gain after five years. ## Key takeaways - Gross §1231 gain from selling business or rental property is eligible, and its 180-day window starts on the date of sale. - Depreciation recapture taxed as ordinary income, common on cost-segregated components treated as §1245 property, is not eligible gain. - A 1031 exchange requires buying like-kind real property and identifying it within 45 days, closing within 180 days; a QOF needs only the gain invested within 180 days. - A 1031 can defer gain until a later taxable sale; an Opportunity Zone deferral ends at five years, with a 10% or 30% step-up, but growth on the fund interest can be excluded after 10 years. - Boot recognized in a partial 1031 exchange is gain that can be invested in a QOF, so the two tools can be combined. ## Can gain from selling real estate go into an Opportunity Zone fund? Yes. Gain from selling real property held for investment or used in a business qualifies to the extent it is capital gain or §1231 gain, and you invest it in a Qualified Opportunity Fund (QOF) within 180 days[^1]. Under the final regulations, the gross §1231 gain from each sale qualifies, without netting against §1231 losses, and the 180-day period begins on the date of the sale[^2][^3]. You only need to invest the gain. Your adjusted basis comes back free of tax, and you can use it to pay off the mortgage or for any other purpose. Selling to a related person (20% or more common ownership) makes the gain ineligible[^1]. For the full treatment, see [section 1231 gains and Opportunity Zones](https://ozdatacenters.com/guides/section-1231-gains-opportunity-zones). ## Is depreciation recapture eligible for Opportunity Zone deferral? Not when it is ordinary income. The final regulations exclude gain treated as ordinary income under §1245 or §1250 recapture from eligible gain[^4]. For a building, recapture under §1245 typically arises on components a cost segregation study reclassified as shorter-lived personal property, which is taxed as ordinary income to the extent of depreciation taken[^5]. Bonus depreciation on those components, now 100% for property acquired after January 19, 2025, increases the recapture on a later sale[^8]. Straight-line depreciation on the building itself produces unrecaptured §1250 gain, which is long-term capital gain taxed at a maximum 25% rate[^6]. The regulations exclude only recapture treated as ordinary income, so unrecaptured §1250 gain, which is part of the §1231 gain and capital in character, is generally read to be eligible; confirm this for your facts with your tax adviser. **Figure: From sale price to eligible gain on a rental property** (illustrative) - Sale price, net of costs: 5000000 $ - Adjusted basis returned: -2000000 $ - §1245 recapture (ordinary, not eligible): -400000 $ - Eligible §1231 gain: $2,600,000: 2600000 $ *Illustrative. A $5,000,000 sale of a property with a $2,000,000 adjusted basis. A cost segregation study produced $400,000 of §1245 recapture. The $2,600,000 of eligible gain includes $600,000 of unrecaptured §1250 gain.* ## How much tax does an Opportunity Zone investment defer on a property sale? Using the example above and federal rates only, investing the $2,600,000 eligible gain on or after January 1, 2027 defers its tax for five years from the investment date[^15], then taxes 90% of it in a standard fund or 70% in a Qualified Rural Opportunity Fund[^9][^14]. **Federal tax on the eligible gain (illustrative; 23.8% (20% plus 3.8% NIIT) on the $2,000,000 appreciation and 28.8% (the 25% maximum rate plus 3.8% NIIT) on the $600,000 unrecaptured §1250 gain, assuming NIIT applies to all of it; no state tax)** | Choice | Gain taxed | Approximate federal tax | When | | --- | --- | --- | --- | | Pay tax now | $2,600,000 | $648,800 | Year of sale | | Standard QOF, held 5 years | $2,340,000 | $583,920 | Year 5 | | Rural fund (QROF), held 5 years | $1,820,000 | $454,160 | Year 5 | The step-up is applied proportionally here for simplicity; how the inclusion is characterized across rate classes should be confirmed with your adviser. The $400,000 of recapture is taxed at ordinary rates in the year of sale in every case. Growth on the fund interest after 10 years can be excluded, which is where most of the value sits. See [the tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## Is an Opportunity Zone fund or a 1031 exchange better for a property seller? A 1031 exchange suits sellers who want to keep owning real estate directly and defer indefinitely; a QOF suits sellers who want to take out their basis, diversify into a fund, and get tax-free growth after 10 years. Under §1031, real property held for business or investment can be exchanged for like-kind real property without recognizing gain, but cash or other property received is taxable[^7]. The replacement must be identified within 45 days and acquired within 180 days[^7]. **Figure: 1031 exchange vs. Qualified Opportunity Fund** - 1031 exchange (Stay in real estate) - Reinvest all net proceeds and replace debt to avoid boot - Like-kind real property only, held for business or investment - 45 days to identify, 180 days to close, through an intermediary - Defers gain until a taxable sale; cost-segregated §1245 components can still trigger recapture - No exclusion of later growth - Qualified Opportunity Fund (Gain only) - Reinvest only the eligible gain; keep your basis - Any QOF equity, including funds owning data centers or operating businesses - 180 days from the sale date - Deferred gain taxed at year 5, less a 10% or 30% step-up - Growth on the fund interest excludable after 10 years *The QOF needs only the gain invested and opens tax-free growth; the 1031 keeps deferring as long as you keep exchanging.* **Which tool fits which seller** | Seller situation | Usually better fit | | --- | --- | | Wants to keep managing property directly | 1031 exchange | | Wants to pay down debt or take cash out | QOF (only gain is invested) | | Large cost segregation recapture | Often a 1031, since recapture is not eligible for a QOF; model §1245 recapture under both | | Wants a passive, long-hold fund investment | QOF | | Cannot find replacement property in 45 days | QOF | | Partial exchange with boot | Both: 1031 for the exchanged part, QOF for recognized boot gain | Full comparison: [Opportunity Zone vs. 1031 exchange](https://ozdatacenters.com/guides/opportunity-zone-vs-1031-exchange). ## What if the property is owned through a partnership or LLC? The partnership can elect to defer at the entity level, or each partner can elect with a 180-day period starting at the partnership's year-end, the date of the sale, or the unextended due date of the partnership's return[^3]. That flexibility helps partners who learn of the gain from a K-1. Partnerships that do a 1031 exchange while some partners want cash sometimes use a partial exchange, with the recognized gain allocated to those partners eligible for QOF investment. Have your adviser review any such allocation. See [partnership and K-1 gains](https://ozdatacenters.com/guides/opportunity-zone-partnership-k1-gains). Seller-financed sales follow the installment method: gain is reported as payments arrive, each payment can start its own 180-day window (or, by election, one window from the last day of the tax year), and recapture is reported in the year of sale[^13]. ## What are the most common mistakes real estate sellers make? Most mistakes come from treating a QOF like a 1031 exchange, or from not knowing how much of the gain is recapture until the return is prepared. - Assuming all gain is eligible: cost-segregated properties can carry large ordinary recapture that must be taxed in the year of sale. - Missing the window: the 180 days run from the closing date, not from year-end, for gain recognized directly. - Using a qualified intermediary for a QOF: cash should come to you and then go to the fund as an equity investment; a 1031 intermediary arrangement is a different structure. - Selling to a related buyer: 20% or more common ownership makes the gain ineligible. - Forgetting year five: tax on 90% (or 70%) of the deferred gain is due in the year that includes the fifth anniversary, whether or not you can sell the fund interest. - Ignoring state law: some states, including California, do not follow the federal deferral. See [inclusion events](https://ozdatacenters.com/guides/opportunity-zone-inclusion-events) for the transactions that can trigger the deferred gain early, and [depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation) for how depreciation inside the fund is treated. ## What steps should a real estate seller take? 1. Before listing, get a gain estimate split into recapture, unrecaptured §1250 gain and other §1231 gain. 2. Decide between a 1031, a QOF, or both, based on how much cash you want and how long you will hold. 3. If using a QOF, pick a fund and finish diligence before closing. 4. Invest the eligible gain within 180 days of the sale date. 5. Elect deferral on Form 8949 and file Form 8997 every year[^12]. 6. Reserve cash for the year-five tax and check state rules. For real estate sellers who want to stay in real assets without managing them, data center funds offer long-lived property with long-term tenants; OZ Data Centers sponsors funds of this kind. Read [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) and [the fund due diligence checklist](https://ozdatacenters.com/guides/opportunity-zone-fund-due-diligence) before committing. On exit, investors in flow-through QOFs held 10 years can also elect to exclude gain from the fund's asset sales, including recapture at the fund level[^16]. The permanent program's core terms are summarized by Novogradac[^10] and RSM[^9]; California does not conform[^11]. ## Common questions **When does the 180-day period start for §1231 gain?** On the date of the sale. Gross §1231 gain does not wait for year-end netting; each sale starts its own 180-day window. **Can I invest depreciation recapture in an Opportunity Zone fund?** Not the part taxed as ordinary income under §1245 or §1250. Unrecaptured §1250 gain, taxed at up to 25%, is capital gain in character and generally treated as eligible. **Do I need to reinvest all my sale proceeds like a 1031?** No. Only the eligible gain needs to go into the QOF. You keep your basis, so you can repay debt or keep the cash. **Can I combine a 1031 exchange and an Opportunity Zone investment?** Yes. If a partial exchange leaves recognized boot, that capital or §1231 gain can be invested in a QOF within 180 days. **Is a QOF better than a 1031 exchange?** It depends. A 1031 defers longer and can defer much of the recapture but requires reinvesting all proceeds in real property. A QOF needs only the gain and can make growth tax-free after 10 years, but taxes the deferred gain at year five. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: EY Tax News, "Final regulations on Opportunity Zones retain same approach as proposed regulations, with a few big changes" (2020). https://taxnews.ey.com/news/2020-0056-final-regulations-on-opportunity-zones-retain-same-approach-as-proposed-regulations-with-a-few-big-changes [^3]: Holland & Hart, "Taxpayer-Favorable Final Opportunity Zone Regulations Issued" (2019). https://www.hollandhart.com/taxpayer-favorable-final-opportunity-zone-regulations-issued [^4]: Steptoe, "Final Opportunity Zone Regulations Provide Some Much-Needed Clarity" (2020). https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-some-much-needed-clarity.html [^5]: Internal Revenue Service, "Publication 544, Sales and Other Dispositions of Assets" (2025). https://www.irs.gov/publications/p544 [^6]: Internal Revenue Service, "Topic no. 409, Capital gains and losses" (n.d.). https://www.irs.gov/taxtopics/tc409 [^7]: Internal Revenue Service, "Like-kind exchanges: Real estate tax tips" (n.d.). https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips [^8]: CBIZ, "Cost segregation bonus depreciation benefits under the OBBBA" (2025). https://www.cbiz.com/insights/article/cost-segregation-bonus-depreciation-benefits-under-the-obbba [^9]: RSM US, "The OBBBA rekindles opportunity zones: What it means for real estate" (2025). https://rsmus.com/insights/services/business-tax/obbba-tax-opportunity-zones.html [^10]: Novogradac, "OBBBA Makes OZ Incentive Permanent, With Some Significant Changes" (2025). https://www.novoco.com/periodicals/articles/obbba-makes-oz-incentive-permanent-with-some-significant-changes [^11]: California Franchise Tax Board, "2023 Instructions for Schedule D (541) Capital Gain or Loss" (2023). https://www.ftb.ca.gov/forms/2023/2023-541-d-instructions.html [^12]: Internal Revenue Service, "Form 8997, Initial and Annual Statement of Qualified Opportunity Fund Investments" (2024). https://irs.gov/pub/irs-prior/f8997--2024.pdf [^13]: Internal Revenue Service, "Topic no. 705, Installment Sales" (n.d.). https://www.irs.gov/taxtopics/tc705 [^14]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^15]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^16]: Baker Tilly, "Final opportunity zone regulations: key takeaways" (2020). https://www.bakertilly.com/insights/final-opportunity-zone-regulations-key-takeaways # Section: Guides by state Opportunity Zones and data centers state by state: zones, power, state tax treatment and incentives. --- # Opportunity Zone data centers in Virginia URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-virginia Last reviewed: 2026-10-22 Virginia is the world's largest data center market and a conforming Opportunity Zone state: its income tax starts from federal income, so a Virginia resident who invests a gain in a Qualified Opportunity Fund defers both the 23.8% federal tax and Virginia's 5.75% tax. The catch is geography. The 2027 zones will come from roughly 607 eligible low-income tracts, few of them in the high-income core of Northern Virginia, so Opportunity Zone data centers in Virginia are mainly a story of the I-95 corridor, Central and Southside Virginia, and power availability. ## Key takeaways - Virginia conforms to the Internal Revenue Code as of December 31, 2025 (HB 29, signed February 20, 2026), a date after Public Law 119-21; published summaries of its decoupling list do not include the Opportunity Zone rules. - On a $10 million gain invested in 2027, a Virginia resident defers about $2.38 million of federal tax and $575,000 of Virginia tax; the 10% step-up at year five cuts the combined bill by about $295,500. - Virginia REALTORS reports 607 census tracts eligible for the 2027 zones, allowing roughly 152 nominations; Treasury certification of the final list is still pending. - Northern Virginia had 4,496.5 MW of inventory, 2,420.2 MW under construction and 0.2% vacancy in CBRE's H1 2026 report. - Virginia kept its data center sales and use tax exemption ($150 million and 50 jobs, or $70 million and 10 jobs in distressed localities) but added a $0.011 per kWh electricity consumption tax from July 1, 2026. - Dominion Energy reported about 53.8 GW of data center capacity in various stages of contracting by mid-2026, and large new loads can wait years for service, which drives siting more than tax does. ## How do Opportunity Zones and data centers intersect in Virginia? They intersect outside the traditional core: Virginia has the deepest data center demand in the country and full state tax conformity, but most Opportunity Zone capacity will sit in lower-income tracts away from Loudoun and Fairfax. An Opportunity Zone is a low-income census tract designated under IRC §1400Z-1. A Qualified Opportunity Fund (QOF) is a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property, usually through a Qualified Opportunity Zone Business (QOZB) that owns and operates the real estate.[^2] An investor who puts an eligible capital gain into a QOF within 180 days defers tax on it for up to five years, gets a 10% basis step-up at year five (30% in a rural fund), and pays no federal tax on the QOF's appreciation after a 10-year hold.[^2] For data centers, that matters most to projects with large, long-lived capital budgets: powered shells, campus infrastructure, substations and the mechanical and electrical plant. The [complete guide to data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones) covers the federal rules in depth. This page covers what is specific to Virginia: the 2027 map, the state tax result, the incentive stack, Dominion and PJM power, and local politics. > New Opportunity Zones take effect January 1, 2027 and run through December 31, 2036. The rolling five-year deferral and the 10% and 30% step-ups described here apply to gains invested on or after January 1, 2027.[^1][^2] ## Which Virginia census tracts will be Opportunity Zones in 2027? The final list is not yet certified: Virginia's governor submitted nominations from a pool that Virginia REALTORS puts at 607 eligible tracts, and Treasury is still certifying state lists. Treasury's Rev. Proc. 2026-14 lists 25,332 eligible tracts nationwide, 8,334 of them wholly rural, and each governor may nominate up to 25% of a state's eligible tracts (or 25 tracts, if greater).[^1] Virginia REALTORS reported in May 2026 that 607 Virginia tracts meet the new eligibility test and that the state would nominate approximately 152 new zones.[^3] A tract is eligible if its median family income is no more than 70% of the area median, or if its poverty rate is at least 20% and its median family income is no more than 125% of the area median.[^1] The Virginia Department of Housing and Community Development (DHCD) and the Virginia Economic Development Partnership (VEDP) ran the state process, surveying localities and holding webinars in April 2026 to gather priorities for the governor.[^4] Nominations were due within 90 days of July 1, 2026, with one 30-day extension available, and Treasury then has 30 days (extendable by 30) to certify.[^1] **Figure: Virginia's path to 2027 Opportunity Zones** - Apr 6, 2026: Eligible tracts published (Rev. Proc. 2026-14 appendix) - April 2026: DHCD and VEDP outreach (Locality survey and webinars) - Jul 1, 2026: Nomination window opens (90 days, one 30-day extension) - Late 2026: Treasury certification (30 days, extendable by 30) - Jan 1, 2027: New zones take effect (Through Dec 31, 2036) *Dates follow Rev. Proc. 2026-14 and Virginia's state process. Until Treasury certifies the list, treat any nominated tract as pending.[^1][^4]* Rural tracts deserve attention. A rural area is anywhere outside a city or town of more than 50,000 people and its adjacent urbanized area.[^5] A Qualified Rural Opportunity Fund (QROF), which holds 90% of its assets in zones made up entirely of rural area, earns a 30% basis step-up instead of 10%, and existing buildings in those zones need only 50% (not 100%) of their basis in improvements to be substantially improved.[^5] Much of Southside and Southwest Virginia, where land and transmission corridors exist but incomes are lower, is the natural place to look for rural tracts. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones) and [how to check whether a property is in a zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone). > Analysis: Loudoun, Fairfax and western Prince William are among the higher-income parts of the state, so relatively few tracts in the core of Data Center Alley are likely to meet the 70% income test. Confirm every parcel against the certified list before relying on it. ## Does Virginia tax Opportunity Zone gains? Virginia follows the federal result: deferred gain is not in Virginia income until it is in federal income, and gain excluded after 10 years is excluded for Virginia too. Virginia's income tax starts from federal adjusted gross income. HB 29 (Chapter 7, 2026 Acts), signed February 20, 2026, fixes Virginia's conformity to the Internal Revenue Code as of December 31, 2025, after Public Law 119-21 was enacted on July 4, 2025.[^6] The bill decouples from specific items, including §168(n) expensing for qualified production property, §174A research expensing and the increased §179 limits, and keeps Virginia's existing exceptions such as its long-standing decoupling from bonus depreciation.[^6][^7] None of the published summaries we reviewed lists §1400Z-2 among the exceptions, and Novogradac's conformity tracker lists Virginia as fully conforming.[^8] Virginia taxes capital gains as ordinary income. The top rate is 5.75% on taxable income over $17,000.[^9] That is consistent with our [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) guide, which lists only California, North Carolina, Massachusetts (personal income tax), Mississippi and New York as clear decouplers. **Figure: Virginia resident: tax due at year five on a $10 million gain invested in 2027** (illustrative) - Federal and Virginia tax on $10M: 2955000 $ - 10% step-up, federal: -238000 $ - 10% step-up, Virginia: -57500 $ - Tax due at year five: 2659500 $ *Illustrative. Assumes a $10,000,000 long-term gain invested in a standard QOF on time, held at least five years, a 23.8% federal rate (20% plus 3.8% net investment income tax) and Virginia's 5.75% top rate, with no change in rates. Without the QOF, the same $2,955,000 would be due in 2027.* **The $10 million example in numbers (illustrative)** | Item | Federal (23.8%) | Virginia (5.75%) | Combined | | --- | --- | --- | --- | | Tax if the gain is not reinvested (2027) | $2,380,000 | $575,000 | $2,955,000 | | Tax due in 2027 if invested in a QOF | $0 | $0 | $0 | | Gain included at year five after 10% step-up | $9,000,000 | $9,000,000 | | | Tax due at year five | $2,142,000 | $517,500 | $2,659,500 | | Tax on QOF appreciation after a 10-year hold | $0 | $0 | $0 | In a QROF the step-up is 30%, so only $7,000,000 is included at year five: $1,666,000 federal and $402,500 Virginia. The larger value is the exclusion. If the QOF interest doubles to $20 million and is sold after 10 years, about $2.96 million of combined tax on the $10 million of appreciation disappears at these rates. For the full federal mechanics, see the [Opportunity Zone tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). > Virginia is a fixed-date state. A later federal change to §1400Z-2 applies for Virginia only after the General Assembly advances the conformity date again. Advocacy groups have urged Virginia to decouple from Opportunity Zone gain treatment, so check the conformity bill each session and confirm with your tax adviser. ## How big is Virginia's data center market? It is the largest in the world. Virginia's Joint Legislative Audit and Review Commission (JLARC) found that Northern Virginia holds about 13% of reported global data center operating capacity and 25% of capacity in the Americas, with roughly 80% of Virginia's industry in Loudoun, Prince William and Fairfax counties.[^12] JLARC expects significant new growth outside Northern Virginia, along the I-95 corridor toward Central Virginia.[^12] **Figure: Virginia data center market in numbers** - 4,496.5 MW: Northern Virginia inventory, H1 2026[^10] - 2,420.2 MW: Northern Virginia under construction, H1 2026[^11] - 0.2%: Northern Virginia vacancy, H1 2026[^10] - 53.8 GW: Data center capacity in Dominion's contracting pipeline, mid-2026[^18] *CBRE figures cover the Northern Virginia market at mid-2026.[^10][^11] Dominion's figure counts capacity at several contracting stages, of which about 12 GW was under electric service agreements.[^18]* Northern Virginia posted 467.6 MW of net absorption in the first half of 2026, the most of any primary North American market, and vacancy fell from 0.7% to 0.2%.[^10] On a statewide basis, Cushman & Wakefield counted 6.3 GW under construction in Virginia at the end of 2025, about a quarter of the Americas pipeline.[^13] Atlanta passed Northern Virginia in capacity under construction in CBRE's H1 2026 count, a sign of how power constraints are pushing growth elsewhere.[^11] Demand drivers are cloud and AI tenants that want to be near the region's dense fiber and interconnection ecosystem, plus a large federal and defense customer base. The constraint is no longer tenants. It is power delivery, land with the right zoning, and local approval. ## What tax incentives does Virginia offer data centers, and do they stack with Opportunity Zones? Yes, they stack: Virginia's sales and use tax exemption applies to qualifying equipment whether or not the site is in an Opportunity Zone, and the Opportunity Zone benefit applies to the investor's capital gain. The two operate on different taxpayers and different taxes. **Virginia's main data center incentive and the 2026 changes** | Item | Terms | Source | | --- | --- | --- | | Sales and use tax exemption | Computer equipment and enabling software for a qualifying data center; runs through June 30, 2035 | VEDP[^14] | | Standard threshold | $150 million of new capital investment and 50 new jobs paying at least 150% of the local prevailing average wage | VEDP[^14] | | Distressed localities | $70 million and 10 jobs in localities with above-average unemployment and poverty | VEDP[^14] | | Performance agreement | MOU with VEDP; targets met within three years or the exemption is repaid | VEDP[^14] | | Cost | About $1.6 billion of forgone revenue in FY2025 | Data Center Dynamics[^15] | | New electricity tax | $0.011 per kWh consumed by data centers from July 1, 2026, capped at $600 million per fiscal year | Williams Mullen; Virginia Mercury[^16][^17] | The 2026 budget fight was about whether to end the exemption. Lawmakers kept it and added the electricity consumption tax instead, and the budget directs further study of data center taxation, so the exemption's future is a live question for projects that will buy equipment after 2028.[^16][^17] JLARC found the exemption saved companies $928 million in FY2023 and that about 90% of the industry used it.[^12] The distressed-locality threshold is where the overlap with Opportunity Zones is strongest. A locality with above-average unemployment and poverty is also more likely to contain eligible low-income tracts, so a project there may qualify for the lower $70 million exemption threshold and Opportunity Zone equity at the same time. The electricity tax, by contrast, is an operating cost that does not change with zone status. See [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## How hard is it to get power for a data center in Virginia? Hard, and it decides most siting outcomes. Most of the state's data center load is served by Dominion Energy Virginia inside the PJM Interconnection, the regional grid operator; Appalachian Power serves much of Southwest Virginia, and electric cooperatives serve parts of the north and center. Dominion said in 2024 that connecting new data centers above 100 MW could take one to three years longer than before, for total waits of up to seven years in Northern Virginia.[^21] - Large-load rate class: the State Corporation Commission's November 25, 2025 order created a new rate class for large users with stronger financial commitments.[^20] Summaries describe it as covering loads above 25 MW with high load factors, with minimum payments of 85% of contracted transmission and distribution demand and 60% of generation demand, starting in 2027.[^19] - Transmission costs: in August 2026 the SCC ordered Dominion to develop a tariff assigning more transmission costs to data centers and other large loads.[^23] - Capacity prices: PJM's 2027/2028 capacity auction cleared at the $333.44/MW-day cap, fell 6,623 MW short of the reliability requirement, and attributed 5,100 MW of the 5,250 MW forecast peak increase to data centers.[^22] - Co-location: FERC directed PJM in December 2025 to create transmission services for load co-located with generation, a route some campuses are pursuing for on-site or adjacent supply.[^28] For a QOZB, power timing interacts with the 31-month working capital safe harbor, which lets a business hold cash for a written development plan (up to 62 months with a second plan). Utility queue delays are not clearly the kind of governmental delay that extends that period, so a Virginia data center fund should phase equity to match energization dates, not land closings. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## What should you know about siting a data center in a Virginia Opportunity Zone? Local approval has become as important as power. Loudoun County voted 7 to 2 on March 18, 2025 to end by-right data center approvals, so new projects there need a special exception with public hearings.[^24] In September 2026 Loudoun's board voted to move toward a pause of up to 12 months on acting on data center and substation applications that need legislative approval while it writes new standards, and other localities are weighing similar steps.[^25] In Prince William County, the Court of Appeals upheld the voiding of the Digital Gateway rezoning on March 31, 2026 because of defective public notice, and the last developer abandoned the project in July 2026.[^26][^27] **Figure: Siting factors for a Virginia Opportunity Zone data center** - [watch] Zone eligibility: Few eligible tracts in the Northern Virginia core; more along I-95, Central and Southside Virginia - [fail] Grid capacity: Multi-year waits for large loads in Dominion's northern zone - [pass] Fiber and latency: Best interconnection ecosystem in the country near Ashburn; thinner further south - [watch] Local approvals: By-right paths narrowing; public hearings and pauses more common - [pass] State tax conformity: Follows federal deferral and exclusion at 5.75% - [watch] Sales tax exemption: Kept through 2035 but under active review; new electricity tax *A general read of conditions in 2026, not a site rating. Status varies sharply between Northern Virginia and the rest of the state.[^12][^21][^25]* JLARC found that 55% of Fairfax County's data centers sit within 200 feet of residential zoning, compared with 24% in Loudoun, which explains much of the noise and visual pushback.[^12] Water is a secondary but growing issue; closed-loop and air-cooled designs reduce draw and help with approvals. Land prices fall quickly outside Northern Virginia, but fiber routes and substation capacity thin out with them. For approach and sequencing, see [community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers) and [data center site selection inside Opportunity Zones](https://ozdatacenters.com/guides/data-center-site-selection-opportunity-zones). ## What does this mean for investors, landowners and developers? Virginia residents get the full benefit, out-of-state investors get their own state's result, and Virginia landowners in eligible tracts hold a scarce combination of zone status and data center demand. - Virginia investors: gains from any source can go into a QOF anywhere in the country, and Virginia follows the federal deferral and exclusion. The state benefit is 5.75% of the gain, deferred and partly stepped up. - Investors elsewhere: your residence state decides state treatment. A California resident investing in a Virginia data center QOF gets the federal benefits only. - Landowners: a parcel in a certified tract with a credible path to transmission is the asset. Selling land to a QOZB for cash is the simplest route; contributing land in exchange for a QOF interest is treated differently from investing a cash gain and has limits, so structure it with counsel. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers: build the capital plan around energization, document working capital plans, and expect public hearings. See [Opportunity Zones for data center developers](https://ozdatacenters.com/guides/opportunity-zones-for-data-center-developers). OZ Data Centers sponsors funds that pair Opportunity Zone equity with power-first site selection, which in Virginia means looking past Loudoun to the tracts the 2027 map actually covers. ## Common questions **Does Virginia tax Opportunity Zone gains?** Virginia follows the federal treatment. Its income tax starts from federal adjusted gross income and it conforms to the Internal Revenue Code as of December 31, 2025, so deferred gain is taxed by Virginia when it is taxed federally, and gain excluded after a 10-year hold is excluded for Virginia too. **How many Opportunity Zones will Virginia have in 2027?** Virginia REALTORS reports 607 eligible tracts and about 152 nominations under the 25% cap. The number is final only when Treasury certifies Virginia's list, which was still pending in October 2026. **Are Loudoun County data centers in Opportunity Zones?** Few are likely to be. Loudoun is a high-income county, and the 2027 eligibility test requires a tract's median family income to be no more than 70% of the area median, or a 20% poverty rate with income no more than 125% of the median. Check the specific parcel against the certified list. **Can a data center get Virginia's sales tax exemption and Opportunity Zone benefits together?** Yes. The exemption lowers the cost of qualifying equipment for the operator, and the Opportunity Zone rules defer and exclude the investor's capital gains. In distressed localities the exemption threshold drops to $70 million and 10 jobs. **What is Virginia's new data center electricity tax?** The 2026 to 2028 budget imposes a tax of $0.011 per kWh on data center electricity use from July 1, 2026, capped at $600 million per fiscal year. It applies regardless of Opportunity Zone status. **How long does it take to get grid power for a data center in Virginia?** Dominion has said waits for large new loads in Northern Virginia can reach seven years. Sites with existing transmission capacity, or outside the most congested areas, can be faster; confirm with the utility before committing Opportunity Zone capital. ## Sources [^1]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^2]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^3]: Virginia REALTORS, "Opportunity Zones in Virginia: What Every REALTOR Should Know" (2026). https://virginiarealtors.org/2026/05/07/opportunity-zones-in-virginia-what-every-realtor-should-know/ [^4]: Virginia Association of Counties, "Virginia Seeks Feedback from Counties on Governor's Nomination of Opportunity Zones" (2026). https://www.vaco.org/county-connections/virginia-seeks-feedback-from-counties-on-governors-nomination-of-opportunity-zones/ [^5]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^6]: Virginia Department of Taxation, "Tax Bulletin 26-1: Date of IRC Conformity Advanced" (2026). https://www.tax.virginia.gov/laws-rules-decisions/tax-bulletins/26-1 [^7]: EY Tax News, "Virginia changes IRC conformity, decouples from certain OBBBA provisions, makes elective pass-through entity tax permanent" (2026). https://taxnews.ey.com/news/2026-0614-virginia-changes-irc-conformity-decouples-from-certain-obbba-provisions-makes-elective-pass-through-entity-tax-permanent [^8]: Novogradac, "State Tax Code Conformity: Personal Income" (n.d.). https://www.novoco.com/resource-centers/opportunity-zones-resource-center/state-tax-code-conformity-personal-income [^9]: Virginia Department of Taxation, "2025 Tax Rate Schedule and Tax Table" (2025). https://www.tax.virginia.gov/sites/default/files/vatax-pdf/tax-table-2025.pdf [^10]: CBRE, "North American data center demand continues to outpace supply despite record construction" (2026). https://www.cbre.com/press-releases/north-american-data-center-demand-continues-to-outpace-supply-despite-record-construction [^11]: Data Center Frontier, "CBRE: Record Data Center Construction Fails to Ease Capacity Crunch" (2026). https://www.datacenterfrontier.com/site-selection/news/55401462/cbre-record-data-center-construction-fails-to-ease-capacity-crunch [^12]: Joint Legislative Audit and Review Commission (Virginia), "Data Centers in Virginia, Report 598" (2024). https://jlarc.virginia.gov/pdfs/reports/Rpt598.pdf [^13]: Cushman & Wakefield, "Americas Data Center Market Shifts to Managed Growth" (2026). https://www.cushmanwakefield.com/en/united-states/news/2026/02/americas-data-center-market-shifts-to-managed-growth [^14]: Virginia Economic Development Partnership, "Data Center Retail Sales and Use Tax Exemption" (n.d.). https://www.vedp.org/incentive/data-center-retail-sales-use-tax-exemption [^15]: Data Center Dynamics, "Virginia missed more than $1.6bn in tax revenue due to data center exemptions in 2025" (2026). https://www.datacenterdynamics.com/en/news/virginia-missed-more-than-16bn-in-tax-revenue-due-to-data-center-exemptions-in-2025/ [^16]: Williams Mullen, "Virginia Budget Creates New Electricity Consumption Tax for Data Centers" (2026). https://www.williamsmullen.com/insights/news/legal-news/virginia-budget-creates-new-electricity-consumption-tax-data-centers [^17]: Virginia Mercury, "Virginia General Assembly approves Spanberger's budget amendments, ending monthslong impasse" (2026). https://virginiamercury.com/2026/06/29/virginia-general-assembly-approves-spanbergers-budget-amendments-ending-monthslong-impasse/ [^18]: Nasdaq, "Dominion Energy Q2 Earnings Call Highlights" (2026). https://www.nasdaq.com/articles/dominion-energy-q2-earnings-call-highlights [^19]: American Action Forum, "Virginia's New Data Center Electricity Rate Class" (2026). https://www.americanactionforum.org/insight/virginias-new-data-center-electricity-rate-class/ [^20]: Southern Environmental Law Center, "Dominion customers to see rate increase, though SCC takes steps designed to ensure data centers pay fair share" (2025). https://www.selc.org/press-release/dominion-customers-to-see-rate-increase-though-scc-takes-steps-designed-to-ensure-data-centers-pay-fair-share/ [^21]: Bloomberg via BNN Bloomberg, "Data centers face seven-year wait for power hookups in Virginia" (2024). https://bnnbloomberg.ca/business/technology/2024/08/29/data-centers-face-seven-year-wait-for-power-hookups-in-virginia [^22]: PJM Interconnection, "PJM Auction Procures 134,479 MW of Generation Resources" (2025). https://www.pjm.com/-/media/DotCom/about-pjm/newsroom/2025-releases/20251217-pjm-auction-procures-134479-mw-of-generation-resources.pdf [^23]: Virginia Mercury, "SCC orders Dominion to develop tariff to assign more transmission costs to data centers" (2026). https://virginiamercury.com/2026/08/05/scc-orders-dominion-to-develop-tariff-to-assign-more-transmission-costs-to-data-centers/ [^24]: McGuireWoods, "Loudoun County Eliminates By-Right Use for Data Centers, Increasing Development Hurdles" (2025). https://www.mcguirewoods.com/client-resources/alerts/2025/4/loudoun-county-eliminates-by-right-use-for-data-centers-increasing-development-hurdles/ [^25]: Virginia Mercury, "Loudoun County, other Virginia localities consider hitting the brakes on data center development" (2026). https://virginiamercury.com/2026/07/30/loudoun-county-other-virginia-localities-consider-hitting-the-brakes-on-data-center-development/ [^26]: Virginia Lawyers Weekly, "Virginia Appeals Court upholds block on Prince William Digital Gateway project" (2026). https://valawyersweekly.com/2026/04/01/virginia-court-upholds-block-prince-william-digital-gateway/ [^27]: Virginia Business, "Prince William Digital Gateway data center project officially dies" (2026). https://virginiabusiness.com/prince-william-digital-gateway-data-center-project-officially-dies/ [^28]: Morgan Lewis, "FERC Directs Co-Location Reforms in PJM" (2025). https://www.morganlewis.com/pubs/2025/12/ferc-directs-co-location-reforms-in-pjm --- # Opportunity Zone data centers in Texas URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-texas Last reviewed: 2026-10-22 Texas is the largest data center development market in North America and has no personal income tax, so a Texas resident who invests a $10 million gain in a Qualified Opportunity Fund owes only the federal tax at year five: $2,142,000 at 23.8% after the 10% step-up. Governor Abbott nominated 605 census tracts for the zones that take effect January 1, 2027, but in August 2026 he also ordered a state audit of large-load grid connections, and ERCOT paused its study of new data center loads while it runs, so power timing, not tax, is the binding constraint for Texas projects. ## Key takeaways - Governor Abbott finalized Texas's nominations on September 4, 2026; reporting puts the list at 605 census tracts, with Treasury certification expected by late November 2026 and zones effective January 1, 2027. - Texas has no personal income tax, so individual Texas residents pay only federal tax on Opportunity Zone gains: 23.8% on 90% of the deferred gain at year five in a standard fund, or 70% in a rural fund. - The franchise (margin) tax applies to entities, uses a 0.75% rate and a $2.65 million no-tax-due threshold for 2026 and 2027 reports, and ties to the Internal Revenue Code as of 2007, so it does not follow the federal Opportunity Zone rules. - The state sales tax exemption for qualified data centers costs more than $1 billion a year and faces possible repeal or narrowing when the Legislature meets in January 2027. - SB 6 (2025) set new interconnection standards for loads of 75 MW or more, and an August 2026 directive from the governor paused ERCOT's large-load study process pending an audit, which bears directly on the 31-month working capital safe harbor. ## How do Opportunity Zones and data centers fit together in Texas right now? Texas offers the strongest combination of demand, land and tax simplicity for an Opportunity Zone data center, and the weakest near-term certainty on grid power. An Opportunity Zone is a low-income census tract designated under IRC §1400Z-1. An investor who puts an eligible capital gain into a Qualified Opportunity Fund (QOF) within 180 days defers federal tax on that gain for up to five years, gets a 10% basis step-up at year five (30% in a Qualified Rural Opportunity Fund, or QROF), and can exclude all appreciation on a sale after 10 years. The fund usually holds the data center through a Qualified Opportunity Zone Business (QOZB). Four facts frame Texas in October 2026. First, the state's new zone list is nominated and awaiting Treasury certification, with zones effective January 1, 2027.[^2][^3] Second, Texas has no personal income tax, so the federal benefit is the whole benefit for individual residents. Third, Texas leads North America in data center development, with JLL counting about 26 GW in the state.[^22] Fourth, on August 3, 2026 Governor Abbott directed the Public Utility Commission of Texas (PUCT) and ERCOT to halt approval of new data center grid connections until they audit pending projects, and on September 21 he extended the pause to environmental permits at the Texas Commission on Environmental Quality (TCEQ).[^17][^19] For investors, that means the tax case in Texas is simple and the execution case turns on power. For a full treatment of the federal rules as they apply to data centers, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Which Texas census tracts will be Opportunity Zones in 2027? Texas's 2027 zones are the tracts Governor Abbott nominated in September 2026, once Treasury certifies them; the official list is still being certified. Treasury's Rev. Proc. 2026-14 lists 25,332 census tracts nationwide that meet the low-income community test, 8,334 of them wholly rural, and each governor may nominate up to 25% of the state's eligible tracts.[^1] A tract qualifies if its median family income is no more than 70% of the state or metro median, or if its poverty rate is at least 20% and its median family income is no more than 125% of that median.[^3] Jackson Walker reports that the governor finalized the nominations on September 4, 2026.[^3] Press reports put the submission at 605 census tracts, spread across the Dallas–Fort Worth, Houston, Austin and San Antonio metros and rural counties.[^4] The Governor's office expects Treasury certification by November 28, 2026, and the designations run from January 1, 2027 through December 31, 2036.[^2] We have not found an official Texas count of eligible tracts under Rev. Proc. 2026-14, or an official count of how many nominated Texas tracts are rural, so treat the 605 figure as reported and check the certified list before you rely on any tract. **Figure: Texas and the 2027 Opportunity Zone map** - 605: Texas tracts reported as nominated by the governor - 25,332: Eligible tracts nationwide under Rev. Proc. 2026-14 - 8,334: Of those eligible tracts, wholly rural - Nov 28, 2026: Texas's expected certification date *Eligible-tract counts are national figures from Treasury. The Texas nomination count is as reported in the press; the certified list was pending as of October 22, 2026.[^1][^2][^4]* Rural status matters more in Texas than in most states because so much data center land is in West Texas and the Panhandle. For Opportunity Zone purposes, a rural area is anywhere outside a city or town of more than 50,000 people and the urbanized areas next to it.[^5] Property in a zone made up entirely of rural area needs only 50% of building basis in improvements within 30 months to be substantially improved, and a QROF that holds at least 90% of its assets in such zones gives investors the 30% step-up. See [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones) and [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). ## Does Texas tax Opportunity Zone gains? Not for individuals: Texas has no personal income tax, so an individual Texas resident has no state capital gains tax to defer or exclude. That makes the Texas answer simpler than in states that decouple from the federal rules, as our guide to [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) explains. Entities are different. The Texas franchise tax is a margin tax on taxable entities (corporations, LLCs, partnerships with entity owners and similar) doing business in Texas. For reports due in 2026 and 2027 the rate is 0.75% of taxable margin (0.375% for retailers and wholesalers), and entities with total revenue at or below $2.65 million owe no tax.[^6] Total revenue starts from amounts on the federal return, but for franchise tax purposes the Internal Revenue Code means the code in effect for the federal tax year beginning January 1, 2007, as the Comptroller restated in rules adopted in February 2026.[^7] Because the Opportunity Zone provisions postdate that reference date, the franchise tax does not follow them. We found no Comptroller guidance on how a federally deferred gain is treated in total revenue, so a corporate or entity investor should confirm the treatment with its tax adviser. Illustrative worked example. A Texas resident sells stock in 2027 for a $10,000,000 long-term gain and invests it in a QOF within 180 days. Assumptions: 23.8% federal rate (20% long-term capital gains plus 3.8% net investment income tax), no change in the fund's value at year five, no state income tax. With no investment, federal tax is $2,380,000 now. In a standard QOF, tax is deferred five years, then the 10% step-up removes $1,000,000 of gain and the investor owes $2,142,000. In a QROF, the 30% step-up leaves $7,000,000 taxable and $1,666,000 due. Texas adds nothing in any case. If the fund is held 10 years, appreciation on the investment is excluded federally, and again Texas has no tax to add. **Figure: Tax at year five on a $10 million gain for a Texas resident** (illustrative) - Federal tax if the gain were recognized today: 2380000 $ - 10% step-up removes $1,000,000 of gain: -238000 $ - Extra 20% step-up in a rural fund (QROF): -476000 $ - Year-5 tax in a rural fund: $1,666,000: 1666000 $ *Illustrative. Assumes a $10,000,000 long-term gain invested in 2027, a 23.8% federal rate, no decline in the fund's value and no Texas personal income tax. An entity investor may also owe franchise tax; see the text.* > For an entity investor, a rough ceiling on the franchise tax exposure is the 0.75% rate on taxable margin, which is generally capped at 70% of total revenue. On a $10,000,000 gain that ceiling is about $52,500. It is small next to the federal tax, but it is not deferred by the Opportunity Zone rules. ## Where are data centers being built in Texas? Texas has two data center markets: the established metros and a fast-growing frontier of very large campuses in West Texas and beyond. JLL's midyear 2026 report says 77% of North American development is in frontier markets, with West Texas among them, and that Texas leads with 26 GW.[^22] Cushman & Wakefield counted 2.9 GW under construction in West Texas at the end of 2025, second only to Virginia.[^26] **Major Texas data center markets** | Market | What is happening | Opportunity Zone angle | | --- | --- | --- | | Dallas–Fort Worth | CBRE reports more than 765 MW under construction, about 95% preleased, and 3.7 GW of planned greenfield projects that have not started.[^23] | Urban and suburban tracts; a standard QOF with the 10% step-up. Strong fiber and labor. | | San Antonio and Austin | Established enterprise and hyperscale clusters along I-35, with growth pushing into surrounding counties. | Edge-of-metro tracts may qualify as low-income; most are not rural under the 50,000-person test. | | West Texas and Abilene | Gigawatt-scale AI campuses. The Stargate campus in Abilene is adding about 1 GW of on-site gas turbines.[^24] | Many tracts outside cities of 50,000 are rural, so a QROF and the 50% improvement rule may be available. | | Panhandle and Permian | Land, wind and gas supply attract projects that plan on-site or co-located generation. | Rural tracts; power and water are the gating items. | Demand comes from hyperscale cloud and AI training, and from developers drawn by ERCOT's deregulated market and the option to pair a campus with gas, wind or solar generation. The scale is visible in ERCOT's queue: industry reporting counts more than 438,000 MW of large-load requests, about 89% of them data centers, and the governor's office cited more than 474 GW in its August directive.[^21][^17] Most of that will never be built, which is why the state is now testing which projects are real. ## What data center incentives does Texas offer, and do they stack with Opportunity Zones? Texas offers a state sales and use tax exemption and local property tax abatements, and both can be combined with Opportunity Zone equity because they reduce project costs rather than change the federal tests. The details matter for underwriting. **Texas data center incentives as of October 2026** | Incentive | Key terms | Status and stacking notes | | --- | --- | --- | | State sales and use tax exemption for a qualifying data center (Tax Code §151.359) | A facility of at least 100,000 square feet; the Comptroller certifies single-occupant data centers that commit to capital investment and jobs.[^8] Thresholds: at least 20 jobs paying at least 120% of the county average weekly wage and $200 million invested over five years; 10 years of exemption for $200 to $250 million, 15 years for $250 million or more.[^9] | Covers state sales tax only; local sales tax still applies.[^8] Cost is more than $1 billion a year.[^10] Lawmakers are weighing repeal or narrowing for the January 2027 session.[^12] | | Large data center project exemption (Tax Code §151.3595) | A separate certification for large projects, including multi-tenant campuses; terms differ from §151.359.[^8] | Same repeal debate. Confirm terms with the Comptroller before underwriting. | | Local property tax abatement (Tax Code Chapter 312) and economic development grants | Cities and counties can abate property tax on new improvements for a set term; school districts cannot. | Negotiated locally. Abatement leaves title with the owner, which keeps the QOZB's owned-property analysis simple. | | JETI school-district value limitation (Government Code Chapter 403) | The successor to the expired Chapter 313 program, limited to listed industries. | Data centers are excluded.[^13] Data centers with Chapter 313 agreements cannot use the sales tax exemption.[^8] | The exemption's cost is what drives the debate. Texas Public Radio reported from a July 2026 Senate Finance hearing that the Comptroller estimated about $3.2 billion of lost sales tax over two years, that only 20 of 138 qualified data centers had been audited, and that 6 of those 20 were out of compliance with job requirements.[^11] Holland & Knight calls the exemption at serious legislative risk ahead of the 2027 session.[^12] Model your project both with and without it, and check whether any repeal would grandfather certified facilities. On stacking: a sales tax exemption lowers the cost of equipment the QOZB buys, and an abatement lowers operating cost. Neither affects the QOF 90% asset test or the QOZB 70% tangible property test. The interaction to watch is title. Where a public entity holds title to make property tax-exempt and leases the facility back, the QOZB's property is leased, which brings in the leased property and related-party rules. See [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## How long does it take to get power for a data center in Texas? Longer and less predictably than it did a year ago, because Texas has rewritten its large-load rules and then paused them for an audit. Most of Texas is served by ERCOT, the grid operator overseen by the PUCT; utilities such as Oncor and AEP Texas build the wires. ### SB 6 (2025) Senate Bill 6, enacted in June 2025, requires the PUCT to set interconnection standards for new or expanded loads of 75 MW or more at one site in ERCOT. The standards include proof of site control, a study fee of at least $100,000, and disclosure of whether the customer is seeking similar service elsewhere in Texas.[^14][^15] The PUCT published its draft rule (16 TAC §25.194) on March 12, 2026, including disclosure of backup generation.[^15] SB 6 also lets ERCOT order large loads to curtail during grid emergencies, and the PUCT is running separate dockets on forecasting, demand reduction and transmission cost allocation.[^16] ### Batch Zero and the 2026 audit ERCOT's Batch Zero process groups qualifying loads of 75 MW and up into a single study. Applicants had to submit studies by July 10, 2026, classifications were due August 7, and results were expected by April 9, 2027.[^21] Governor Abbott's August 3 directive asked the PUCT and ERCOT to audit pending data center projects, including tax breaks received, power and generation plans, water use and ownership, and to deny connection to projects that fail.[^17] ERCOT sought extensions of its Batch Zero deadlines and temporarily paused the study process while the audit proceeds.[^18] On September 21, the governor directed TCEQ to stop issuing data center permits, including for off-grid projects, until ERCOT finishes the audit, expected in mid-December.[^19] A report released October 20 found that TCEQ kept processing some applications after that date; the governor's office says no permits have been approved.[^20] > What this means for the Opportunity Zone clock: a QOZB can hold cash as working capital for up to 31 months under a written plan, extended to 62 months with overlapping plans, and the period is tolled for delays caused by government action on a completed application when nothing else can be done.[^25] Whether a state-directed interconnection pause counts as that kind of delay is not addressed in any guidance we have found. Texas projects should not raise QOF equity for a site until power is committed, or should phase capital so each tranche fits its own plan. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## What should you check when siting an Opportunity Zone data center in Texas? Check power status first, then zone status, then water, fiber and local support. The scorecard summarizes how Texas looks on each factor in October 2026. **Figure: Texas siting factors for an Opportunity Zone data center (October 2026)** - [fail] Grid power: New ERCOT large-load approvals paused pending audit; Batch Zero timeline uncertain - [watch] State permits: TCEQ directed not to issue data center permits until the audit ends - [pass] Land and rural zones: Large parcels in rural tracts that may support a QROF and the 50% improvement rule - [pass] State income tax: No personal income tax; franchise tax applies to entities only - [watch] Sales tax exemption: Available today; repeal or narrowing possible in 2027 - [watch] Water: Audit covers water and cooling; closed-loop designs reduce exposure - [pass] Fiber: Dense in DFW, Austin and San Antonio; verify long-haul routes in West Texas *A summary judgment, not a site rating. Power and permitting are the watch items until the state audit ends; land and tax are clear strengths.[^17][^19][^22]* - Zone status: confirm the tract is on Treasury's certified list for January 1, 2027, not just the nomination list. Use the CDFI Fund mapping tool once it is updated; see [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone). - Rural status: a tract outside any city of more than 50,000 and its adjacent urbanized area may be wholly rural, which opens the QROF and the 50% improvement rule.[^5] - On-site generation: West Texas campuses increasingly plan gas turbines on site.[^24] If the QOZB owns the generation inside the tract, it can count toward the 70% test; if a utility or third party owns it, it does not. - Lease structure: a single-tenant triple-net lease to a hyperscaler is not, by itself, an active trade or business under the regulations.[^25] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). - Local support: the audit asks developers to describe efforts to reduce community impacts.[^17] Early engagement with the county and school district is part of getting power, not separate from it. ## What does this mean for investors, landowners and developers in Texas? For investors, Texas residency is an advantage and a Texas project is a power bet. A Texas individual with a large gain gets the full federal benefit with no state drag, whether the fund invests in Texas or elsewhere. An investor in a high-tax state such as California gets federal deferral but still owes home-state tax, wherever the project is. Gains invested after December 31, 2026 get the rolling five-year deferral, so the timing of a 2027 sale and the 180-day window matter more than the calendar year. Ask any Texas data center sponsor where the site sits in ERCOT's process and what happens to fund cash if the audit runs long. Federal pushback is a further risk: a bill introduced in the Senate in September 2026 would exclude data centers from Opportunity Zone benefits; it was referred to the Finance Committee and has not been enacted.[^27] For landowners in nominated rural tracts, especially in West Texas and the Panhandle, the 2027 designation can raise the value of land with access to high-voltage transmission or gas. A landowner who sells appreciated land can defer that gain in a QOF; one who contributes land or ground-leases it to a QOZB needs to plan around the purchase and related-party rules. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). For developers, the playbook is to secure site control and a credible interconnection position first, then align QOF closings with the power schedule. The ERCOT audit asks about tax breaks and ownership, so expect the Opportunity Zone structure itself to be disclosed. OZ Data Centers sponsors funds of this kind and screens Texas sites for certified zone status and power before raising capital. See [Opportunity Zones for data center developers](https://ozdatacenters.com/guides/opportunity-zones-for-data-center-developers). ## Common questions **Does Texas tax Opportunity Zone gains?** Not for individuals. Texas has no personal income tax, so a Texas resident owes only federal tax on a deferred gain. Entities subject to the franchise (margin) tax are different: the franchise tax ties to the Internal Revenue Code as of 2007 and does not follow the federal Opportunity Zone rules. **How many Opportunity Zones will Texas have in 2027?** Press reports say Governor Abbott nominated 605 census tracts in September 2026. Treasury certification was expected by November 28, 2026, and the zones take effect January 1, 2027. Rely on the certified list, not the nomination list. **Are data centers still being approved in Texas?** New grid connections and state environmental permits for data centers were paused in August and September 2026 while ERCOT and the PUCT audit pending projects, with the audit expected to run into mid-December 2026. The directives target projects seeking new connections and permits; check where a specific project stands with ERCOT and its utility. **Can a Texas data center use both the state sales tax exemption and Opportunity Zone equity?** Yes. The sales tax exemption reduces equipment cost and does not affect the Opportunity Zone asset tests. The exemption's future is uncertain because lawmakers are considering repeal or narrowing in the 2027 session. **Is West Texas land in a rural Opportunity Zone?** Often, but check each tract. A tract is rural if it is outside any city or town of more than 50,000 people and the urbanized areas next to it, and it must also be on Treasury's certified list for 2027. **What is SB 6?** Senate Bill 6, enacted in June 2025, requires the PUCT to set interconnection standards for loads of 75 MW or more in ERCOT, including site control, study fees of at least $100,000 and disclosure of duplicate requests, and lets ERCOT curtail large loads in grid emergencies. ## Sources [^1]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^2]: Office of the Texas Governor, "Federal Opportunity Zones in Texas" (2026). https://gov.texas.gov/business/page/opportunity-zones [^3]: Jackson Walker, "Governor Abbott Nominates New Texas Qualified Opportunity Zone Tracts Under Opportunity Zone 2.0" (2026). https://www.jw.com/news/insights-texas-qualified-opportunity-zone-tracts/ [^4]: CRE Daily, "Texas Nominates 605 Tracts for Opportunity Zones 2.0" (2026). https://www.credaily.com/briefs/texas-nominates-605-tracts-for-opportunity-zones-2-0/ [^5]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill (Notice 2025-50)" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^6]: Texas Comptroller of Public Accounts, "Franchise Tax" (2026). https://comptroller.texas.gov/taxes/franchise/index.php/forms/ [^7]: Texas Secretary of State, Texas Register, "Title 34, Public Finance: Adopted Rules (Comptroller of Public Accounts, franchise tax)" (2026). https://www.sos.state.tx.us/texreg/archive/February202026/Adopted%20Rules/34.PUBLIC%20FINANCE.html [^8]: Texas Comptroller of Public Accounts, "Data Centers" (n.d.). https://comptroller.texas.gov/taxes/data-centers/ [^9]: Sales Tax Institute, "Texas Enacts Data Center Exemption for Certain Property" (2013). https://www.salestaxinstitute.com/resources/texas-enacts-data-center-exemption-certain-property [^10]: The Texas Tribune, "Texas losing a billion dollars a year on data center tax break" (2026). https://www.texastribune.org/2026/04/08/texas-data-centers-sales-tax-break-billion-dollars/ [^11]: Texas Public Radio, "Texas lawmakers question whether multibillion-dollar data center tax break still benefits the state" (2026). https://www.tpr.org/government-politics/2026-07-28/texas-lawmakers-question-whether-multibillion-dollar-data-center-tax-break-still-benefits-the-state [^12]: Holland & Knight, "Texas Data Center Tax Exemption Faces Serious Legislative Risk Ahead of 2027 Session" (2026). https://www.hklaw.com/en/insights/publications/2026/07/texas-data-center-tax-exemption-faces-serious-legislative-risk [^13]: Ryan, "Texas JETI Program: Why 2025 Is a Critical Year for Incentive Strategy" (2025). https://ryan.com/about-ryan/news-and-insights/2025/texas-jeti-incentive-strategy/ [^14]: Bracewell, "Texas Senate Bill 6 Ushers in Major Overhaul of Large Load Interconnection and Grid Access Rules" (2025). https://www.bracewell.com/resources/texas-senate-bill-6-ushers-in-major-overhaul-of-large-load-interconnection-and-grid-access-rules/ [^15]: Foley & Lardner, "Public Utility Commission of Texas Issues Proposed Rules for Large Load Interconnection" (2026). https://www.foley.com/insights/publications/2026/03/public-utility-commission-of-texas-issues-proposed-rules-for-large-load-interconn/ [^16]: Perkins Coie, "SB 6 Implementation: Shaping the Data Center Future in Texas" (2026). https://perkinscoie.com/insights/update/sb-6-implementation-shaping-data-center-future-texas [^17]: The Texas Tribune, "New Texas data center projects frozen until state audits them" (2026). https://www.texastribune.org/2026/08/03/texas-data-center-project-audit-greg-abbott/ [^18]: Gibson Dunn, "What Governor Abbott's Data Center Audit Directive Means for ERCOT and the Batch Zero Study Process" (2026). https://www.gibsondunn.com/what-governor-abbotts-data-center-audit-directive-means-for-ercot-and-the-batch-zero-study-process/ [^19]: The Texas Tribune, "Texas pauses environmental permit approval for data centers" (2026). https://www.texastribune.org/2026/09/21/texas-data-center-moratorium-water-energy/ [^20]: KUT, "Texas continued permitting data centers after Abbott's pause, report finds" (2026). https://www.kut.org/energy-environment/2026-10-20/texas-continued-permitting-data-centers-after-abbotts-pause-report-finds [^21]: Power Engineering, "Can ERCOT's new 'Batch Zero' process alleviate the burden of 438,000 MW of large load requests?" (2026). https://www.power-eng.com/business/policy-and-regulation/can-ercots-new-batch-zero-process-alleviate-the-burden-of-438000-mw-of-large-load-requests/ [^22]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^23]: CBRE, "North America Data Center Trends H1 2026: Dallas-Ft. Worth" (2026). https://www.cbre.com/insights/books/north-america-data-center-trends-h1-2026/dallas-ft-worth-data-center-market [^24]: Data Center Dynamics, "Parker Hannifin to supply more than 1GW of natural gas turbines to Stargate's Abilene campus in Texas" (2026). https://www.datacenterdynamics.com/en/news/parker-hannifin-to-supply-more-than-1gw-of-natural-gas-turbines-to-stargates-abilene-campus-in-texas/ [^25]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^26]: Cushman & Wakefield, "Americas Data Center Market Shifts to Managed Growth" (2026). https://www.cushmanwakefield.com/en/united-states/news/2026/02/americas-data-center-market-shifts-to-managed-growth [^27]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones --- # Opportunity Zone data centers in Georgia URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-georgia Last reviewed: 2026-10-22 Georgia combines a conforming state income tax with the fastest-growing data center pipeline in North America: Atlanta had 2,882 MW under construction in mid-2026, more than Northern Virginia. A Georgia resident who invests a gain in a Qualified Opportunity Fund defers both the 23.8% federal tax and Georgia's 4.99% tax, and the state's 2027 zones will be drawn from about 942 eligible tracts, many of them rural, where power and land for large campuses are available. ## Key takeaways - Georgia's 2026 conformity act (HB 1199, signed March 20, 2026) adopts the Internal Revenue Code as of January 1, 2026; its published exceptions cover bonus depreciation and several business and individual items, not the Opportunity Zone rules. - Georgia's flat income tax rate is 4.99% for 2026 under HB 463, with further cuts of 0.125 point a year toward 3.99% if revenue targets are met. - On a $10 million gain invested in 2027, a Georgia resident defers about $2.38 million of federal tax and $499,000 of Georgia tax at current rates; the 10% step-up at year five saves about $287,900 combined. - Georgia's nomination portal listed 942 eligible tracts and a target of 236 nominations for the 2027 zones; Treasury had not certified a final list as of this review. - Georgia's high-technology data center sales and use tax exemption runs through December 31, 2031, with thresholds from $25 million and 5 jobs in small counties to $250 million and 25 jobs in counties over 50,000 people. - Georgia's state Opportunity Zone program is a separate job tax credit ($3,500 per job) and has nothing to do with federal capital gains deferral. ## How do Opportunity Zones and data centers intersect in Georgia? Georgia is one of the best-aligned states for Opportunity Zone data centers: it conforms to the federal tax treatment, it has a large pool of eligible rural tracts, and hyperscale demand is moving out of metro Atlanta toward exactly those areas. An Opportunity Zone is a low-income census tract designated under IRC §1400Z-1. A Qualified Opportunity Fund (QOF) is a corporation or partnership that holds at least 90% of its assets in Opportunity Zone property, typically through a Qualified Opportunity Zone Business (QOZB) that owns the project.[^2] Investing an eligible gain in a QOF within 180 days defers the tax for up to five years, adds a 10% basis step-up at year five (30% for a rural fund), and excludes the QOF's appreciation from federal tax after a 10-year hold.[^2] The limits in Georgia are local, not tax-related: power supply decisions at the Public Service Commission, water in the Chattahoochee basin, and county moratoriums. For the federal framework, see [data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). > Georgia has two programs called Opportunity Zones. The federal program covers capital gains deferral and exclusion. The state program, run by the Department of Community Affairs (DCA), gives a job tax credit in designated areas. This guide is about the federal program unless it says otherwise.[^3][^11] ## Which Georgia census tracts will be Opportunity Zones in 2027? Georgia has nominated from a pool of about 942 eligible tracts, and the list becomes final when Treasury certifies it. Treasury's Rev. Proc. 2026-14 identifies 25,332 eligible low-income tracts nationwide, 8,334 of them wholly rural, and caps each state at 25% of its eligible tracts.[^1] Georgia's state nomination portal listed 942 eligible tracts in Georgia and a target of 236 nominations.[^4] Georgia currently has 260 federal Opportunity Zones, which remain in effect for their existing term; the new zones take effect January 1, 2027.[^3] DCA ran the state process with a public webinar series and an online portal where local governments and stakeholders could recommend tracts, with stakeholder recommendations due July 15, 2026.[^4][^5] The governor's 90-day federal window opened July 1, 2026, with one 30-day extension allowed, and Treasury has 30 days (extendable by 30) to certify.[^1] A tract is eligible if its median family income is no more than 70% of the area median, or if its poverty rate is at least 20% and its median family income is no more than 125% of the area median.[^1] Rural tracts matter more in Georgia than in most states. A rural area is anywhere outside a city or town of more than 50,000 people and its adjacent urbanized area.[^6] A Qualified Rural Opportunity Fund (QROF), which holds 90% of its assets in zones made up entirely of rural area, earns a 30% step-up, and existing buildings there need improvements of only 50% of basis to be substantially improved.[^6] Much of Georgia outside metro Atlanta, Savannah, Augusta, Columbus and Macon is rural under that test. We have not seen an official count of Georgia's rural nominations, so check each tract on the certified list. See [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). **Figure: Georgia data centers and Opportunity Zones in numbers** - 942: Georgia tracts eligible for 2027 nomination[^4] - 2,882 MW: Atlanta data center capacity under construction, H1 2026[^12] - 9,885 MW: New Georgia Power capacity certified, Dec 2025[^23] - $474.2M: Estimated state sales tax forgone on data centers, 2025[^15] *Eligible-tract figures are from the state nomination portal; market figures are CBRE's H1 2026 count for Atlanta; capacity is the Georgia PSC's December 2025 certification; cost is the state audit office's evaluation.[^4][^12][^23][^15]* ## Does Georgia tax Opportunity Zone gains? Georgia follows the federal result: deferred gain enters Georgia income when it enters federal income, and gain excluded after 10 years is excluded for Georgia too. Georgia computes income starting from federal adjusted gross income and updates its conformity date every year. HB 1199, signed March 20, 2026, adopts the Internal Revenue Code as of January 1, 2026, for tax years beginning on or after January 1, 2025, which picks up Public Law 119-21.[^7] Its listed exceptions include bonus depreciation under §168(k) and §168(n), the §163(j) and §174 changes and several individual items such as the higher SALT cap; Georgia does adopt the higher §179 limits.[^8] None of the summaries we reviewed lists §1400Z-2 as an exception, and practitioner conformity surveys do not list Georgia among nonconforming states.[^10] Georgia has a flat income tax. HB 463, signed May 11, 2026, set the rate at 4.99% from January 1, 2026, with further reductions of 0.125 point a year toward 3.99% if revenue targets are met.[^9] Because tax on a deferred gain is owed in the year of inclusion, a lower future rate helps Georgia QOF investors. This matches our [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) guide, which does not list Georgia among the decoupling states. **Figure: Georgia resident: tax due at year five on a $10 million gain invested in 2027** (illustrative) - Federal and Georgia tax on $10M: 2879000 $ - 10% step-up, federal: -238000 $ - 10% step-up, Georgia: -49900 $ - Tax due at year five: 2591100 $ *Illustrative. Assumes a $10,000,000 long-term gain invested in a standard QOF on time, held at least five years, a 23.8% federal rate (20% plus 3.8% net investment income tax) and Georgia's 4.99% rate held constant. If Georgia's scheduled cuts take effect, the state amount at inclusion would be lower.* **The $10 million example in numbers (illustrative)** | Item | Federal (23.8%) | Georgia (4.99%) | Combined | | --- | --- | --- | --- | | Tax if the gain is not reinvested (2027) | $2,380,000 | $499,000 | $2,879,000 | | Tax due in 2027 if invested in a QOF | $0 | $0 | $0 | | Tax due at year five, standard QOF (10% step-up) | $2,142,000 | $449,100 | $2,591,100 | | Tax due at year five, rural QROF (30% step-up) | $1,666,000 | $349,300 | $2,015,300 | | Tax on QOF appreciation after a 10-year hold | $0 | $0 | $0 | The exclusion is the larger benefit. If the QOF interest doubles to $20 million and is sold after 10 years, about $2.88 million of combined federal and Georgia tax on the appreciation is avoided at these rates. The federal side is worked through in the [Opportunity Zone tax savings example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). > Georgia is a fixed-date state. A later federal change to §1400Z-2 applies for Georgia only after the General Assembly passes its next conformity bill. Confirm treatment for your tax year with your tax adviser. ## How is Georgia's state Opportunity Zone program different from federal Opportunity Zones? They are unrelated programs that share a name: the state version is a job tax credit, and the federal version is a capital gains incentive. Searchers and even local officials mix them up, and DCA has had to explain to legislators that federal zones work through private investment funds, not state credits.[^3] **Figure: Georgia's two Opportunity Zone programs** - Federal Opportunity Zone (Capital gains) - Created by IRC §§1400Z-1 and 1400Z-2 - Tracts nominated by the governor, certified by Treasury - Defers and reduces capital gains invested through a QOF - Excludes QOF appreciation after 10 years - New zones effective January 1, 2027 - Georgia state Opportunity Zone (Job tax credit) - Created by O.C.G.A. §48-7-40.1, administered by DCA - Areas designated by DCA at local request - Credit of $3,500 per new full-time job - Minimum of two net new jobs in a tax year - Can be applied against payroll withholding *A site can sit in both. For a data center, the federal program usually matters far more, because data centers create few permanent jobs relative to capital spent.[^2][^11]* ## How big is Georgia's data center market? Atlanta is now the most active construction market in North America. CBRE's H1 2026 report put Atlanta at 2,882 MW under construction, up 52.3% from a year earlier, ahead of Northern Virginia's 2,420.2 MW for the first time.[^12] Atlanta's existing inventory was about 1,803 MW, so the pipeline exceeds what is already built.[^13] CBRE ties the surge to gigawatt-scale campuses across South Georgia and other rural areas, where transmission and state support are opening new territory.[^12] Metro activity is concentrated west and south of the city, in Douglas, Fulton, Cobb, Fayette and Coweta counties. Amazon Web Services announced an $11 billion investment in January 2025 for campuses in Douglas and Butts counties.[^14] The drivers are cloud and AI tenants, a dense fiber hub, comparatively cheap land and a utility that has committed to build generation for large loads. ## What tax incentives does Georgia offer data centers, and do they stack with Opportunity Zones? Georgia's main incentive is a sales and use tax exemption on high-technology data center equipment, and it stacks with Opportunity Zone benefits because it reduces the operator's equipment cost while the zone rules reduce the investor's capital gains tax. The exemption covers state and local sales tax on qualifying equipment through December 31, 2031.[^16] Thresholds depend on county population and must be met over the investment period.[^15] **Georgia data center exemption thresholds by county population** | County population | Minimum investment | Minimum new quality jobs | | --- | --- | --- | | Under 30,000 | $25 million | 5 | | 30,000 to 50,000 | $75 million | 10 | | Over 50,000 | $250 million | 25 | The lower thresholds in small counties line up with Georgia's rural Opportunity Zone tracts, which is the strongest stacking case in the state: a rural QROF can earn the 30% step-up and the 50% substantial improvement threshold while the operator qualifies for the exemption at $25 million. Projects in counties of 50,000 or fewer can also earn quality jobs tax credits alongside the exemption.[^15] The Department of Revenue publishes aggregate exemption spending by county.[^20] The exemption has survived two serious challenges. Gov. Brian Kemp vetoed HB 1192 in May 2024, which would have paused new certificates for two years.[^17] In 2026 the Senate passed SB 410, 32 to 21, to stop new certificates and add ratepayer protections, but the bill died in the House.[^18][^19] A December 2025 evaluation for the state audit office estimated forgone state revenue of $474.2 million in 2025, rising to $866.7 million in 2030.[^15] Expect the debate to return. See [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## How do data centers get power in Georgia? Through a vertically integrated utility system rather than a wholesale market: Georgia is not in an RTO like PJM, so large loads negotiate with Georgia Power (a Southern Company subsidiary), an electric membership corporation, or a municipal system, under Public Service Commission rules. Georgia has 41 electric membership corporations (EMCs) and 52 municipal systems, over which the PSC has limited authority.[^24] Under the Territorial Electric Service Act, a new commercial or industrial customer with a load of 900 kW or more gets a one-time choice of supplier, which gives data center sites some leverage on rates and timing.[^24] - Large-load rules: in January 2025 the PSC required new Georgia Power customers above 100 MW to sign negotiated contracts that can run 5 to 15 years, include minimum bills and recover upstream generation, transmission and distribution costs, with each contract filed for PSC review.[^21][^22] - New generation: on December 19, 2025 the PSC certified 9,885 MW of new Georgia Power capacity, about two-thirds natural gas and the rest battery storage and renewables paired with storage, mainly to serve projected data center demand.[^23] - On-site generation: in August 2026 the PSC set hearings on whether Georgia law allows a third party to build generation that sells directly to an adjacent data center, a question that will shape behind-the-meter strategies.[^25] Georgia's model can be faster than congested PJM zones because the utility plans generation and transmission for named customers, but contracts carry long minimum-bill obligations. For a QOZB, signed electric service terms are the best evidence that a written plan under the 31-month working capital safe harbor is realistic. See [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## What should you know about siting a data center in a Georgia Opportunity Zone? Water and local politics are the binding constraints after power. Chattahoochee Riverkeeper counts about 100 data centers in the river basin, mostly in Cobb, Douglas and Fulton counties, and notes that operators are not required to report water use.[^27] One proposed Coweta County campus could draw up to 9 million gallons a day, about a third of the county's daily allotment from the Chattahoochee.[^26] Closed-loop and air-cooled designs lower water use and help with approvals. Several metro counties have paused new applications. Coweta adopted a 180-day moratorium, and Douglas and Bartow passed moratoriums of their own.[^28] DeKalb extended its moratorium through September 2026.[^29] Troup County adopted a 90-day pause in September 2025 after a large campus was proposed near LaGrange.[^30] Rural counties with eligible tracts tend to welcome projects, but organized opposition can appear anywhere a campus needs a rezoning. **Figure: Siting factors for a Georgia Opportunity Zone data center** - [pass] Zone eligibility: Large pool of eligible tracts, many rural - [watch] Power path: Generation being built for large loads; long-term minimum bills - [watch] Water: Chattahoochee basin pressure in west metro; plan low-water cooling - [watch] Local approvals: Metro moratoriums; rural counties generally receptive - [pass] State tax conformity: Follows federal deferral and exclusion at 4.99% - [pass] Sales tax exemption: In force through 2031, low thresholds in small counties *A general read of conditions in 2026, not a site rating. Conditions differ between metro Atlanta and rural Georgia.[^12][^24][^27]* Fiber is strong in metro Atlanta and along interstate corridors, but rural sites may need new long-haul routes. For land and process, see [buying land for an Opportunity Zone data center](https://ozdatacenters.com/guides/buying-land-opportunity-zone-data-center) and [community engagement for Opportunity Zone data centers](https://ozdatacenters.com/guides/community-engagement-opportunity-zone-data-centers). ## What does this mean for investors, landowners and developers? - Georgia investors: any eligible gain, from any source, can go into a QOF in any state, and Georgia follows the federal deferral and exclusion. Falling state rates make deferral slightly more valuable. - Investors elsewhere: your residence state decides state treatment. Georgia's conformity matters to you only if you live in Georgia or have Georgia-source gain. - Landowners: large rural parcels near transmission in certified tracts are in demand. Selling land to a QOZB for cash is the simplest route; contributing land for a QOF interest is treated differently from investing a cash gain, so get advice. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers: lock in the electric supplier and contract early, pick counties where the exemption threshold and the zone overlap, and budget for water and community work. See [Opportunity Zones for data center developers](https://ozdatacenters.com/guides/opportunity-zones-for-data-center-developers). OZ Data Centers sponsors funds of this kind, and rural Georgia, with eligible tracts, lower exemption thresholds and a utility building for large loads, is the kind of place the program and the industry now meet. Compare the Northern Virginia picture in [Opportunity Zone data centers in Virginia](https://ozdatacenters.com/guides/opportunity-zone-data-centers-virginia). ## Common questions **Does Georgia tax Opportunity Zone gains?** Georgia follows the federal treatment. Its 2026 conformity act adopts the Internal Revenue Code as of January 1, 2026 without an Opportunity Zone exception in published summaries, so deferred gain is taxed by Georgia when it is taxed federally and gain excluded after 10 years is excluded for Georgia too. **How many Opportunity Zones will Georgia have in 2027?** Georgia's nomination portal listed 942 eligible tracts and a target of 236 nominations. The count is final only when Treasury certifies Georgia's list, which had not been published as of October 2026. **What is the best place in Georgia for an Opportunity Zone data center?** Usually a rural eligible tract with transmission nearby, in a county under 30,000 people where the sales tax exemption threshold is $25 million and 5 jobs. A rural fund also earns the 30% step-up. Water, fiber and local zoning still decide individual sites. **Is Georgia's state Opportunity Zone the same as a federal Opportunity Zone?** No. Georgia's state Opportunity Zones offer a job tax credit of $3,500 per new job. Federal Opportunity Zones offer capital gains deferral and exclusion through Qualified Opportunity Funds. A site can be in one, both or neither. **Did Georgia end its data center sales tax exemption?** No. Gov. Kemp vetoed a pause in 2024, and a 2026 repeal bill passed the Senate but died in the House. The exemption runs through December 31, 2031. **Who supplies power to large data centers in Georgia?** Georgia Power serves most large loads, under PSC rules for customers above 100 MW, but EMCs and municipal systems also serve data centers. New loads of 900 kW or more get a one-time choice of supplier under the Territorial Electric Service Act. ## Sources [^1]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^2]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^3]: Georgia Department of Community Affairs, "Federal Opportunity Zones" (n.d.). https://dca.georgia.gov/financing-tools/incentives/federal-opportunity-zones [^4]: Georgia Department of Community Affairs, "Georgia Opportunity Zone Nomination Portal" (2026). https://gaoznominations.powerappsportals.com/ [^5]: Georgia Department of Community Affairs, "Federal Opportunity Zones 2.0 Webinar Series" (2026). https://dca.georgia.gov/public-notice/2026-06-26/federal-opportunity-zones-20-webinar-series [^6]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^7]: Office of the Governor of Georgia, "House Bill 1199 (as passed House and Senate), 2026 signed legislation" (2026). https://gov.georgia.gov/document/2026-signed-legislation/hb-1199/download [^8]: Warren Averett, "Georgia Conformity Bill (HB 1199): What Changed and What It Means" (2026). https://warrenaverett.com/insights/georgia-conformity-bill/ [^9]: Office of the Governor of Georgia, "Gov. Kemp Signs Legislation Lowering Taxes and Supporting Economic Growth" (2026). https://gov.georgia.gov/press-releases/2026-05-11/gov-kemp-signs-legislation-lowering-taxes-and-supporting-economic-growth [^10]: Novogradac, "State Tax Code Conformity: Personal Income" (n.d.). https://www.novoco.com/resource-centers/opportunity-zones-resource-center/state-tax-code-conformity-personal-income [^11]: Georgia Department of Community Affairs, "Job Tax Credit: Opportunity Zone Credit and Withholding" (2023). https://www.dca.ga.gov/sites/default/files/jtc_oz_credit_and_wh_july_2023.pdf [^12]: Data Center Frontier, "CBRE: Record Data Center Construction Fails to Ease Capacity Crunch" (2026). https://www.datacenterfrontier.com/site-selection/news/55401462/cbre-record-data-center-construction-fails-to-ease-capacity-crunch [^13]: WSB-TV, "Atlanta now leads North America in data center construction, report says" (2026). https://www.wsbtv.com/news/local/atlanta-now-leads-north-america-data-center-construction-report/LSJDIC7A3BC5ZFVDRP3XAZZDBE/ [^14]: Data Center Dynamics, "AWS reveals $11bn data center investment plan for Georgia" (2025). https://datacenterdynamics.com/en/news/aws-reveals-11bn-data-center-investment-plan-for-georgia [^15]: Georgia Department of Audits and Accounts, "Georgia Data Center Sales and Use Tax Exemption: Tax Incentive Evaluation Summary" (2025). https://www.audits2.ga.gov/wp-content/uploads/2025/12/Data-Center-Tax-Exemption-Summary-Revised.pdf [^16]: Justia, "Code of Georgia 48-8-3, Exemptions" (2025). https://law.justia.com/codes/georgia/title-48/chapter-8/article-1/part-1/section-48-8-3/ [^17]: Data Center Dynamics, "Georgia governor vetoes bill to pause data center tax breaks" (2024). https://www.datacenterdynamics.com/en/news/georgia-governor-vetoes-bill-to-pause-data-center-tax-breaks/ [^18]: Atlanta Journal-Constitution, "Georgia Senate votes to claw back data center tax breaks" (2026). https://www.ajc.com/business/2026/03/georgia-senate-votes-to-claw-back-data-center-tax-breaks/ [^19]: Bloomberg Tax, "Data Center Break Survives Georgia Income, Property Tax Push" (2026). https://news.bloombergtax.com/daily-tax-report-state/data-center-break-survives-georgia-income-property-tax-push [^20]: Georgia Department of Revenue, "Data Centers Sales and Use Tax Exemption: Aggregate Expenditures by County" (n.d.). https://dor.georgia.gov/data-centers-sales-use-tax-exemption-aggregate-expenditures-county [^21]: Georgia Public Service Commission, "Media advisory: data centers rule" (2025). https://psc.ga.gov/site/assets/files/8617/media_advisory_data_centers_rule_1-23-2025.pdf [^22]: Data Center Dynamics, "Georgia PSC approves new billing rules for data centers and large load customers" (2025). https://www.datacenterdynamics.com/en/news/georgia-psc-approves-new-billing-rules-for-data-centers-and-large-load-customers [^23]: Ashurst Perkins Coie, "Georgia Public Service Commission approves Georgia Power's major generation expansion to support data centers" (2026). https://www.ashurstperkinscoie.com/en/insights/georgia-public-service-commission-approves-georgia-powers-major-generation-expansion-to-support-data/ [^24]: Georgia Public Service Commission, "Electric utilities" (n.d.). https://psc.ga.gov/utilities/electric/ [^25]: Atlanta Journal-Constitution, "PSC to decide whether Georgia law allows data center's pop-up power plant" (2026). https://www.ajc.com/business/2026/08/psc-to-decide-whether-georgia-law-allows-data-centers-pop-up-power-plant/ [^26]: WABE, "Data centers use a lot of water. Georgia counties and conservationists are looking for solutions" (2025). https://www.wabe.org/data-centers-use-a-lot-of-water-georgia-counties-and-conservationists-are-looking-for-solutions/ [^27]: Chattahoochee Riverkeeper, "Explosive data center growth in the Chattahoochee River basin" (2025). https://chattahoochee.org/blog/explosive-data-center-growth-in-the-chattahoochee-river-basin/ [^28]: Bisnow, "DeKalb County Joins Neighbors With Temporary Data Center Ban" (2025). https://www.bisnow.com/news/atlanta/data-center/dekalb-county-joins-neighbors-in-temporarily-banning-data-center-construction-130163 [^29]: Atlanta News First, "DeKalb County extends data center moratorium" (2026). https://atlantanewsfirst.com/2026/06/09/dekalb-county-extends-data-center-moratorium/ [^30]: FOX 5 Atlanta, "Troup County's 90-day pause on data centers" (2025). https://www.fox5atlanta.com/news/troup-countys-90-day-pause-data-centers --- # Opportunity Zone data centers in Ohio URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-ohio Last reviewed: 2026-10-22 Ohio is one of the largest data center markets in the country, and its income tax follows the federal Opportunity Zone deferral and exclusion, so an Ohio investor defers both federal tax and Ohio's 2.75% tax on a gain invested in a Qualified Opportunity Fund. The state can designate up to 258 of its 1,032 eligible census tracts as zones effective January 1, 2027, but the best-known data center corridor around New Albany is mostly affluent and unlikely to qualify. Ohio's main data center sales tax exemption has been paused for new requests since May 27, 2026, so OZ equity matters more for projects that start now. ## Key takeaways - Ohio had 1,032 census tracts eligible for nomination and the governor may designate up to 258 (25%) as Opportunity Zones effective January 1, 2027, according to the Ohio Department of Development. - Ohio's income tax starts from federal adjusted gross income and S.B. 9 (signed March 5, 2026) updated Ohio's Internal Revenue Code conformity, so federal Opportunity Zone deferral and exclusion carry through to Ohio tax. - On a $10 million gain, an Ohio resident defers about $2.38 million of federal tax and $275,000 of Ohio tax; a 10% step-up after five years cuts the combined bill to about $2.39 million (illustrative). - Ohio's separate Opportunity Zone tax credit equals 10% of qualifying investment, is capped at $5 million per project, and has $50 million a year for fiscal 2026 and 2027. - Gov. DeWine paused new data center sales tax exemption requests on May 27, 2026 and said in August the pause will continue until he leaves office. - AEP Ohio reports 17,861 MW of contracted data center load scheduled through 2035, and new loads above 25 MW must pay for at least 85% of subscribed demand for up to 12 years. ## How do Opportunity Zones and data centers fit together in Ohio? Ohio offers a strong market and full state tax conformity, but the zones and the data center hot spots only partly overlap. Central Ohio is one of the busiest data center markets in the country, with Meta, Google, Amazon Web Services and colocation operators building around New Albany and Columbus.[^1][^2] An Opportunity Zone (a low-income census tract designated by the governor and certified by Treasury) gives investors who put capital gains into a Qualified Opportunity Fund (QOF) deferral, a 10% or 30% basis step-up after five years, and tax-free appreciation after 10 years under IRC §1400Z-2.[^3] Three Ohio facts shape every deal. First, a new zone map takes effect January 1, 2027, and the governor's nominations were still being finalized in October 2026.[^4][^5] Second, Ohio's income tax follows the federal Opportunity Zone rules, so Ohio investors defer state tax too.[^6] Third, the state's data center sales tax exemption is paused for new requests, which removes one of the incentives that used to stack with OZ equity.[^7][^8] **Figure: Ohio Opportunity Zones and data centers in numbers** - 1,032: Ohio census tracts eligible for nomination - 258: Maximum new zones (25% cap), effective Jan. 1, 2027 - 17,861 MW: Data center load under contract with AEP Ohio - $1.5B+: 2025 cost of Ohio's data center sales tax exemption *Eligible tracts and the 25% cap are from the Ohio Department of Development's nomination notice; contracted load is AEP Ohio's February 2026 report to regulators; the exemption cost is state tax data reported in May 2026.[^4][^9][^10]* ## Which Ohio census tracts can become Opportunity Zones in 2027? Up to 258 of Ohio's 1,032 eligible tracts, chosen by Gov. DeWine and certified by Treasury. The eligible list comes from Rev. Proc. 2026-14, which identified 25,332 low-income community tracts nationally, 8,334 of them wholly rural.[^5] A tract qualifies if its median family income is no more than 70% of the area median, or if its poverty rate is at least 20% and its median family income is no more than 125% of the area median. A governor may designate no more than 25% of eligible tracts.[^11] **Ohio's 2027 designation process** | Step | Date | Status as of October 22, 2026 | | --- | --- | --- | | Local nominations to the Ohio Department of Development | June 10 to July 10, 2026 | Closed[^4] | | Governor's 90-day nomination window | Opened July 1, 2026 | Rev. Proc. 2026-14 allows one 30-day extension, to about October 28, 2026[^5] | | Treasury certification | Expected by end of 2026 | No final Ohio list published yet[^4] | | New zones take effect | January 1, 2027 | Run through December 31, 2036 | | Existing Ohio zones (320 tracts) | Remain in effect through December 31, 2028 | A current zone is not automatically renominated[^11] | We found no public announcement of Ohio's final nominated tracts as of October 22, 2026, so treat any list you see as proposed until Treasury certifies it. Treasury has updated its eligibility analysis for some states during the process, so Ohio's final cap could move by a tract or two. Check a specific parcel with the tools in [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone), and see [the new Opportunity Zone maps for 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) for the national picture. Rural tracts matter more for data centers than for most asset classes. A Qualified Rural Opportunity Fund (QROF) holds at least 90% of its assets in zones made up entirely of rural area and gives investors a 30% step-up after five years instead of 10%. In wholly rural zones, an existing building is substantially improved when improvements exceed 50% of its basis rather than 100%.[^12] Much of eastern and southeastern Ohio, including former power plant towns along the Ohio and Muskingum rivers, is rural under the statutory test (outside any city of more than 50,000 people and its adjacent urbanized area). See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## Does Ohio have its own Opportunity Zone tax credit? Yes. The Ohio Opportunity Zone Tax Credit gives investors a state income tax credit equal to 10% of the amount their fund invested in projects located in Ohio Opportunity Zones.[^13] It is separate from the federal benefits and does not require a capital gain. The budget bill (H.B. 96) doubled the allocation to $50 million for each of fiscal 2026 and fiscal 2027 and added a $5 million cap per project, no matter how many investors apply for the same project.[^14] - The investor must invest in an Ohio qualified opportunity fund, a QOF that holds 100% of its invested assets in qualified opportunity zone property in Ohio, and the fund's governing documents must designate it a QOF under §1400Z-2.[^15] - Only money used to improve property in an Ohio zone counts; acquisition costs no longer qualify, and from the July 2026 round the property owner must document that fund money was spent on improvements.[^15][^13] - Applications are taken in two windows a year for investments made in the prior six months. The next window runs January 11 to 18, 2027, for investments made July 1 to December 31, 2026.[^13] - Demand exceeds supply: Thompson Hine reports more than $43 million of credits were awarded in the July 2025 round, and no credits are authorized beyond fiscal 2027 unless the General Assembly acts.[^15][^14] For a data center the credit is real but small. At 10%, the $5 million project cap is reached on $50 million of improvement spending, while Cushman & Wakefield puts all-in greenfield data center cost at about $8.9 million to $23.3 million per MW.[^16] The credit can sweeten an Ohio-resident investor's return on a smaller edge or colocation project; on a hyperscale campus it is a rounding item. ## Does Ohio tax Opportunity Zone gains? Ohio follows the federal treatment: deferred gain is not in Ohio income until it is included federally, and appreciation excluded after 10 years is excluded for Ohio too. Ohio's personal income tax starts from federal adjusted gross income. S.B. 9, signed March 5, 2026 with an emergency clause, moved Ohio's Internal Revenue Code conformity date to the signing date, picking up federal changes enacted after March 7, 2025, including the current Opportunity Zone rules.[^6][^17] That places Ohio among the conforming states described in [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). Ohio moved to a flat 2.75% rate on nonbusiness income above $26,050 for tax years beginning in 2026, and capital gains are taxed at that rate with no separate capital gains schedule.[^18] The worked example below assumes the 2.75% rate still applies when the deferred gain is included, which depends on future budgets. **Figure: Federal and Ohio tax on a $10 million gain invested in a QOF and held five years** (illustrative) - Federal tax on $10M gain: 2380000 $ - Ohio tax at 2.75%: +275000 $ - 10% step-up, federal: -238000 $ - 10% step-up, Ohio: -27500 $ - Tax due at year 5: 2389500 $ *Illustrative. Assumes a $10,000,000 long-term gain invested in a standard QOF on or after January 1, 2027, a 23.8% federal rate (20% plus 3.8% net investment income tax), Ohio's 2.75% flat rate with the $26,050 zero bracket ignored, and no change in value. Both taxes are deferred until year five.* **Illustrative tax on a $10 million gain for an Ohio resident** | Scenario | Federal (23.8%) | Ohio (2.75%) | Total | | --- | --- | --- | --- | | Gain not invested, tax paid now | $2,380,000 | $275,000 | $2,655,000 | | Standard QOF, included at year 5 (90% of gain) | $2,142,000 | $247,500 | $2,389,500 | | QROF, included at year 5 (70% of gain) | $1,666,000 | $192,500 | $1,858,500 | | Tax on $10M of appreciation after a 10-year hold | $0 | $0 | $0 | Two Ohio wrinkles. Ohio remains decoupled from federal bonus depreciation under §168(k), so the large first-year deductions that data center equipment generates federally are spread out for Ohio purposes, which changes the losses an Ohio investor sees on a K-1.[^6] And because Ohio taxes residents on all income, a resident who invests in a QOF that builds in another state still gets Ohio deferral. See [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation) for the federal side. ## How big is Ohio's data center market? Ohio is a top-tier and fast-growing market centered on Columbus. A January 2026 analysis using University of Virginia data counted more than 100 operating data centers in Ohio with 77 more slated by 2030, and projected that Columbus will pass New York to become the second-largest hub in the Great Lakes region after Chicago.[^1] Meta's Prometheus campus in New Albany is described as the first data center requiring more than 1 gigawatt of power.[^1] - Amazon Web Services said in December 2024 it would invest another $10 billion in Ohio, bringing its committed spending in the state to more than $23 billion, with new sites contingent on long-term energy agreements.[^2] - AEP Ohio told regulators in February 2026 that it had 5,642 MW of data center contracts signed under its data center tariff on top of 12,219 MW signed earlier, 17,861 MW in all, coming online through 2035. AEP Ohio's total peak demand has run about 8,000 to 10,500 MW.[^9] - Development is spreading beyond Licking and Franklin counties. Aligned Data Centers is building a roughly 200-acre campus at the Conesville Industrial Park in Coshocton County, next to AEP's retired Conesville coal plant.[^19] The demand drivers are hyperscale cloud and AI build-outs, central location within a day's drive of much of the U.S. population, available land and, until recently, generous sales tax treatment. Power is now the binding constraint, which pushes new projects toward sites with existing transmission or on-site generation, including former industrial and power plant sites in rural eastern Ohio. ## What Ohio data center incentives stack with Opportunity Zone benefits? Ohio's main data center incentive, a sales and use tax exemption on equipment, is closed to new requests for now. The exemption requires $100 million of investment over three years and more than $1.5 million of annual Ohio payroll, and the Tax Credit Authority can grant up to 100%.[^7] On May 27, 2026, Gov. DeWine directed the Tax Credit Authority to stop taking new requests while the General Assembly's Joint Data Center Committee studies the sector; his office said the pause is not a ban on data centers.[^7] State figures reported in May 2026 put the exemption's 2025 cost at more than $1.5 billion against an earlier estimate of about $136 million.[^10] In August, DeWine said the pause will continue until he leaves office.[^8] The legislature has not settled the program's future. In June 2026 the Senate informally passed a substitute House Bill 646 that would cut the exemption for future projects from 100% to between 50% and 75%, with the higher rate for brownfield sites or projects that bring their own power, while leaving existing agreements alone; the House and Senate did not reach a deal before summer recess.[^20] **How Ohio incentives interact with Opportunity Zone benefits** | Incentive | Tax it reduces | Stacks with OZ? | Status | | --- | --- | --- | --- | | Federal OZ deferral, step-up, 10-year exclusion | Investor's federal and Ohio income tax on capital gains | Base benefit | Available for gains invested in a QOF | | Ohio Opportunity Zone Tax Credit | Investor's Ohio income tax | Yes, if the fund is an Ohio qualified opportunity fund | $50M per fiscal year through FY2027; $5M per project[^14] | | Data center sales and use tax exemption | Sales tax on equipment and materials | Yes, reduces project cost | Paused for new requests since May 27, 2026[^7] | | Local property tax abatements and PILOTs | Real and personal property tax | Usually; review title-holding structures | Negotiated project by project | Payment-in-lieu-of-taxes (PILOT) deals in which a port authority or city holds title and leases the facility back need a separate Opportunity Zone review, because the QOZB must own or lease the property on terms that count toward its 70% tangible property test. The general rules are in [state data center incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [stacking incentives with Opportunity Zones](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## How hard is it to get power for an Ohio data center? Power is available but expensive and contractually demanding. Ohio is in PJM, the regional grid operator, whose 2028/2029 capacity auction cleared at its $325 per MW-day cap and still fell 6,831 MW short of the reliability requirement; PJM attributed the higher load forecast largely to large loads.[^21] Capacity prices flow into every large customer's bill. - AEP Ohio's data center tariff, approved by the Public Utilities Commission of Ohio on July 9, 2025, applies to new data centers above 25 MW. They must pay for at least 85% of subscribed demand for up to 12 years, including a four-year ramp, and post collateral and exit fees.[^22] - Behind-the-meter generation is growing. The PUCO chair told lawmakers in May 2026 that the Ohio Power Siting Board authorized or received applications for more than 2,000 MW of behind-the-meter dispatchable generation in 2025 alone.[^23] - Co-location rules across PJM are being rewritten. FERC found PJM's tariff unjust and unreasonable in December 2025 for lacking clear co-located load rules and ordered new transmission service options.[^24] For an Opportunity Zone project the timing matters. A QOZB can hold cash for up to 31 months under a written working capital plan (62 months with consecutive plans), but utility study and construction delays are not clearly the kind of governmental delay that extends the period. Sites with a signed AEP Ohio electric service agreement or a permitted on-site plant fit the safe harbor far better than sites still in the study queue. See [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor) and [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## Where do Ohio Opportunity Zones make sense for a data center? Look east and southeast of Columbus, and at former industrial and power plant sites, rather than the New Albany core. The fastest-growing suburbs are higher-income areas where few tracts are likely to meet the 70% income test, while retired coal plant sites, river towns and older industrial parks are more likely to be in eligible and rural tracts. **Figure: Ohio siting factors for an Opportunity Zone data center** - [pass] State tax conformity: Ohio follows federal OZ deferral and exclusion - [pass] Water: Ohio River, Lake Erie and large aquifers; Great Lakes basin diversions are restricted - [pass] Fiber: Dense long-haul routes through Columbus; rural sites need diverse paths - [pass] Former industrial and coal sites: Transmission and land in place, e.g. Conesville - [watch] Power cost and terms: PJM capacity at the cap; AEP Ohio 85% minimum bill for up to 12 years - [fail] State sales tax exemption: Closed to new requests since May 27, 2026 - [watch] Local approval: Statewide data center rules still under debate in 2026 *A first-pass screen. Each site still needs tract confirmation after Treasury certifies Ohio's 2027 zones.* Lease structure matters as much as location. A QOZB that leases a powered shell to a single hyperscaler on a triple-net lease risks failing the active trade or business requirement, because the regulations say merely entering into a triple-net lease is not an active business. Colocation, operator-run facilities and leases where the landlord provides real services hold up better. See [data center lease structures](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones) and [converting buildings to data centers](https://ozdatacenters.com/guides/converting-buildings-to-data-centers-opportunity-zones). ## What does this mean for investors, landowners and developers in Ohio? - Ohio investors with capital gains: you defer Ohio's 2.75% tax along with federal tax, whether the QOF builds in Ohio or elsewhere. Investing through an Ohio qualified opportunity fund can add the 10% state credit, subject to the per-project cap and limited allocation. - Investors outside Ohio: your home state decides your state deferral. An Ohio project matters to you mainly through its economics and, if you are a nonresident with Ohio-source gain, through Ohio's nonresident rules. - Landowners: land in a 2027 zone near transmission is worth more to OZ buyers, but only after Treasury certifies the tract. Gain on selling the land can itself be invested in a QOF within 180 days. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers: plan without the state sales tax exemption, budget for AEP Ohio's minimum-bill and collateral terms, and phase capital so each tranche fits a 31-month working capital plan. OZ Data Centers sponsors funds that develop data centers in Opportunity Zones, and Ohio is the kind of market where the zone map, power terms and state incentives all have to line up. When a decision depends on your own tax position, confirm it with your tax adviser. ## Common questions **How many Opportunity Zones will Ohio have in 2027?** Up to 258. The Ohio Department of Development identified 1,032 eligible census tracts, and federal law caps designations at 25% of eligible tracts. The final list depends on the governor's nominations and Treasury certification, expected by the end of 2026. **Does Ohio tax capital gains invested in an Opportunity Zone fund?** Not until the gain is included federally. Ohio's income tax starts from federal adjusted gross income and Ohio updated its Internal Revenue Code conformity in March 2026, so federal deferral and the 10-year exclusion carry through to Ohio tax. **Is the Ohio Opportunity Zone tax credit still available?** Yes, through fiscal 2027. It equals 10% of qualifying investment, with $50 million available per fiscal year and a $5 million cap per project. The next application window is January 11 to 18, 2027. No credits are authorized after fiscal 2027 unless the legislature acts. **Can a new Ohio data center still get the sales tax exemption?** Not right now. The governor paused new exemption requests on May 27, 2026 and said in August that the pause will continue until he leaves office. Projects with existing agreements keep their exemptions. **Are New Albany data center sites in Opportunity Zones?** Mostly not likely. New Albany and nearby fast-growing suburbs are higher-income areas, and a tract must meet the 70% median family income test or the 20% poverty test to be eligible. Check any specific parcel against the certified 2027 list. **What does AEP Ohio's data center tariff require?** New data centers above 25 MW must pay for at least 85% of subscribed demand for up to 12 years, including a four-year ramp, and must show financial viability, post collateral and pay exit fees if a project is cancelled. ## Sources [^1]: WOSU Public Media, "Columbus will become second-largest data center hub in the Great Lakes region, report says" (2026). https://www.wosu.org/2026-01-19/columbus-will-become-second-largest-data-center-hub-in-the-great-lakes-region-report-says [^2]: ABC News (Associated Press), "Amazon investing another $10 billion in Ohio-based data centers" (2024). https://abcnews.go.com/US/wireStory/amazon-investing-10-billion-ohio-based-data-centers-116884126 [^3]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^4]: Ohio Department of Development, "State Opens Nominations for Opportunity Zones Program" (2026). https://development.ohio.gov/home/news-and-events/all-news/2026-0615-state-opens-nominations-for-opportunity-zones-program [^5]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^6]: EY Tax News, "Ohio enacts annual IRC conformity legislation (S.B. 9)" (2026). https://taxnews.ey.com/news/2026-0593 [^7]: Office of the Ohio Governor, "Data center tax exemption pause" (2026). https://content.govdelivery.com/accounts/OHIOGOVERNOR/bulletins/419304d [^8]: WYSU (Statehouse News Bureau), "DeWine: Ohio data center tax break is for next governor to decide on" (2026). https://wysu.org/ohio-news/2026-08-06/dewine-ohio-data-center-tax-break-is-for-next-governor-to-decide-on [^9]: WFMJ, "AEP says data center tariff contracts working as designed" (2026). https://www.wfmj.com/story/53438846/aep-data-center-tariff-contracts-working-as-designed [^10]: Spectrum News 1, "Report: Ohio spends over $1.5 billion on data center tax breaks" (2026). https://spectrumnews1.com/oh/columbus/Capital-This-Week/2026/05/28/report--ohio-spends-over--1-5-billion-on-data-center-tax-breaks [^11]: Ohio Township Association, "Opportunity Zones 2.0: Local Input Process Opens" (2026). https://www.ohiotownships.org/news/opportunity-zones-20-local-input-process-opens [^12]: Internal Revenue Service, "Notice 2025-50" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^13]: Ohio Department of Development, "Ohio Opportunity Zones Tax Credit Program" (2026). https://development.ohio.gov/business/state-incentives/ohio-opportunity-zones [^14]: Thompson Hine, "Ohio Doubles Opportunity Zone Tax Credits for 2026-2027" (2025). https://www.thompsonhine.com/insights/ohio-doubles-opportunity-zone-tax-credits-for-2026-2027/ [^15]: Thompson Hine, "Qualifying for Ohio Opportunity Zone Tax Credits in 2026" (2026). https://www.thompsonhine.com/insights/qualifying-for-ohio-opportunity-zone-tax-credits-in-2026/ [^16]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ [^17]: Ohio Society of CPAs, "Ohio Senate passes SB 9 with emergency clause; Gov. DeWine signs bill for immediate effect" (2026). https://ohiocpa.com/get-involved/news/2026/03/06/ohio-senate-passes-sb-9-with-emergency-clause--gov.-dewine-signs-bill-for-immediate-effect [^18]: EY Tax News, "Ohio legislation lowers top personal income tax rate retroactive to January 1, 2025, implements flat tax in 2026" (2025). https://taxnews.ey.com/news/2025-1744-ohio-legislation-lowers-top-personal-tax-rate-retroactive-to-january-1-2025-implements-flat-tax-in-2026 [^19]: Data Center Dynamics, "Aligned to develop 200-acre data center campus in Coshocton, Ohio" (2025). https://www.datacenterdynamics.com/en/news/aligned-to-develop-200-acre-data-center-campus-in-coshocton-ohio/ [^20]: Ohio Capital Journal, "Ohio lawmakers fail to reach agreement on data center regulations" (2026). https://ohiocapitaljournal.com/2026/06/11/ohio-lawmakers-fail-to-reach-agreement-on-data-center-regulations/ [^21]: PJM Interconnection, "PJM Capacity Auction Procures 138,318 MW of Generation Resources as Work Continues To Address Growing Electricity Demand" (2026). https://insidelines.pjm.com/pjm-capacity-auction-procures-138318-mw-of-generation-resources-as-work-continues-to-address-growing-electricity-demand/ [^22]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ [^23]: Public Utilities Commission of Ohio (testimony of Chair Jenifer French), "Comments before the House Select Committee on Data Centers" (2026). https://search-prod.lis.state.oh.us/api/v2/general_assembly_136/committees/cmte_h_data_centers_1/meetings/cmte_h_data_centers_1_2026-05-27-1000_1337/submissions/pucochairfrenchcommentsbeforetheselectcommitteeondatacenters(2)05.27.2026.pdf [^24]: Morgan Lewis, "FERC Directs Co-Location Reforms in PJM" (2025). https://www.morganlewis.com/pubs/2025/12/ferc-directs-co-location-reforms-in-pjm --- # Opportunity Zone data centers in Arizona URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-arizona Last reviewed: 2026-10-22 Arizona is one of the largest U.S. data center markets, and Opportunity Zone equity can fund projects there, but the 2027 map, power and water decide which sites work. Arizona could nominate up to 125 of roughly 500 eligible tracts for the zones that take effect January 1, 2027, and it conforms to the federal Internal Revenue Code as of January 1, 2026, so state tax at the flat 2.5% rate generally follows federal deferral. The state's data center sales tax exemption is closed to new applicants for three years from July 1, 2026. ## Key takeaways - Arizona's governor could nominate up to 125 census tracts, about one quarter of roughly 500 eligible, for zones that take effect January 1, 2027; Treasury had not published a certified Arizona list as of October 22, 2026. - Arizona was reported as the first state to submit its nominations, on July 7, 2026, including three tracts not on Treasury's eligible list. - Arizona conforms to the Internal Revenue Code as of January 1, 2026 for tax years beginning after December 31, 2025, and taxes individual income, including capital gains, at a flat 2.5%. - On a $10 million gain, federal tax (23.8%) plus Arizona tax (2.5%) is about $2.63 million; after five years in a rural fund, the tax falls to about $1.84 million. - A three-year moratorium on new applications for Arizona's computer data center sales tax exemption began July 1, 2026; existing certified projects keep their benefits. - APS and SRP told regulators in 2026 that large-load demand exceeds what they can serve, so confirmed power, not zone status, is the first siting filter. ## Can you build an Opportunity Zone data center in Arizona? Yes, and the federal tax benefits work the same way in Arizona as anywhere else, but in 2026 the constraints are local: which tracts make the 2027 map, whether a utility can serve the load, and how a site handles water and community scrutiny. A Qualified Opportunity Fund (QOF) is an investment vehicle that holds at least 90% of its assets in Qualified Opportunity Zone property, and investors who put eligible capital gains into a QOF within 180 days can defer and partly reduce that gain and, after 10 years, exclude the fund's appreciation from tax.[^1] Data centers are not on the excluded "sin business" list, so a data center owned by a Qualified Opportunity Zone Business (QOZB) can qualify.[^1] Four Arizona facts frame every deal in 2026. The state's zone nominations were submitted early, so the new map should be among the first certified. Arizona follows the federal Opportunity Zone rules for its own income tax. Its data center sales tax exemption closed to new applicants on July 1, 2026.[^20] And the Phoenix utilities have told the Arizona Corporation Commission that requests from large loads exceed their ability to serve.[^14] For a full overview of how the program applies to the asset class, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). **Figure: Arizona at a glance for Opportunity Zone data centers** - 602.8 MW: Phoenix data center inventory, end of 2024 (CBRE)[^11] - 1.9%: Phoenix vacancy, a record low at the time[^11] - 125: Maximum tracts Arizona could nominate for 2027[^3] - ~7,000 MW: Combined load of SRP's 59 large-load customers[^14] *Inventory and vacancy are CBRE's year-end 2024 figures for the Phoenix market.[^11] The tract figures come from the Arizona Commerce Authority's nomination process.[^3] SRP's large-load figure was reported at the Corporation Commission's April 2026 workshop.[^14]* ## Which Arizona census tracts will be Opportunity Zones in 2027? Arizona's new zones will be the tracts the governor nominated in July 2026 and Treasury certifies, effective January 1, 2027 through December 31, 2036; the certified list had not been published as of October 22, 2026. Under the current rules a governor may designate the greater of 25% of the state's eligible low-income community tracts or 25 tracts.[^1] Treasury's list of eligible tracts appears in Rev. Proc. 2026-14, which identified 25,332 eligible tracts nationally, 8,334 of them wholly rural.[^2] The Arizona Commerce Authority (ACA) ran the state's recommendation process. It asked counties, larger cities in Maricopa, Pima and Pinal counties, and tribes to recommend about one quarter of their eligible tracts by June 19, 2026, and said Arizona's allotment was 125 tracts.[^3] County materials described roughly 500 qualifying tracts statewide.[^3] Governor Katie Hobbs made the final selection. Bisnow reported that Arizona was the first state to submit, on July 7, 2026, nominating 125 tracts including three that were not on Treasury's eligible list; such off-list tracts need tract-level data proving they meet the low-income test.[^4] Novogradac has published the nominated list with each tract's county and rural status.[^5] - Treat a tract as usable for a new project only after it appears on Treasury's certified list. Under Notice 2026-40, zones on the current map generally expire December 31, 2028, and property acquired after 2026 in a tract that is not redesignated generally does not qualify.[^6] - Rural status matters. A Qualified Rural Opportunity Fund (QROF), a QOF holding at least 90% of its assets in zones made up entirely of rural area, gives investors a 30% basis step-up after five years instead of 10%, and buildings in wholly rural zones need only 50% substantial improvement.[^7] - A "rural area" is anywhere outside a city or town of more than 50,000 people and its adjacent urbanized area. In Arizona that excludes most of the Phoenix, Tucson and Yuma urban areas; rural tracts are concentrated in counties such as Pinal, Mohave, Cochise and the northern counties, but status is determined tract by tract.[^7][^5] Use the [Opportunity Zone maps and data tools](https://ozdatacenters.com/guides/opportunity-zone-maps-and-data-tools) guide to check a parcel, and [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) for the national process. **Figure: Arizona dates that matter for an Opportunity Zone data center** - Jun 19, 2026: Local recommendations due (To the Arizona Commerce Authority) - Jul 1, 2026: Data center tax break paused (Three-year moratorium on new applications) - Jul 7, 2026: Nominations submitted (Reported first state to file) - Aug 31, 2026: Attorney General seeks pause (Calls for halt to new approvals) - Jan 1, 2027: New zones take effect (Through Dec 31, 2036) - Mid-2029: Moratorium scheduled to end (Unless the legislature acts) *Arizona moved early on its nominations, but state incentive and political decisions in 2026 change project economics as much as the map does.[^4][^20][^19]* ## Does Arizona tax Opportunity Zone gains? Arizona generally follows the federal Opportunity Zone deferral, step-up and exclusion, because its income tax starts from federal adjusted gross income and adopts the Internal Revenue Code as of a fixed date. H.B. 4168, signed June 13, 2026 with the fiscal 2027 budget, moved that date to January 1, 2026 for tax years beginning after December 31, 2025.[^8][^9] That date falls after the July 4, 2025 amendments to §1400Z-2, so the rolling five-year deferral and the 10% and 30% step-ups are part of the code Arizona adopts. We found no Arizona add-back for Opportunity Zone gains, which is consistent with our [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) guide. Arizona taxes individual income, including capital gains, at a flat 2.5%.[^10] Residents may also subtract 25% of net long-term capital gain included in federal adjusted gross income from assets acquired after December 31, 2011, which lowers the effective rate on qualifying gains to about 1.875%.[^12] Whether that subtraction applies to a deferred gain when it is included at year five depends on the asset and the facts; confirm with your tax adviser. > Arizona is a fixed-date conformity state. Each year's conformity bill can add exceptions, and H.B. 4168 already decoupled from federal 100% bonus depreciation starting in 2026.[^8] The year a deferred gain is included (2032 for a 2027 investment) will be governed by the conformity law then in effect. Illustrative example. An Arizona resident sells a business in 2027 with a $10,000,000 long-term capital gain and invests it in a QOF within 180 days. Assumptions: 23.8% federal rate (20% plus 3.8% net investment income tax), Arizona at 2.5% without the 25% subtraction, no decline in the fund's value, and continued state conformity. **Figure: Federal and Arizona tax on a $10 million gain, five years after investing in a rural fund** (illustrative) - Federal + Arizona tax if no QOF: 2630000 $ - 10% step-up, federal: -238000 $ - 10% step-up, Arizona: -25000 $ - Extra 20% rural step-up, federal: -476000 $ - Extra 20% rural step-up, Arizona: -50000 $ - Year-5 tax in a rural fund: $1,841,000: 1841000 $ *Illustrative. With no QOF, the gain costs $2,380,000 federal plus $250,000 Arizona tax. In a standard QOF the year-5 bill is $2,367,000 (10% step-up); in a Qualified Rural Opportunity Fund it is $1,841,000 (30% step-up). Tax on any appreciation is excluded after a 10-year hold.* **Illustrative tax on a $10,000,000 gain for an Arizona resident** | Scenario | Federal (23.8%) | Arizona (2.5%) | Total | When due | | --- | --- | --- | --- | --- | | No QOF investment | $2,380,000 | $250,000 | $2,630,000 | Year of sale | | Standard QOF, held 5 years (90% included) | $2,142,000 | $225,000 | $2,367,000 | Year 5 | | Rural QOF (QROF), held 5 years (70% included) | $1,666,000 | $175,000 | $1,841,000 | Year 5 | | QOF appreciation after a 10-year hold | Excluded | Excluded if conformity continues | $0 | At exit | Arizona's low rate means the state piece is small: about 10% of the combined bill. For an Arizona investor, the decision turns on the federal benefits. The federal math is detailed in [Opportunity Zone tax savings: a worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## How big is Arizona's data center market? Greater Phoenix is one of the largest data center markets in North America, and the pipeline is several times its built inventory. CBRE reported 602.8 MW of Phoenix inventory at the end of 2024, up 67% in a year, with vacancy at a record-low 1.9% after 245.5 MW of absorption.[^11] CBRE's H2 2025 report described large colocation projects in Mesa, Phoenix, Avondale, Goodyear and Glendale expected to complete within about 12 months.[^13] - Mesa and Chandler in the East Valley are established hubs; Apple and Meta both own clusters of data centers in Mesa, largely in Salt River Project territory.[^24] - Goodyear, Avondale and Glendale in the West Valley have the largest blocks of entitled industrial land and are served largely by APS.[^13] - The Phoenix-to-Tucson corridor in Pinal County holds the biggest proposed campuses, including Vermaland, a proposed 3 GW campus on 3,300 acres reported to sit in a Qualified Opportunity Zone on the current map.[^25] - Tucson and Pima County, served by Tucson Electric Power (TEP), are smaller and politically contested.[^16][^17] Demand comes from hyperscale cloud and AI tenants, low natural disaster risk, and proximity to California users without California's costs. EPRI's 2026 projections name Arizona among seven states where data centers could exceed 20% of state electricity use by 2030.[^15] That share is both the opportunity and the reason regulators and the Attorney General are pushing back. ## What data center incentives does Arizona offer, and do they stack with Opportunity Zones? Arizona's main data center incentive, a sales and use tax exemption on equipment, is closed to new applicants until mid-2029, so a new Opportunity Zone project in Arizona should be modeled without it. The Computer Data Center program under A.R.S. §41-1519, administered by the ACA with the Department of Revenue, exempts qualifying data center equipment from state, county and city transaction privilege and use taxes for up to 10 years, or up to 20 years for a certified sustainable redevelopment project.[^22] The budget Governor Hobbs signed, effective July 1, 2026, imposes a three-year moratorium on new applications, including renewals; existing certificate holders are not affected, and the governor's office estimated savings of about $57 million.[^20][^21] **How Arizona incentives interact with the federal Opportunity Zone benefits** | Benefit | Status in Arizona (October 2026) | Stacks with OZ? | | --- | --- | --- | | Computer Data Center sales and use tax exemption | No new applications from July 1, 2026 for three years; existing certificates continue[^20] | Yes for existing certificates; it reduces equipment cost, not income tax | | State income tax conformity to OZ deferral and exclusion | Conforms to the IRC as of January 1, 2026[^8] | Yes; state tax follows federal | | State bonus depreciation | Decoupled from federal 100% bonus depreciation from 2026[^8] | Reduces state-level losses passed to investors | | Local agreements (development, infrastructure, water) | Negotiated city by city | Generally yes; review any public ownership for the leased property rules | A sales tax exemption reduces the cost of improvements, which also lowers the additions to basis that count toward the 30-month substantial improvement test for a converted building. For a project that already holds an Arizona certificate, the exemption usually benefits whoever buys the equipment, often the tenant. See [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) for how other states compare. ## Can APS, SRP and TEP power a new data center in an Arizona zone? Not quickly, in most cases; power is the critical path for any Arizona data center and the main reason to choose a site where service is already committed. At an April 2026 Arizona Corporation Commission workshop, APS and SRP said demand from prospective large-load and data center customers exceeds their capacity to serve. SRP reported 59 large-load customers totaling nearly 7,000 MW, and APS projected about 13.1 GW of large-customer peak demand.[^14] In 2025, APS reported close to 4.5 GW of committed high-load-factor demand in its queue and about 20 GW more uncommitted, as both utilities signed up for new gas pipeline capacity.[^23] - APS is regulated by the Corporation Commission. It and SRP have proposed an extra-high-load-factor rate, a bring-your-own-power option that assigns new generation costs to the customer, and standard contracts with up-front financial security.[^14] - SRP is a public power district that sets its own rates; it is not rate-regulated by the Commission, but it presented at the same workshop.[^14] - TEP serves Tucson. The Commission approved a special energy supply agreement for the Project Blue campus in Pima County in December 2025 by a 4-1 vote, with deliveries starting in 2027 and about 286 MW by 2028; the Attorney General sought rehearing.[^16] For Opportunity Zone timing, the issue is the 31-month working capital safe harbor, extendable to 62 months for start-ups. Utility study and construction delays are not clearly the kind of governmental permitting delay that tolls the clock, so a QOZB that raises cash before power is committed risks holding idle cash past the safe harbor. Phase the equity to the power schedule. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines). ## What should you check before siting an Opportunity Zone data center in Arizona? Water, community approval and power together screen out more Arizona sites than zone status does. The Interior Department cut Arizona's Colorado River supply by nearly 30%, a point the Attorney General cited on August 31, 2026 when she called for a statewide pause on approval and construction of new data centers, especially hyperscale AI projects.[^19] A pause would require legislation, and none had passed as of this review. Water use is contested but manageable with the right design. A Ceres analysis estimated Phoenix data centers used about 385 million gallons a year for cooling, with use projected to rise nearly tenfold as planned capacity is built.[^26] Water experts interviewed by KJZZ in September 2026 said data centers are not the cause of the state's Colorado River cuts and use less water than often assumed.[^27] Grist found industrial users in Mesa accounted for about 6% of the city's potable water use in 2024.[^24] New hyperscale designs increasingly use closed-loop, zero-evaporation cooling; Microsoft says all its new designs since August 2024 use it.[^28] Closed-loop systems use more electricity, which pushes the problem back to power. See [water and cooling for Opportunity Zone data centers](https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers). **Figure: Arizona siting factors for an Opportunity Zone data center** - [watch] Tract on the certified 2027 map: Nominated July 2026; certified list pending - [fail] Committed utility service: APS and SRP say large-load demand exceeds capacity - [watch] Water supply and cooling design: Closed-loop cooling expected; scrutiny high - [fail] State sales tax exemption: Closed to new applicants until mid-2029 - [watch] Local zoning and politics: Tucson, Pima County and Pinal pushback - [pass] State income tax conformity: Follows federal OZ rules at 2.5% - [pass] Fiber and latency to California: Established Phoenix routes and carriers *A general read of Arizona conditions in October 2026. Each project still needs site-specific diligence.[^14][^19][^20][^18]* Local politics now shapes Arizona siting. Tucson's city council voted unanimously in August 2025 to end Project Blue within the city.[^17] Pima County adopted a 120-day moratorium on new data center projects in unincorporated areas in September 2026.[^18] Rural tracts in Pinal and Yuma counties offer land and the rural fund benefits, but they need transmission, a water plan and county approval. National proposals to remove data centers from Opportunity Zone benefits, including a bill introduced by Sen. Josh Hawley in September 2026, had not been enacted.[^29] ## What does this mean for investors, landowners and developers in Arizona? For investors, Arizona residence adds little to the cost of deferral and keeps the 10-year exclusion; for landowners and developers, the value lies in sites that combine a certified 2027 tract with committed power. - Arizona investors: state tax follows federal deferral at 2.5%, so the after-tax case matches the federal case closely. Gains invested on or after January 1, 2027 get the rolling five-year deferral and the 10% or 30% step-up.[^1] - Out-of-state investors: your residence state, not Arizona, usually decides state deferral. California residents, for example, get no state deferral; see our conformity guide. - Landowners: land in a nominated rural tract with transmission access is the scarce asset. Selling to a QOZB, or contributing land under a market-rate ground lease from an unrelated owner, are the common structures; see [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers: plan without the state equipment exemption, secure a utility commitment before raising QOF equity, and avoid a single-tenant triple-net powered shell, which risks failing the active trade or business requirement.[^30] Dentons and other firms note that the rural fund step-up and the 50% substantial improvement rule make rural data center sites more attractive.[^30] In Arizona, the rural sites that also have power and water rights are few. OZ Data Centers sponsors data center projects of this kind; if you hold Arizona land or gains, [talk to our team](https://ozdatacenters.com/#contact). ## Common questions **How many Opportunity Zones will Arizona have in 2027?** Up to 125 tracts, about one quarter of roughly 500 eligible. Arizona submitted its nominations in July 2026, but Treasury had not published a certified Arizona list as of October 22, 2026, so check the certified list before relying on a tract. **Does Arizona tax Opportunity Zone gains?** Arizona generally follows the federal treatment. It conforms to the Internal Revenue Code as of January 1, 2026 and has no known Opportunity Zone add-back, so deferred gain is taxed at the flat 2.5% rate when it is included federally, and appreciation excluded after 10 years is also excluded for Arizona if conformity continues. **Can a new data center still get Arizona's sales tax exemption?** Not before mid-2029. A three-year moratorium on new applications and renewals started July 1, 2026. Projects that already hold a certificate keep it. **Is Vermaland in an Opportunity Zone?** The proposed 3 GW Vermaland campus has been reported as located in a Qualified Opportunity Zone on the current map. Whether its tracts are on the 2027 map depends on Treasury's certified list. **Is water a deal-breaker for Arizona data centers?** Not if the design avoids evaporative cooling and the site has a secure supply. Most new hyperscale designs use closed-loop cooling, which uses little water but more electricity, so power becomes the binding limit. **Did Arizona ban data centers?** No. The Attorney General called for a statewide pause in August 2026, but that requires legislation. Some localities acted on their own, including a 120-day Pima County moratorium in unincorporated areas. ## Sources [^1]: U.S. Government Publishing Office, "26 U.S.C. §1400Z-2, Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^3]: Arizona Commerce Authority, "Opportunity Zone recommendation process" (2026). https://www.azcommerce.com/arizona-opportunity-zones/oz-20-recommendation-process [^4]: Bisnow, "Want To Weigh In On The Next Opportunity Zone Maps? You May Be Too Late" (2026). https://www.bisnow.com/news/national/opportunity-zones/more-than-half-of-states-are-done-taking-public-input-for-new-oz-maps-135507 [^5]: Novogradac, "Arizona nominated Opportunity Zone tracts (August 11, 2026)" (2026). https://novoco.com/public-media/documents/arizona-oz-20-nominated-tracts-08112026.pdf [^6]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^7]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^8]: Forvis Mazars, "Arizona Updates IRC Conformity Date to January 1, 2026" (2026). https://www.forvismazars.us/forsights/2026/07/arizona-updates-irc-conformity-date-to-january-1-2026 [^9]: Arizona Mirror, "Hobbs signs $18.3B Arizona budget, calling Trump-conforming tax cuts a historic win" (2026). https://azmirror.com/2026/06/13/hobbs-signs-18-3b-arizona-budget-calling-trump-conforming-tax-cuts-a-historic-win/ [^10]: Arizona Department of Revenue, "Form 140ES booklet, 2026 individual estimated tax payments" (2026). https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2026_140ESBooklet.pdf [^11]: CBRE, "CBRE Report: Phoenix Moves Ahead of Silicon Valley in Data Center Inventory" (2025). https://www.cbre.com/press-releases/cbre-report-phoenix-moves-ahead-of-silicon-valley-in-data-center-inventory [^12]: Arizona State Legislature, "SB 1331 fact sheet: long-term capital gains subtraction" (2025). https://azleg.gov/legtext/57leg/1R/summary/S.1331FIN.DOCX.htm [^13]: CBRE, "North America Data Center Trends H2 2025: Phoenix Data Center Market" (2026). https://www.cbre.com/insights/books/north-america-data-center-trends-h2-2025/phoenix-data-center-market [^14]: Arizona Corporation Commission, "ACC Data Center/Large Load Workshop Highlights" (2026). https://www.azcc.gov/news/home/2026/04/20/acc-large-load-data-center-workshop-highlights [^15]: EPRI, "Powering Intelligence 2026: Updated Scenarios of U.S. Data Center Electricity Use and Power Strategies" (2026). https://esca.epri.com/products/3002034696/ [^16]: Arizona Capitol Times, "ACC greenlights energy agreement for TEP to power Project Blue data center" (2025). https://azcapitoltimes.com/news/2025/12/04/acc-greenlights-energy-agreement-for-tep-to-power-project-blue-data-center [^17]: AZFamily, "Tucson City Council votes to end Project Blue" (2025). https://www.azfamily.com/2025/08/06/tucson-city-council-votes-end-project-blue/ [^18]: KJZZ, "Pima County passes 120-day moratorium on future data center projects" (2026). https://www.kjzz.org/fronteras-desk/2026-09-23/pima-county-passes-120-day-moratorium-on-future-data-center-projects [^19]: Arizona Attorney General, "Attorney General Mayes calls for statewide pause on data centers, announces town hall" (2026). https://www.azag.gov/press-release/attorney-general-mayes-calls-statewide-pause-data-centers-announces-town-hall [^20]: Bloomberg Law, "Arizona Data Center Tax Incentive Pause Signed by Governor Hobbs" (2026). https://news.bloomberglaw.com/ip-law/arizona-data-center-tax-incentive-pause-signed-by-governor-hobbs [^21]: KOLD, "Arizona budget deal includes 3-year pause on data center tax exemptions" (2026). https://www.kold.com/2026/06/10/arizona-budget-deal-includes-3-year-pause-data-center-tax-exemptions/ [^22]: Arizona Commerce Authority, "Computer Data Center Program" (n.d.). https://azcommerce.com/incentives/computer-data-center-program/ [^23]: Utility Dive, "Arizona utilities sign up for gas pipeline project, spurred by data center development" (2025). https://www.utilitydive.com/news/arizona-utilities-aps-srp-transwestern-gas-pipeline-data-center/757040/ [^24]: Grist, "Arizona water, data centers and semiconductors" (2025). https://grist.org/technology/arizona-water-data-centers-semiconducters/ [^25]: Converge Digest, "3 GW data center campus envisioned for Arizona" (2025). https://convergedigest.com/3-gw-data-center-campus-envisioned-for-arizona/ [^26]: Phoenix New Times, "Phoenix data center water use could surge nearly tenfold, study finds" (2025). https://www.phoenixnewtimes.com/news/phoenix-data-center-water-use-surge-nearly-tenfold-study-22762054/ [^27]: KJZZ, "Don't blame data centers for Arizona's Colorado River cuts, water experts say" (2026). https://www.kjzz.org/business/2026-09-19/dont-blame-data-centers-for-arizonas-colorado-river-cuts-water-experts-say [^28]: Microsoft, "Sustainable by design: Next-generation datacenters consume zero water for cooling" (2024). https://microsoft.com/en-us/microsoft-cloud/blog/2024/12/09/sustainable-by-design-next-generation-datacenters-consume-zero-water-for-cooling [^29]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^30]: Dentons, "The Qualified Opportunity Zone Program Offers New Incentives for Data Center Projects" (2026). https://www.dentons.com/en/insights/articles/2026/april/22/the-qualified-opportunity-zone-program-offers --- # Opportunity Zone data centers in Pennsylvania URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-pennsylvania Last reviewed: 2026-10-22 Pennsylvania's personal income tax follows the federal Opportunity Zone rules, so a Pennsylvania investor who puts a capital gain into a Qualified Opportunity Fund defers both federal tax and the state's 3.07% tax, and gets the 10-year exclusion for both. The Commonwealth can designate up to 218 of its 871 eligible census tracts as zones effective January 1, 2027. Its data center market is built on power: nuclear co-location at Susquehanna, gas plants at retired coal sites such as Homer City and Shippingport, and a sales tax exemption now conditioned on the governor's GRID requirements. ## Key takeaways - Pennsylvania has 871 census tracts eligible for nomination and may designate up to 218 Opportunity Zones effective January 1, 2027; its nomination deadline was extended to October 28, 2026. - Pennsylvania's personal income tax excludes gains, losses and dividends that are excluded from federal income under the Opportunity Zone rules, for residents and for nonresidents investing in Pennsylvania zones. - On a $10 million gain, a Pennsylvania resident defers about $2.38 million of federal tax and $307,000 of state tax; after a 10% step-up at year five the combined bill is about $2.42 million (illustrative). - Pennsylvania's computer data center equipment sales tax exemption remains in law, but Executive Order 2026-05 (August 18, 2026) bars new exemptions for projects that do not meet the GRID requirements. - PPL Electric reported 31.8 GW of data center load in advanced planning in the second quarter of 2026, with more than 6.5 GW under construction. - PJM's 2028/2029 capacity auction cleared at its $325 per MW-day cap and was 6,831 MW short of the reliability requirement. ## How do Opportunity Zones and data centers fit together in Pennsylvania? Pennsylvania combines full state tax conformity, a large pipeline of power-first data center campuses and a new zone map that will be certified for January 1, 2027. An Opportunity Zone is a low-income census tract designated by the governor and certified by Treasury. Investors who put capital gains into a Qualified Opportunity Fund (QOF) within 180 days get deferral for up to five years, a 10% basis step-up after five years (30% for a Qualified Rural Opportunity Fund), and tax-free appreciation after a 10-year hold under IRC §1400Z-2.[^1] Pennsylvania's data center boom has concentrated on sites with power already in the ground: the Susquehanna nuclear plant in Luzerne County, retired coal plants at Homer City and Shippingport in western Pennsylvania, and former steel land in Bucks County.[^2][^3][^4] Many of those places are former industrial communities, which is why the 2027 zone map matters for data center investors. **Figure: Pennsylvania Opportunity Zones and data centers in numbers** - 871: Pennsylvania census tracts eligible for nomination - 218: Maximum new zones, effective Jan. 1, 2027 - 31.8 GW: PPL data center load in advanced planning (Q2 2026) - $20B: Amazon's announced Pennsylvania data center investment *Eligible tracts and the cap are from Pennsylvania DCED; PPL's pipeline is from its second-quarter 2026 earnings release; the Amazon commitment is from its June 2025 announcement.[^5][^6][^2]* ## Which Pennsylvania census tracts can become Opportunity Zones in 2027? Up to 218 of the 871 eligible tracts, chosen by Gov. Shapiro through the Department of Community and Economic Development (DCED) and certified by Treasury. Rev. Proc. 2026-14 set out the nomination procedure and the national list of 25,332 eligible low-income community tracts, 8,334 of them wholly rural.[^7] A tract qualifies if its median family income is no more than 70% of the area median, or if its poverty rate is at least 20% and its median family income is no more than 125% of the area median; a state may designate no more than 25% of its eligible tracts.[^7][^8] **Pennsylvania's 2027 designation process** | Item | Detail | Source | | --- | --- | --- | | Eligible tracts | 871, after Treasury added five Pennsylvania tracts to its eligibility analysis | DCED[^5] | | Designation cap | 218 tracts, one more than first expected | DCED[^5] | | Nomination deadline | Extended by 30 days to October 28, 2026 | DCED[^5] | | Proposed map | DCED published proposed designations with 10 open slots still under consideration | DCED[^5] | | Existing zones | 300 tracts, which remain in effect through December 2028 | DCED FAQ[^8] | | New zones take effect | January 1, 2027, through December 31, 2036 | DCED FAQ[^8] | Until Treasury certifies the list, treat DCED's map as proposed. A tract that is a zone today is not automatically renominated, so a site that qualifies today may not qualify for investments made after 2026.[^8] To check a parcel, use the methods in [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone), and see [the new Opportunity Zone maps for 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027). Rural tracts carry extra benefits. A fund that holds at least 90% of its assets in zones made up entirely of rural area is a Qualified Rural Opportunity Fund (QROF), and its investors get a 30% step-up after five years. In those zones an existing building is substantially improved when improvements exceed 50% of its basis rather than 100%.[^9] Much of central and western Pennsylvania outside the Pittsburgh, Philadelphia, Allentown, Harrisburg and Scranton areas is rural under the statutory test, which excludes cities of more than 50,000 people and their adjacent urbanized areas. See [qualified rural opportunity funds](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). > Pennsylvania also has Keystone Opportunity Zones (KOZs), a separate state program that reduces or waives state and local taxes on designated parcels for a set term.[^10] A KOZ is not a federal Opportunity Zone. A parcel can be in one, both or neither. ## Does Pennsylvania tax Opportunity Zone gains? No, not while the gain is deferred federally, and not on appreciation excluded after 10 years. Pennsylvania's personal income tax does not start from federal taxable income, so conformity comes from a specific statute: Act 13 of 2019 defines "net gains," "net losses" and "dividends" to leave out amounts excluded from federal income under the Opportunity Zone rules, for tax years beginning after December 31, 2019.[^11][^12] The Department of Revenue states that such amounts are also excluded from Pennsylvania personal income tax.[^11] The benefit reaches Pennsylvania residents for all of their QOF investments and nonresidents for investments in Pennsylvania zones, according to practitioner analysis of the act.[^12] Because the statute ties Pennsylvania's treatment to amounts excluded federally, the current federal rules (rolling five-year deferral and 10% or 30% step-ups for gains invested after December 31, 2026) should flow through. The Department's guidance does not spell out every detail of the new rules, so confirm the year-five inclusion with your tax adviser. Pennsylvania taxes all classes of income, including net gains from property, at a flat 3.07%, with no separate rate for long-term gains.[^13] The worked example assumes that rate still applies when the deferred gain is included. **Figure: Federal and Pennsylvania tax on a $10 million gain invested in a QOF and held five years** (illustrative) - Federal tax on $10M gain: 2380000 $ - Pennsylvania tax at 3.07%: +307000 $ - 10% step-up, federal: -238000 $ - 10% step-up, Pennsylvania: -30700 $ - Tax due at year 5: 2418300 $ *Illustrative. Assumes a $10,000,000 long-term gain invested in a standard QOF on or after January 1, 2027, a 23.8% federal rate (20% plus 3.8% net investment income tax), Pennsylvania's 3.07% rate, no local tax and no change in value. Both taxes are deferred until year five.* **Illustrative tax on a $10 million gain for a Pennsylvania resident** | Scenario | Federal (23.8%) | Pennsylvania (3.07%) | Total | | --- | --- | --- | --- | | Gain not invested, tax paid now | $2,380,000 | $307,000 | $2,687,000 | | Standard QOF, included at year 5 (90% of gain) | $2,142,000 | $276,300 | $2,418,300 | | QROF, included at year 5 (70% of gain) | $1,666,000 | $214,900 | $1,880,900 | | Tax on $10M of appreciation after a 10-year hold | $0 | $0 | $0 | This puts Pennsylvania among the conforming states in [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones). Investors who live in a nonconforming state, such as California, pay their own state's tax on the gain in the year of sale even if the QOF builds in Pennsylvania. ## Where are Pennsylvania's big data center projects? Pennsylvania's largest projects are power-first campuses at nuclear plants, retired coal plants and former steel sites, not a single metro cluster. In June 2025 Amazon announced at least $20 billion of investment, starting with campuses in Salem Township, next to the Susquehanna nuclear plant in Luzerne County, and in Falls Township, on the former U.S. Steel property at the Keystone Trade Center in Bucks County.[^2] - Susquehanna (Luzerne County): Talen Energy and Amazon moved to a front-of-meter power purchase agreement ramping to 1,920 MW by 2032 and running through 2042, with PPL providing transmission and delivery, after FERC rejected an amended interconnection agreement that would have raised co-located load from 300 MW to 480 MW.[^14][^15] - Homer City (Indiana County): a former coal plant site of more than 3,200 acres planned as a 4.5 GW gas-fired data center campus with seven GE Vernova turbines.[^3] Local reporting in August 2026 said the roughly $10 billion redevelopment began construction this year.[^16] - Shippingport (Beaver County): Aligned Data Centers broke ground in 2026 on a 2 GW campus at the former Bruce Mansfield coal plant site, planned to run on dedicated on-site power rather than the local grid.[^4] - Crane Clean Energy Center (Dauphin County): Constellation is restarting the 835 MW unit formerly known as Three Mile Island Unit 1 under a 20-year agreement with Microsoft.[^17] - Pittsburgh region: developers have proposed hyperscale data centers in nearly every county in the region, and projects in Springdale, Shippingport and Upper Burrell had cleared some hurdles but still needed further approvals as of August 2026.[^16] Demand is coming from hyperscale cloud and AI build-outs looking for power that can be delivered this decade. PPL Electric, which serves central and eastern Pennsylvania, reported 31.8 GW of data center load in advanced planning in the second quarter of 2026, with more than 11 GW under signed agreements and more than 6.5 GW under construction.[^6] ## What Pennsylvania data center incentives stack with Opportunity Zone benefits? The main state incentive, a sales and use tax exemption on computer data center equipment, is still law but now comes with conditions. Since January 1, 2022, equipment used in a certified data center by an owner, operator or qualified tenant holding a certificate of exemption has been exempt from Pennsylvania's 6% sales and use tax.[^18] Certification requires new investment of at least $75 million and 25 new jobs in a county of 250,000 or fewer people, or $100 million and 45 new jobs in a larger county.[^19] Spotlight PA reported that the exemption is projected to cost close to $2 billion by 2031, including $188.4 million in fiscal 2026-27.[^20] - Executive Order 2026-05, signed August 18, 2026, directs the Department of Revenue to deny the exemption to applicants that do not meet the Governor's Responsible Infrastructure Development (GRID) requirements, removes data centers from the PA Permit Fast Track Program and bars nondisclosure agreements on data center projects.[^21] - The GRID requirements ask developers to protect energy affordability, engage local communities, create family-sustaining jobs and meet environmental standards, including annual electricity and water reporting.[^22] - In June 2026 the House passed bills to let municipalities adopt 180-day moratoriums on data center applications (201-1) and to put the GRID standards into law (134-68).[^23] Repeal of the exemption also drew broad support, but none of these measures had been enacted when the budget was signed in July.[^24] **How Pennsylvania incentives interact with Opportunity Zone benefits** | Incentive | Tax it reduces | Stacks with OZ? | Status | | --- | --- | --- | --- | | Federal OZ deferral, step-up, 10-year exclusion | Investor's federal and Pennsylvania income tax on capital gains | Base benefit | Available for gains invested in a QOF | | Computer data center equipment exemption | 6% sales and use tax on equipment | Yes, reduces project cost | Requires certification and GRID compliance[^18][^21] | | Keystone Opportunity Zone | State and local taxes on designated parcels | Yes, if the parcel is in a KOZ | Parcel-specific designation[^10] | | Local abatements and PILOTs | Property tax | Usually; review title-holding structures | Negotiated project by project | Because these incentives reduce different taxes, they generally stack with OZ equity. The exceptions are structures where a public authority holds title, which need a separate review under the QOZB ownership and lease rules. See [state data center incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [stacking incentives with Opportunity Zones](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## How hard is it to get power for a Pennsylvania data center? Pennsylvania has generation and transmission, but grid capacity is tight and utilities now shift more cost and risk onto large loads. The state is in PJM, whose 2028/2029 capacity auction cleared at the $325 per MW-day cap and fell 6,831 MW short of the reliability requirement, with the higher load forecast driven largely by large loads.[^25] - The Public Utility Commission issued a final order in May 2026 establishing a model large-load tariff for customers above 50 MW individually or 100 MW in aggregate, with collateral and financial security to reduce stranded-cost risk. It is guidance for utilities such as PPL, PECO and Duquesne Light; each utility's own tariff sets the binding terms.[^26] - FERC found PJM's tariff unjust and unreasonable in December 2025 for lacking clear rules for co-located load and ordered new transmission services, including interim non-firm service, firm contract demand and non-firm contract demand.[^27] - The Susquehanna deal shows the practical result: rather than sit behind the plant's meter, the Amazon campus buys nuclear output through a front-of-meter contract with grid delivery.[^14] **Figure: Three Pennsylvania power strategies for a data center campus** - Nuclear-adjacent (Susquehanna, Crane) - Firm, carbon-free supply under long contracts - Grid delivery under FERC and PJM co-location rules - Power plant is not the QOZB's property - Few sites; most already spoken for - On-site gas at a retired coal site (Homer City, Shippingport) - Transmission, water and land already in place - Turbine supply and air permits set the schedule - Generation owned in the zone can be QOZB property - Often in rural, former industrial tracts - Utility-served campus (PPL, PECO, Duquesne territory) - Simplest structure for a landlord QOZB - Large-load tariff collateral and minimum terms - Timeline set by utility studies and upgrades - Works near metro fiber and labor *Each model changes what the QOZB owns, how long power takes and what can count as qualifying property.* For an Opportunity Zone fund, the clock is the issue. A QOZB can hold cash for up to 31 months under a written working capital plan, or 62 months with consecutive plans, but utility study and construction delays are not clearly the governmental delays that extend that period. Sites with signed service agreements or permitted on-site generation fit far better. See [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers) and [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## Where do Pennsylvania Opportunity Zones make sense for a data center? Former power plant, steel and mill sites in eligible tracts are the strongest fits, because they bring transmission, water rights and industrial zoning. Western Pennsylvania's coal and steel towns and the river valleys of the northeast often have the income profile that qualifies for designation, while the suburbs around Philadelphia and Pittsburgh mostly do not. - Water: river sites on the Susquehanna, Ohio, Allegheny, Monongahela and Delaware have supply, but large consumptive uses go through basin commission review. Closed-loop cooling reduces the issue. See [water and cooling](https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers). - Fiber: the Philadelphia and Pittsburgh corridors have dense routes; rural power-plant sites usually need new diverse fiber, which belongs in the capital budget. - Land: large former industrial parcels are available, and a building on one can count as original use if newly built, or meet the 50% rural substantial-improvement threshold if reused in a wholly rural zone. - Local approval: projects in Springdale, Shippingport and Upper Burrell still needed further local approvals in August 2026, and House-passed legislation would let municipalities pause data center applications for 180 days.[^16][^23] Cost scale matters for fund design. Cushman & Wakefield puts all-in greenfield cost at about $8.9 million to $23.3 million per MW, before chips.[^28] A single-tenant powered shell leased triple-net to a hyperscaler is the weakest Opportunity Zone structure, because merely entering into a triple-net lease is not an active trade or business; operator-run and colocation models fit the rules better. See [data center lease structures](https://ozdatacenters.com/guides/data-center-lease-structures-opportunity-zones). ## What does this mean for investors, landowners and developers in Pennsylvania? - Pennsylvania investors with capital gains: you defer the 3.07% state tax with the federal tax and get the 10-year exclusion for both, wherever the QOF invests. - Investors outside Pennsylvania: your home state controls your state deferral; a Pennsylvania project helps you mainly through its economics, and nonresidents investing in Pennsylvania zones also get Pennsylvania's exclusions. - Landowners near transmission or a retired plant: a 2027 zone designation can widen your buyer pool, and your own gain on a sale can go into a QOF within 180 days. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers: plan for GRID compliance if you want the sales tax exemption, budget for large-load tariff collateral, and expect local hearings to set the schedule as much as engineering does. OZ Data Centers sponsors funds that develop data centers in Opportunity Zones, and Pennsylvania's former power plant sites are a clear example of where zone status, power and land can line up. Where the answer depends on your own tax position, confirm it with your tax adviser. ## Common questions **Does Pennsylvania tax Opportunity Zone gains?** Not while the gain is deferred federally. Pennsylvania's personal income tax excludes gains, losses and dividends excluded from federal income under the Opportunity Zone rules, for tax years beginning after December 31, 2019, so the deferral and the 10-year exclusion carry through to the 3.07% state tax. **How many Opportunity Zones will Pennsylvania have in 2027?** Up to 218. DCED reports 871 eligible tracts after a Treasury update and a nomination deadline of October 28, 2026. The new zones take effect January 1, 2027, once Treasury certifies them. **Can a Pennsylvania data center still get the sales tax exemption?** Yes, if it is certified and meets the governor's GRID requirements. Executive Order 2026-05 directs the Department of Revenue not to grant the exemption to applicants that do not comply. A House-passed repeal had not been enacted as of October 2026. **What are the best Opportunity Zones for data centers in Pennsylvania?** Usually certified 2027 zones that contain or adjoin former power plant, steel or mill sites with transmission and water, often in western Pennsylvania or the river valleys of the northeast. Confirm each tract against the certified list before investing. **Is the Amazon Susquehanna campus in an Opportunity Zone?** We have not seen a public source saying it is, and the 2027 map is not final. The project matters to Opportunity Zone investors as a model of nuclear-adjacent supply, not as an OZ deal. **Is a Keystone Opportunity Zone the same as an Opportunity Zone?** No. A Keystone Opportunity Zone is a Pennsylvania program that reduces state and local taxes on designated parcels. A federal Opportunity Zone is a census tract where capital gains invested through a QOF get federal tax benefits. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Data Center Dynamics, "Amazon to invest $20bn in data centers in Pennsylvania" (2025). https://www.datacenterdynamics.com/en/news/amazon-to-invest-20bn-in-data-centers-in-pennsylvania/ [^3]: Data Center Dynamics, "Homer City and Kiewit unveil plans for 4.5GW natural gas-powered AI data center in Pennsylvania" (2025). https://datacenterdynamics.com/en/news/homer-city-and-kiewit-unveil-plans-for-45gw-natural-gas-powered-ai-data-center-in-pennsylvania [^4]: Data Center Dynamics, "Aligned breaks ground on gigawatt-scale data center campus in Pennsylvania" (2026). https://www.datacenterdynamics.com/en/news/aligned-breaks-ground-on-gigawatt-scale-data-center-campus-in-pennsylvania/ [^5]: Pennsylvania Department of Community and Economic Development, "Qualified Opportunity Zones" (2026). https://dced.pa.gov/programs-funding/federal-funding-opportunities/qualified-opportunity-zones/ [^6]: PPL Corporation (Form 8-K, Exhibit 99.1), "PPL Corporation second-quarter 2026 earnings release" (2026). https://www.sec.gov/Archives/edgar/data/0000922224/000092222426000042/ppl-6302026exhibit991.htm [^7]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^8]: Pennsylvania Department of Community and Economic Development, "Pennsylvania Opportunity Zones FAQs" (2026). https://dced.pa.gov/programs-funding/federal-funding-opportunities/qualified-opportunity-zones/faqs/ [^9]: Internal Revenue Service, "Notice 2025-50" (2025). https://www.eitc.irs.gov/pub/irs-drop/n-25-50.pdf [^10]: Pennsylvania Department of Community and Economic Development, "Keystone Opportunity Zones (KOZs)" (n.d.). https://dced.pa.gov/programs/keystone-opportunity-zones-kozs/ [^11]: Pennsylvania Department of Revenue, "PA Treatment for Tax Cuts and Jobs Act, One Big Beautiful Bill Act" (n.d.). https://www.pa.gov/agencies/revenue/resources/tax-law-policies-bulletins-notices/tax-cuts-and-jobs-one-big-beautiful-bill-acts [^12]: National Law Review, "Pennsylvania 2019 Tax Bill Adds Opportunity Zone Conformity for Personal Income Tax, Adopts New Sales Tax Provisions, and Amends Other Tax and Credit Provisions" (2019). https://natlawreview.com/article/pennsylvania-2019-tax-bill-adds-opportunity-zone-conformity-personal-income-tax [^13]: Pennsylvania Department of Revenue, "Personal Income Tax" (n.d.). https://www.pa.gov/agencies/revenue/resources/tax-types-and-information/personal-income-tax.html [^14]: Utility Dive, "Talen, Amazon Susquehanna nuclear data center deal" (2025). https://www.utilitydive.com/news/talen-amazon-aws-susquehanna-nuclear-data-center-t/750440/ [^15]: World Nuclear News, "New supply agreement expands Talen-Amazon partnership" (2025). https://wnn.world-nuclear.org/articles/new-supply-agreement-expands-talen-amazon-partnership [^16]: Mon Valley Independent, "Data center industry expands hopes in Western Pa., but its future remains uncertain" (2026). https://www.monvalleyindependent.com/2026/08/03/data-center-industry-expands-hopes-in-western-pa-but-its-future-remains-uncertain/ [^17]: American Nuclear Society, "Constellation announces TMI-1 restart, power purchase agreement with Microsoft" (2024). https://ans.org/news/article-6402/constellation-announces-tmi1-restart-power-purchase-agreement-with-microsoft [^18]: Pennsylvania Department of Revenue, "Computer Data Center Equipment Program" (n.d.). https://www.pa.gov/agencies/revenue/business-tax-credits-and-economic-development-programs/business-tax-credits-and-incentives/computer-data-center-equipment-program [^19]: Pennsylvania Department of Revenue, "Computer Data Center Equipment Exemption Program: 2023 report" (2024). https://www.revenue.pa.gov/News%20and%20Statistics/ReportsStats/TaxCredits/ComputerDataCtrEquipProgram/Documents/2023_computer_data_ctr_equip_pgm.pdf [^20]: Spotlight PA, "PA data center tax break expected to cost $2B" (2026). https://www.spotlightpa.org/news/2026/02/data-centers-pennsylvania-tax-break-sales-exemption-capitol/ [^21]: Office of the Governor of Pennsylvania, "Governor Shapiro Signs Executive Order on Data Center Development in PA" (2026). https://www.pa.gov/governor/newsroom/2026-press-releases/governor-shapiro-signs-executive-order-on-data-center-developmen [^22]: Pennsylvania Department of Community and Economic Development, "The Governor's Responsible Infrastructure Development (GRID) Requirements" (2026). https://dced.pa.gov/business-assistance/data-center-resources/grid-requirements/ [^23]: Pennsylvania Capital-Star, "Pa. House passes data center 'pause' along with Shapiro's plan for 'responsible' development" (2026). https://penncapital-star.com/economy/pa-house-passes-data-center-pause-along-with-shapiros-plan-for-responsible-development/ [^24]: The Philadelphia Inquirer, "Nearly every Pa. state lawmaker supports ending tax breaks for data centers. They still didn't pass it." (2026). https://www.inquirer.com/politics/pennsylvania/data-center-tax-breaks-laws-pennsylvania-20260722.html [^25]: PJM Interconnection, "PJM Capacity Auction Procures 138,318 MW of Generation Resources as Work Continues To Address Growing Electricity Demand" (2026). https://insidelines.pjm.com/pjm-capacity-auction-procures-138318-mw-of-generation-resources-as-work-continues-to-address-growing-electricity-demand/ [^26]: Pennsylvania Public Utility Commission, "PUC Releases Final Order Establishing First-of-Its-Kind Large Load Model Tariff Framework" (2026). https://www.puc.pa.gov/press-release/2026/puc-releases-final-order-establishing-first-of-its-kind-large-load-model-tariff-framework-05132026 [^27]: Morgan Lewis, "FERC Directs Co-Location Reforms in PJM" (2025). https://www.morganlewis.com/pubs/2025/12/ferc-directs-co-location-reforms-in-pjm [^28]: IREI, "Cushman & Wakefield releases 2026 Data Center Development Cost Guide citing 21% rise in per-MW construction costs" (2026). https://irei.com/news/cushman-wakefield-releases-2026-data-center-development-cost-guide-citing-21-rise-in-per-mw-construction-costs/ --- # Opportunity Zone data centers in Indiana URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-indiana Last reviewed: 2026-10-22 Indiana is one of the most active data center states in the country, and it follows the federal Opportunity Zone rules for state income tax, so an Indiana resident who invests a gain in a Qualified Opportunity Fund defers both the 23.8% federal tax and Indiana's 2.95% tax. Indiana submitted 126 of its 501 eligible census tracts for the zones that take effect January 1, 2027, and Treasury certification is pending. The binding constraint for a data center in an Indiana zone is not the tax rules but power: utility large-load tariffs now require 12-year or longer commitments. ## Key takeaways - Indiana could nominate 126 of its 501 eligible census tracts for the zones that take effect January 1, 2027; the state submitted its list on September 25, 2026, and Treasury certification is pending. - Indiana conforms to the federal Opportunity Zone deferral and exclusion for personal income tax, and its March 2026 law moved its Internal Revenue Code conformity date to January 1, 2026. - On an illustrative $10 million gain, an Indiana resident in a standard QOF owes $0 at investment and about $2.41 million of federal and Indiana tax at year five, versus $2.675 million if the gain is not invested. - Indiana's data center sales tax exemption covers equipment and energy for up to 25 years, or up to 50 years for investments above $750 million, and it stacks with Opportunity Zone benefits. - Indiana sits in two grid regions: Indiana Michigan Power is in PJM, while NIPSCO, Duke Energy Indiana and AES Indiana are in MISO, and each utility now has its own large-load terms. ## How do Opportunity Zones and data centers fit together in Indiana? Indiana pairs a large and growing data center market with full state conformity to the federal Opportunity Zone incentive, which makes it one of the more straightforward states for a data center Opportunity Zone investment. An Opportunity Zone is a low-income census tract designated by the governor and certified by Treasury. A Qualified Opportunity Fund (QOF) is a corporation or partnership that holds at least 90% of its assets in property in those zones, usually through a Qualified Opportunity Zone Business (QOZB) that owns and operates the project.[^1] Three facts define the opportunity in Indiana right now. First, the zones are changing: Indiana submitted 126 tracts for designations that take effect January 1, 2027 and run through December 31, 2036.[^3][^4] Second, Indiana follows the federal deferral and 10-year exclusion for its own income tax, so Indiana investors get both the federal and the state benefit.[^6][^7] Third, demand is real: Amazon, Meta, Google and Microsoft are all building in the state, and JLL lists Indiana among the frontier markets where most North American development is now happening.[^12][^13][^22] The constraints are power and local politics. EPRI projects that data centers could exceed 20% of Indiana's electricity use by 2030, Indiana utilities have adopted long-term large-load commitments, and Indianapolis has paused new data centers through 2027.[^21][^16][^20] For the national picture, start with [data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Which Indiana census tracts will be Opportunity Zones in 2027? Indiana's 2027 zones will be up to 126 tracts drawn from the 501 tracts Treasury lists as eligible in Indiana, and the list becomes official only when Treasury certifies it. Nationally, Rev. Proc. 2026-14 lists 25,332 eligible low-income tracts, 8,334 of them wholly rural, and each governor may nominate no more than 25% of the state's eligible tracts.[^2] The Indiana Economic Development Corporation (IEDC) puts Indiana's pool at 501 tracts and its nomination limit at 126.[^3] **Indiana's 2027 Opportunity Zone nomination, as reported** | Item | Indiana | Source | | --- | --- | --- | | Eligible tracts | 501 | IEDC[^3] | | Tracts Indiana may nominate | 126 (25% cap) | IEDC[^3] | | Lead agency | Indiana Office of Commerce, through the IEDC, for Gov. Braun | IEDC[^3] | | Public input portal | June 3 to July 17, 2026; 350 recommendations covering 234 tracts | IEDC; Axios[^3][^4] | | Submitted to Treasury | September 25, 2026 | Axios[^4] | | Geography of nominations | All or part of 61 cities and towns in 47 counties; 29 tracts in Marion County | Axios[^4] | | Designation period | January 1, 2027 to December 31, 2036 | IEDC[^3] | Indiana has not published a rural and urban split of its 126 nominated tracts in the sources we reviewed, so we do not give one. The state said it would weigh planning, regional coordination and long-term economic potential, not public input alone, and that its READI regions would play a significant role.[^3] Until Treasury certifies the list, confirm any specific parcel against the final certified map. See [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) for how certification works. Rural status matters more for data centers than for most asset types. A Qualified Rural Opportunity Fund (QROF), a QOF holding at least 90% of its assets in zones made up entirely of rural area, gives investors a 30% basis step-up at year five instead of 10%. In wholly rural zones, an existing building is substantially improved when 30-month additions to basis exceed 50% of its basis, not 100%.[^5] Many Indiana data center sites, such as New Carlisle and the LEAP District outside Lebanon, sit outside large cities, so whether a nominated tract is wholly rural is a key diligence item. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## Does Indiana tax Opportunity Zone gains? No, not while the gain is deferred: Indiana follows the federal Opportunity Zone deferral and exclusion for personal income tax. Indiana computes adjusted gross income starting from federal adjusted gross income, and Novogradac's state conformity tracker lists Indiana as fully conforming to the Opportunity Zone provisions under Ind. Code § 6-3-1-11.[^6] Indiana is a fixed-date conformity state; Senate Bill 243, signed March 5, 2026, moved its Internal Revenue Code conformity date to January 1, 2026, which generally picks up Public Law 119-21.[^7] The decouplings published for that law concern business depreciation, not Opportunity Zones: Indiana stays decoupled from §168(k) bonus depreciation and newly decouples from §168(n).[^7] We found no Indiana add-back for §1400Z-2. Because the rolling five-year deferral and the 10% and 30% step-ups apply to amounts invested after December 31, 2026, confirm with your adviser that Indiana's conformity date still covers the rules when you invest. This is consistent with our [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) guide. Indiana's 2026 individual income tax rate is a flat 2.95%.[^8] Counties add their own local income tax, which follows the state base, so a conforming deferral generally defers county tax as well. The worked example below uses only the state rate. ### Worked example: a $10 million gain invested by an Indiana resident Illustrative assumptions: an Indiana resident realizes $10,000,000 of long-term capital gain in 2027 and invests it in a standard QOF within 180 days. Federal rate 23.8% (20% plus 3.8% net investment income tax). Indiana rate 2.95%, county tax ignored, rates assumed unchanged. The QOF holds at least five years, and the investment's value at year five exceeds the deferred gain. **Figure: Federal and Indiana tax on a $10 million gain, invested vs. not invested** (illustrative) - Tax if not invested (federal $2,380,000 + Indiana $295,000): 2675000 $ - Federal tax removed by 10% step-up: -238000 $ - Indiana tax removed by 10% step-up: -29500 $ - Tax due at year five in a standard QOF: 2407500 $ *Without a QOF, $2,675,000 is due for the year of sale. In a standard QOF, nothing is due at investment, and at year five the 10% step-up cuts the bill to $2,407,500 because Indiana follows the federal treatment. Illustrative; rates and holding period as stated in the text.* **Figure: Federal plus Indiana tax on the same $10 million gain, by strategy** (illustrative) - Not invested: due in year of sale: $2,675,000 - Standard QOF: due at investment: $0 - Standard QOF: due at year five: $2,407,500 - QROF: due at year five: $1,872,500 - Tax on QOF appreciation after 10 years: $0 *A QROF's 30% step-up taxes only $7,000,000 at year five. After a 10-year hold, appreciation on the QOF investment is excluded federally and, because Indiana conforms, for Indiana too. Illustrative.* The QROF figure is $7,000,000 times 23.8% ($1,666,000) plus $7,000,000 times 2.95% ($206,500). Indiana's decoupling from bonus depreciation also matters inside the fund: data center electrical, mechanical and IT equipment that is fully expensed federally must be depreciated more slowly for Indiana, which changes the losses passed through to Indiana investors. See [depreciation, bonus depreciation and Opportunity Zones](https://ozdatacenters.com/guides/opportunity-zone-depreciation). ## Where are Indiana's data center markets, and how big are they? Indiana's market is concentrated in three areas: northern Indiana around New Carlisle and St. Joseph County, the Indianapolis region including Boone County's LEAP District, and Fort Wayne. The projects are hyperscale campuses measured in gigawatts and tens of billions of dollars, not small colocation halls. **Figure: Indiana data center headline numbers** - $11B + $15B: Amazon's St. Joseph County campus plus its November 2025 northern Indiana expansion - 2.4 GW: Data center capacity in Amazon's $15 billion northern Indiana plan - $10B+: Meta's LEAP District campus in Lebanon, first buildings expected online by end of 2027 - 2,800 to 7,000+ MW: Indiana Michigan Power's expected Indiana peak load growth by 2030 *Amazon's northern Indiana commitments, Meta's LEAP campus and Indiana Michigan Power's load forecast show the scale of demand.[^10][^12][^13][^17]* **Major Indiana data center markets** | Market | Anchor projects | Utility and grid | | --- | --- | --- | | New Carlisle and St. Joseph County | Amazon's $11 billion campus; Microsoft's planned Granger campus; Amazon's $15 billion northern Indiana expansion with 2.4 GW of capacity[^10][^11][^12] | Indiana Michigan Power (PJM) and NIPSCO (MISO)[^19] | | Indianapolis region and Boone County | Meta's $10 billion-plus LEAP campus in Lebanon, about 1,500 acres and 13 buildings[^13] | Duke Energy Indiana and AES Indiana (MISO)[^19] | | Fort Wayne | Google's $2 billion data center, announced April 2024 with Indiana Michigan Power[^14] | Indiana Michigan Power (PJM)[^19] | The demand drivers are power that could be contracted at scale, large flat sites, central location on long-haul fiber routes and generous state tax treatment. EPRI's 2026 scenarios name Indiana as one of seven states where data centers could exceed 20% of state electricity use by 2030.[^21] That growth is exactly why utility terms and local approvals now decide which sites move forward. ## What data center incentives does Indiana offer, and do they stack with Opportunity Zones? Yes, they stack: Indiana's data center sales tax exemption and local property tax abatements are separate programs from the federal Opportunity Zone incentive, and a project can use both. The state exemption, established by Ind. Code § 6-2.5-15, exempts qualifying data center equipment and energy from sales and use tax for up to 25 years for investments under $750 million; above $750 million, the IEDC may award up to 50 years. The operator must apply to the IEDC and sign an agreement with it.[^9] **How Indiana incentives and the Opportunity Zone benefit layer** | Benefit | Who grants it | What it reduces | Opportunity Zone interaction | | --- | --- | --- | --- | | Data center sales and use tax exemption | IEDC (state) | Sales tax on equipment and energy, up to 25 or 50 years[^9] | Lowers project cost; no effect on QOF tests | | Real and personal property tax abatement | County council or redevelopment commission | Local property tax for a set period | Lowers operating cost; check any title-holding structure against QOZB ownership rules | | Opportunity Zone deferral, step-up and exclusion | Federal, followed by Indiana | Investor's capital gains tax[^1][^6] | Requires QOF and QOZB compliance for 10 years | | Bonus depreciation | Federal only | Federal tax on equipment cost | Indiana adds back; state benefit is slower[^7] | Local abatements are negotiated deal by deal. For Amazon's New Carlisle campus, St. Joseph County approved a 10-year, 50% real property tax abatement on 870 acres and an 85% exemption on the data center's personal property; the county still expected more than $722 million in taxes over 35 years.[^10] Abatements are now politically contested. After Microsoft said it would not seek property tax abatements, some St. Joseph County council members asked Amazon to give back part of its abatement, and Amazon declined to revisit it.[^11] For an Opportunity Zone project, the incentives change returns, not eligibility. A sales tax exemption on servers and switchgear lowers the capital budget the QOZB must deploy under its [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). If an abatement uses a structure in which a public body holds title and leases back, confirm that the leased property still counts toward the 70% tangible property test. Our guide to [state data center incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) compares Indiana with other states. ## How does power work for a data center in an Indiana Opportunity Zone? Power depends on which utility serves the tract, and every major Indiana utility now requires large loads to make long-term financial commitments. Indiana is split between two regional grid operators: Indiana Michigan Power (I&M), an AEP subsidiary, is in PJM, while Duke Energy Indiana, NIPSCO, AES Indiana and CenterPoint are in MISO, according to an Indiana Utility Regulatory Commission (IURC) presentation.[^19] **Large-load terms for Indiana data centers** | Rule | Applies to | Key terms | | --- | --- | --- | | I&M large-load settlement (approved by the IURC in February 2025) | New or expanded loads of 70 MW or more, or 150 MW aggregated | 12-year minimum term with up to five-year ramp; billing demand at least 80% of contract capacity; reductions above 20% need IURC approval[^16][^17] | | NIPSCO GenCo and Amazon special contract (IURC Cause 46322, order June 17, 2026) | Amazon's northern Indiana campuses | Up to 2,400 MW by end of 2032; new generation built by a separate NIPSCO Generation LLC and funded by the customer[^18][^12] | | House Enrolled Act 1007 (2025) | Loads of 150 MW or more where a utility uses the expedited process | 150-day IURC review of new generation; customer covers at least 80% of allocated cost[^15] | For siting inside a zone, the practical effect is that a data center QOZB must line up a utility contract before it can spend most of its equity. A 12-year take-or-pay commitment is long relative to the five-year deferral period but fits the 10-year hold needed for tax-free appreciation. If interconnection or new generation will not be ready within the 31-month working capital period (62 months with sequential plans), the fund needs a credible schedule from the start. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines) and [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## What should you check before siting a data center in an Indiana Opportunity Zone? Check the certified zone map, the serving utility's large-load terms, water supply, local zoning and the lease structure, in that order. Indianapolis and Marion County adopted a moratorium on new data centers through December 31, 2027; it does not affect projects already approved.[^20] That matters because Marion County holds 29 of Indiana's nominated tracts.[^4] **Figure: Siting checklist for an Indiana Opportunity Zone data center** - [pass] State tax conformity: Indiana follows federal OZ deferral and exclusion; no OZ add-back found - [watch] Zone certification: 126 tracts submitted September 25, 2026; Treasury certification pending - [watch] Power availability: Long-term take-or-pay terms from I&M, NIPSCO and HEA 1007 projects - [watch] Water: LEAP-area supply depends on new infrastructure; Citizens Energy plans 25 million gallons a day by 2031 - [fail] Local approvals in Marion County: New data centers paused through December 31, 2027 - [pass] State sales tax exemption: Available up to 25 or 50 years with IEDC agreement - [watch] Lease structure: Single-tenant triple-net leases are not an active trade or business *The tax rules are favorable statewide; the watch items are local. Status reflects conditions as of October 2026.* Water is a growing issue around the LEAP District, where the state's release says Citizens Energy plans to deliver 25 million gallons of water a day to Lebanon and the district by 2031.[^13] Fiber is less of a constraint near Chicago, Indianapolis and the interstate corridors than in deep rural tracts. Land is available at scale, but the largest sites now draw organized opposition, as the Indianapolis moratorium shows. Lease structure is a tax issue, not just a commercial one. Under the Treasury regulations, merely entering into a triple-net lease is not the active conduct of a trade or business, so a QOZB that owns a powered shell leased to one hyperscaler on triple-net terms has a qualification risk.[^23] Multi-tenant colocation, operator services or a QOZB that runs the facility itself are more defensible. See [powered shell and triple-net data centers in Opportunity Zones](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## What does this mean for investors, landowners and developers in Indiana? - Indiana residents with capital gains get state deferral and exclusion on top of the federal benefit, wherever the QOF invests, because Indiana conforms. The state saving on a $10 million gain at year five is $29,500 in a standard QOF and $88,500 in a QOF that qualifies as a QROF, plus Indiana tax on all post-investment appreciation after 10 years. - Investors outside Indiana are taxed by their home state on the deferred gain. A North Carolina or California resident investing in an Indiana data center fund gets the federal benefit but not a home-state one. See [Opportunity Zones for investors with capital gains](https://ozdatacenters.com/guides/opportunity-zones-for-investors). - Landowners with sites in nominated tracts near transmission should confirm the certified map before marketing land as Opportunity Zone property. A seller can roll a gain into a QOF that invests in the project, but the buyer must acquire the land from an unrelated party. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers should match the zone, the utility and the lease model. A wholly rural tract served by a utility with clear large-load terms, a credible water plan and a structure in which the QOZB operates the facility is the strongest Indiana profile. > Indiana's 2027 zones are not final until Treasury certifies them. Confirm conformity for the year of investment and any county-level tax effects with your tax adviser before relying on the state figures here. ## Common questions **How many Opportunity Zones will Indiana have in 2027?** Up to 126. Indiana could nominate 126 of its 501 eligible census tracts and submitted its list on September 25, 2026. The zones take effect January 1, 2027 once Treasury certifies them. **Does Indiana tax capital gains invested in an Opportunity Zone fund?** Not while the gain is deferred. Indiana conforms to the federal Opportunity Zone deferral and exclusion, so the deferred gain is taxed for Indiana when it is taxed federally, and appreciation after a 10-year hold is excluded for both. **What is Indiana's tax rate on capital gains?** Indiana taxes capital gains as ordinary income at a flat 2.95% for 2026, plus county income tax. There is no separate capital gains rate. **Can a data center get Indiana's sales tax exemption and Opportunity Zone benefits at the same time?** Yes. The IEDC sales tax exemption reduces the project's cost of equipment and energy, while the Opportunity Zone benefits reduce the investor's capital gains tax. They are separate programs with separate requirements. **Which utilities serve data centers in Indiana?** Indiana Michigan Power (PJM) serves Fort Wayne and parts of northern Indiana; NIPSCO, Duke Energy Indiana and AES Indiana are in MISO. Each has large-load terms requiring long-term commitments. **Can I build a new data center in Indianapolis?** Not under a new approval before 2028. Marion County adopted a moratorium on new data centers through December 31, 2027. Projects approved before the moratorium can proceed. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^3]: Indiana Economic Development Corporation, "Indiana Opportunity Zones: designation process" (2026). https://iedc.in.gov/program/indiana-opportunity-zones/designation-process [^4]: Axios Indianapolis, "Indianapolis' proposed Opportunity Zones" (2026). https://www.axios.com/local/indianapolis/2026/10/08/indiana-s-next-opportunity-zones [^5]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^6]: Novogradac, "State Tax Code Conformity: Personal Income" (n.d.). https://novoco.com/resource-centers/opportunity-zones-resource-center/state-tax-code-conformity-personal-income [^7]: EY Tax News, "Indiana updates IRC conformity, expands upcoming amnesty program and denies tax benefits to businesses and individuals from foreign adversaries" (2026). https://taxnews.ey.com/news/2026-0714-indiana-updates-irc-conformity-expands-upcoming-amnesty-program-and-denies-tax-benefits-to-businesses-and-individuals-from-foreign-adversaries [^8]: Bloomberg Tax, "Indiana Decreases Income Tax Rate for 2026" (2025). https://news.bloombergtax.com/payroll/indiana-decreases-income-tax-rate-for-2026 [^9]: Indiana Economic Development Corporation, "Data Center Sales Tax Exemption" (n.d.). https://iedc.in.gov/incentives/data-center-sales-tax-exemption [^10]: Inside Indiana Business, "Incentives approved for $11 billion Amazon data center project" (2024). https://www.insideindianabusiness.com/articles/incentives-approved-for-amazon-data-center-project [^11]: WVPE, "Council Republicans ask Amazon to give back some data center tax break" (2026). https://www.wvpe.org/wvpe-news/2026-08-10/council-republicans-ask-amazon-to-give-back-some-data-center-tax-break [^12]: Amazon, "Amazon plans $15 billion investment in Northern Indiana data centers" (2025). https://aboutamazon.com/news/company-news/amazon-15-billion-indiana-data-centers [^13]: Indiana Economic Development Corporation, "Gov. Braun breaks ground on $10B Meta data center campus at LEAP District" (2026). https://iedc.in.gov/events/news/details/2026/02/11/gov.-braun-breaks-ground-on-10b-meta-data-center-campus-at-leap-district [^14]: Indiana Economic Development Corporation, "Gov. Holcomb announces Google is building a $2B data center in Northeast Indiana" (2024). https://iedc.in.gov/events/news/details/2024/04/26/gov.-holcomb-announces-google-is-building-a-2b-data-center-in-northeast-indiana [^15]: Indiana Capital Chronicle, "Utility customer advocates say protections inadequate in large-load users, nuclear development bill" (2025). https://indianacapitalchronicle.com/2025/03/28/utility-customer-advocates-say-protections-inadequate-in-large-load-users-nuclear-development-bill/ [^16]: Indiana Capital Chronicle, "Ratepayer advocates hail 'landmark' settlement with data centers, utility company" (2024). https://indianacapitalchronicle.com/2024/11/26/ratepayer-advocates-hail-landmark-settlement-with-data-centers-utility-company/ [^17]: American Electric Power, "Indiana Michigan Power receives order in large load settlement" (2025). https://www.aep.com/news/stories/view/10037/ [^18]: Indiana Utility Regulatory Commission, "Order in Cause No. 46322 (NIPSCO, NIPSCO Generation LLC and Amazon)" (2026). https://www.in.gov/iurc/files/ord_46322_061726.pdf [^19]: Indiana Utility Regulatory Commission and Purdue Extension, "IURC presentation to Purdue R-STEP" (2025). https://www.extension.purdue.edu/cdext/thematic-areas/community-planning/collaborative-projects/rstep/_media/iurc-purdue-r-step-presentation.pdf [^20]: WFYI, "New data centers temporarily banned in Marion County" (2026). https://www.wfyi.org/wfyi-news/2026-08-19/new-data-centers-temporarily-banned-in-marion-county [^21]: EPRI, "Powering Intelligence 2026: Updated Scenarios of U.S. Data Center Electricity Use and Power Strategies" (2026). https://esca.epri.com/products/3002034696/ [^22]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^23]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 --- # Opportunity Zone data centers in Iowa URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-iowa Last reviewed: 2026-10-22 Iowa pairs one of the country's most established hyperscale clusters with the highest wind share of any state, and Opportunity Zone equity can fund data centers there if the site is in a 2027 zone. Iowa can designate 44 of its 175 eligible tracts for zones that take effect January 1, 2027, and because Iowa follows the Internal Revenue Code on a rolling basis, its flat 3.8% income tax generally follows the federal deferral and exclusion. Iowa's data center sales tax exemption still requires at least $200 million of investment, and its electricity exemption is now time-limited for new facilities. ## Key takeaways - Iowa has 175 eligible low-income community tracts and can designate 44 of them as Opportunity Zones effective January 1, 2027; Treasury had not published Iowa's certified list as of October 22, 2026. - Iowa conforms to the Internal Revenue Code on a rolling basis and taxes individual income at a flat 3.8% for 2026, so state tax generally follows federal Opportunity Zone deferral, step-up and exclusion. - On a $10 million gain, federal (23.8%) plus Iowa (3.8%) tax is about $2.76 million; after five years in a rural fund it falls to about $1.93 million. - Iowa's data center sales and use tax exemption requires at least $200 million invested within six years, and lease value does not count toward the minimum. - For facilities new or expanded after June 6, 2025, Iowa's electricity exemption lasts 10 years in cities over 30,000 people and 15 years in smaller cities. - Wind produced 63% of Iowa's electricity in 2024, the highest share of any state, according to EIA. ## Can you build an Opportunity Zone data center in Iowa? Yes. Iowa offers land, wind power and an established hyperscale market, and its tax code follows the federal Opportunity Zone rules, so the main questions are which tracts make the 2027 map and whether a site can get power on a schedule that fits the Opportunity Zone clock. A Qualified Opportunity Fund (QOF) is an investment vehicle that holds at least 90% of its assets in Qualified Opportunity Zone property; investors who put eligible capital gains into a QOF within 180 days can defer and partly reduce that gain and, after 10 years, exclude the fund's appreciation from tax.[^1] A data center owned by a Qualified Opportunity Zone Business (QOZB) can qualify because data centers are not on the excluded business list.[^1] Iowa's hyperscale hubs (West Des Moines, Altoona, Council Bluffs and Cedar Rapids) sit in cities of more than 50,000 people or their urbanized areas, so tracts there cannot be rural for Opportunity Zone purposes. Iowa's rural fund opportunity lies in small-town tracts with transmission and fiber. For the general picture, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). **Figure: Iowa at a glance for Opportunity Zone data centers** - 44 of 175: Iowa tracts that can be designated for 2027[^3] - 63%: Share of Iowa electricity from wind, 2024[^16] - $200M: Minimum investment for the data center sales tax exemption[^10] - $7B: Additional Iowa data center investment Google announced over two years[^12] *Tract figures are from the Iowa Economic Development Authority.[^3] The investment minimum is from the Iowa Department of Revenue.[^10] Wind share is EIA's 2024 figure.[^16] Google's commitment was announced in 2025.[^12]* ## Which Iowa census tracts will be Opportunity Zones in 2027? Iowa's new zones will be the 44 tracts the governor designates and Treasury certifies, effective January 1, 2027 through December 31, 2036; the certified list had not been published as of October 22, 2026. A governor may designate the greater of 25% of the state's eligible low-income community tracts or 25 tracts.[^1] Nationally, Rev. Proc. 2026-14 listed 25,332 eligible tracts, 8,334 of them wholly rural.[^2] The Iowa Economic Development Authority (IEDA) reports 175 eligible tracts in Iowa, of which 44 will become designated zones.[^3] IEDA asked local partners to submit nomination applications by July 31, 2026, reviewed them in August, and planned for the governor's office to send recommendations to Treasury in early September.[^3] Selections are now becoming public: on October 22, 2026, Western Iowa Today reported that Governor Kim Reynolds intends to designate a Cass County tract in Atlantic, a designation that remains conditional on Treasury approval.[^4] - Use only certified tracts for new projects. Under Notice 2026-40, zones on the current map generally expire December 31, 2028, and property acquired after 2026 in a tract that is not redesignated generally does not qualify.[^5] - A Qualified Rural Opportunity Fund (QROF) holds at least 90% of its assets in zones made up entirely of rural area and gives investors a 30% basis step-up after five years instead of 10%. Buildings in wholly rural zones need only 50% substantial improvement.[^6] - A rural area is anywhere outside a city or town of more than 50,000 people and the urbanized area next to it.[^6] In Iowa that excludes Des Moines and its suburbs, Cedar Rapids, Council Bluffs (part of the Omaha urbanized area), Davenport, Sioux City and other larger cities, but includes most county-seat towns. Because only 44 tracts will be designated, a site's inclusion is not something to assume. Check every parcel against the certified list with the tools in [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone), and see [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) for the national process. ## Does Iowa tax Opportunity Zone gains? Iowa generally follows the federal treatment, because it conforms to the Internal Revenue Code on a rolling basis: federal changes apply automatically unless Iowa law says otherwise.[^7] Rolling conformity means Iowa follows the current §1400Z-2, including the rolling five-year deferral and the 10% and 30% step-ups for gains invested after December 31, 2026. We found no Iowa add-back for current Opportunity Zone investments, which is consistent with our [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) guide. Iowa taxes all individual taxable income at a flat 3.8% for 2026.[^8] The Opportunity Zone line on Iowa's IA 101 nonconformity adjustments form applies only to gains from a past tax year in which Iowa did not conform; it does not apply to a new investment.[^9] Illustrative example. An Iowa resident sells farmland or a business in 2027 with a $10,000,000 long-term capital gain that qualifies for deferral and invests it in a QOF within 180 days. Assumptions: 23.8% federal rate (20% plus 3.8% net investment income tax), Iowa at 3.8% with no special Iowa capital gain deduction, no decline in the fund's value, and no change in Iowa's rate or conformity before year five. **Figure: Federal and Iowa tax on a $10 million gain, five years after investing in a rural fund** (illustrative) - Federal + Iowa tax if no QOF: 2760000 $ - 10% step-up, federal: -238000 $ - 10% step-up, Iowa: -38000 $ - Extra 20% rural step-up, federal: -476000 $ - Extra 20% rural step-up, Iowa: -76000 $ - Year-5 tax in a rural fund: $1,932,000: 1932000 $ *Illustrative. With no QOF, the gain costs $2,380,000 federal plus $380,000 Iowa tax. In a standard QOF the year-5 bill is $2,484,000 (10% step-up); in a Qualified Rural Opportunity Fund it is $1,932,000 (30% step-up). Tax on appreciation is excluded after a 10-year hold.* **Illustrative tax on a $10,000,000 gain for an Iowa resident** | Scenario | Federal (23.8%) | Iowa (3.8%) | Total | When due | | --- | --- | --- | --- | --- | | No QOF investment | $2,380,000 | $380,000 | $2,760,000 | Year of sale | | Standard QOF, held 5 years (90% included) | $2,142,000 | $342,000 | $2,484,000 | Year 5 | | Rural QOF (QROF), held 5 years (70% included) | $1,666,000 | $266,000 | $1,932,000 | Year 5 | | QOF appreciation after a 10-year hold | Excluded | Excluded under rolling conformity | $0 | At exit | > Iowa has cut its income tax rate repeatedly, and the rate that applies when a deferred gain is included (2032 for a 2027 investment) may differ from 3.8%. Rolling conformity can also be overridden by a future Iowa law, so check the rules for the inclusion year. Iowa's piece is about 14% of the combined bill. The federal side is explained in [Opportunity Zone tax savings: a worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## How big is Iowa's data center market? Iowa is a major hyperscale state rather than a colocation hub: a handful of cloud companies own very large campuses in the Des Moines area, Council Bluffs and Cedar Rapids. Trade coverage of Google's 2025 announcement put the combined investment of four companies in Iowa data centers at nearly $17 billion before Google added about $7 billion over two years, mostly for Council Bluffs and a new Cedar Rapids campus.[^13][^12] - Des Moines metro: Microsoft's West Des Moines campuses and Meta's Altoona campus, served by MidAmerican Energy.[^13] - Council Bluffs: Google's long-running campus, in the Omaha metro and also served by MidAmerican.[^12] - Cedar Rapids: the city approved major data center projects by Google and QTS, served by Alliant Energy.[^14] The draw has been inexpensive land, low natural disaster exposure, central location for fiber, and large volumes of wind energy that let tenants meet clean-energy goals.[^17] Demand keeps growing: EPRI's 2026 projections name Iowa among seven states where data centers could exceed 20% of state electricity use by 2030.[^15] Nationally, Pew Research Center found in April 2026 that 67% of planned U.S. data centers are in rural areas, compared with 13% of those operating today, a pattern that favors states like Iowa.[^20] ## What data center incentives does Iowa offer, and do they stack with Opportunity Zones? Iowa still offers a data center sales and use tax exemption, and it stacks with the federal Opportunity Zone benefits because it reduces a different tax. The exemption covers qualifying purchases such as computers, cooling and backup power equipment, and electricity for a data center business that invests at least $200 million in an Iowa location within its first six years of operation.[^10] Falling short of 80% of the minimum triggers repayment with penalties and interest.[^10][^11] **Iowa data center incentive rules that affect an Opportunity Zone project** | Rule | What it says | Why it matters for an OZ deal | | --- | --- | --- | | Investment minimum | $200 million in an Iowa location within six years[^10] | Smaller edge projects do not qualify | | Clawback | Repayment with penalties and interest below 80% of the minimum[^10] | Phase the build so the minimum is met | | Lease value | Cannot count toward the $200 million (December 2024 declaratory order)[^11] | A ground lease or leased equipment does not help the threshold | | Electricity exemption | 10 years in cities over 30,000 people, 15 years in smaller cities, for facilities new or expanded after June 6, 2025[^11] | A longer exemption in small towns, where rural zones are | Two interactions matter. First, the Opportunity Zone rules often favor leasing land from an unrelated party at market rent, while Iowa's threshold ignores lease value, so the investment plan must be built from owned improvements and equipment. Second, the longer 15-year electricity exemption in cities of 30,000 or fewer people lines up with the rural Opportunity Zone benefits, which apply outside cities of more than 50,000. NCSL tracks how Iowa's program compares with the 38 states that offer data center incentives; see also [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones).[^24] ## Can MidAmerican and Alliant power a new data center in an Iowa zone? Iowa has more generation headroom than most data center states, but a large new load still needs a utility commitment, transmission work and a contract with minimum-payment terms before the project is financeable. MidAmerican Energy serves the Des Moines area and Council Bluffs, and Alliant Energy serves Cedar Rapids and much of eastern Iowa; both operate in the Midcontinent Independent System Operator (MISO) grid, while some western Iowa systems are in the Southwest Power Pool (SPP). Their rates are regulated by the Iowa Utilities Commission. - Wind: wind turbines produced 63% of Iowa's electricity in 2024, the highest share of any state.[^16] Wind supports clean-energy procurement but is intermittent, so a large data center also relies on firm capacity and the grid. - Federal policy: Public Law 119-21 accelerated the phaseout of federal wind and solar credits, which may raise the cost of new wind supply for Iowa data centers.[^17] - Large-load rules: FERC opened Docket RM26-4 on interconnecting loads above 20 MW and said it would act by the end of June 2026; MISO and SPP rules for large loads are moving with it.[^18][^19] - Contract terms: utilities in other states now require minimum payments, such as AEP Ohio's requirement that new data centers pay for at least 85% of subscribed demand for up to 12 years. Expect Iowa utilities to seek financial protection of a similar kind for very large loads.[^25] For Opportunity Zone timing, the constraint is the 31-month working capital safe harbor (up to 62 months for start-ups). Utility study and construction delays are not clearly governmental permitting delays that toll the clock, so match QOF equity calls to the utility's committed in-service date. See [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## What should you check before siting an Opportunity Zone data center in Iowa? In Iowa the screen is a certified 2027 tract, a utility commitment, fiber and community support; water is less binding than in the Southwest but still needs a plan. **Figure: Iowa metro hubs versus rural small-town tracts** - Metro hubs (Des Moines, Council Bluffs, Cedar Rapids) - Established hyperscale campuses and utility experience - Not rural for Opportunity Zone purposes; 10% step-up only - Electricity exemption limited to 10 years in cities over 30,000 - Tracts compete for a share of only 44 designations - Rural small-town tracts (County-seat towns with transmission) - Eligible for a Qualified Rural Opportunity Fund and the 30% step-up - 50% substantial improvement threshold for existing buildings - 15-year electricity exemption in cities of 30,000 or fewer - Need new substations, fiber laterals and workforce housing *The metro hubs have proven power and fiber but cannot be rural zones; small-town tracts can earn the 30% rural step-up and the 50% improvement threshold but need more infrastructure.[^6][^11][^20]* - Fiber: Iowa's metro hubs sit on long-haul routes, but a rural tract may need new laterals. Check the FCC National Broadband Map and carrier routes early; see [fiber connectivity for rural Opportunity Zone data centers](https://ozdatacenters.com/guides/fiber-connectivity-rural-opportunity-zone-data-centers). - Water and cooling: Iowa's climate allows long periods of free cooling, but municipal water and wastewater capacity in small towns can limit evaporative designs. See [water and cooling for Opportunity Zone data centers](https://ozdatacenters.com/guides/water-cooling-opportunity-zone-data-centers). - Land: farmland is plentiful, but rezoning prime agricultural land for an industrial campus draws scrutiny from county boards. - Community response: Data Center Watch counted at least 75 projects worth about $130 billion blocked or delayed nationally in the first quarter of 2026, with opposition groups rising from 396 to 833.[^22] Early engagement on noise, water and tax revenue matters in small towns. Pillsbury and other firms argue the rural fund step-up and the 50% improvement rule make rural data center sites more attractive, which is the case for small-town Iowa tracts with transmission.[^21] Federal proposals to strip Opportunity Zone benefits from data centers, including a bill Sen. Josh Hawley introduced in September 2026, had not been enacted as of this review.[^23] ## What does this mean for investors, landowners and developers in Iowa? Iowa investors keep state deferral and the 10-year exclusion under rolling conformity; landowners and developers should focus on the 44 certified tracts that also have power. - Iowa investors: a farm, business or real estate sale can fund a QOF, and Iowa's 3.8% tax follows the federal deferral. Gains invested on or after January 1, 2027 get the rolling five-year deferral and the 10% or 30% step-up.[^1] - Out-of-state investors: your residence state decides state deferral. A California resident investing in an Iowa project gets federal benefits only. - Landowners: land near a high-voltage substation in a designated rural tract is the scarce asset. Selling to a QOZB or ground-leasing at market rent to an unrelated QOZB are common structures; see [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers: size the project to meet Iowa's $200 million threshold with owned property, secure a utility commitment before calling QOF equity, and avoid a pure triple-net lease to a single tenant, which risks failing the active trade or business requirement. OZ Data Centers sponsors data center projects in Qualified Opportunity Zones; if you hold Iowa land or capital gains, [talk to our team](https://ozdatacenters.com/#contact). For a broader look at rural strategy, see [rural data centers and Opportunity Zones](https://ozdatacenters.com/guides/rural-data-centers-opportunity-zones). ## Common questions **How many Opportunity Zones will Iowa have in 2027?** 44. Iowa has 175 eligible low-income community tracts and may designate 25% of them. Treasury had not published Iowa's certified list as of October 22, 2026. **Does Iowa tax Opportunity Zone gains?** Iowa follows the federal treatment because it conforms to the Internal Revenue Code on a rolling basis. Deferred gain is taxed at Iowa's rate when it is included federally, and appreciation excluded after a 10-year hold is excluded for Iowa as well, unless Iowa changes its law. **Are Council Bluffs or West Des Moines rural Opportunity Zones?** No. Both are in urbanized areas next to cities of more than 50,000 people, so tracts there cannot be rural for Opportunity Zone purposes. A designated tract there would get the 10% step-up, not 30%. **Does Iowa's data center sales tax exemption still exist?** Yes. It requires at least $200 million of investment in an Iowa location within six years, and since June 6, 2025 the electricity exemption for new or expanded facilities lasts 10 years in cities over 30,000 people and 15 years in smaller cities. **Does a ground lease count toward Iowa's $200 million threshold?** No. A December 2024 declaratory order held that lease value cannot count toward the minimum, so owned improvements and equipment must carry the threshold. **Is wind power enough to run an Iowa data center?** Not on its own. Wind produced 63% of Iowa's electricity in 2024, which helps tenants meet clean-energy goals, but a data center runs around the clock and relies on the grid and firm capacity as well. ## Sources [^1]: U.S. Government Publishing Office, "26 U.S.C. §1400Z-2, Special rules for capital gains invested in opportunity zones" (2026). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^3]: Iowa Economic Development Authority, "Opportunity Zones" (2026). https://opportunityiowa.gov/opportunity-zones [^4]: Western Iowa Today, "Atlantic Selected for Federal Opportunity Zone Program" (2026). https://westerniowatoday.com/2026/10/22/atlantic-selected-for-federal-opportunity-zone-program/ [^5]: Internal Revenue Service, "Notice 2026-40, Transitional Guidance on Qualified Opportunity Zones" (2026). https://www.irs.gov/pub/irs-drop/n-26-40.pdf [^6]: Internal Revenue Service, "Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas" (2025). https://www.irs.gov/newsroom/enhanced-tax-incentives-for-qualified-opportunity-zone-investments-in-rural-areas [^7]: Iowa Department of Revenue, "Impact of One, Big, Beautiful Bill Act on Employee Withholding" (2025). https://revenue.iowa.gov/taxes/tax-guidance/withholding-tax/impact-one-big-beautiful-bill-act-employee-withholding [^8]: Iowa Department of Revenue, "IDR Announces 2026 Individual Income Tax and Interest Rates" (2025). https://revenue.iowa.gov/press-release/2025-10-21/idr-announces-2026-individual-income-tax-and-interest-rates [^9]: Iowa Department of Revenue, "IA 101 Nonconformity Adjustments (42-029a)" (2023). https://revenue.iowa.gov/media/4417/download?inline= [^10]: Iowa Department of Revenue, "Data Centers (sales and use tax guidance)" (n.d.). https://revenue.iowa.gov/taxes/tax-guidance/sales-use-excise-tax/data-centers [^11]: Nyemaster Goode, "Immediate Iowa Tax Law Changes for Data Centers" (2025). https://nyemaster.com/news/immediate-iowa-tax-law-changes-for-data/ [^12]: DatacenterDynamics, "Google pledges $7bn to expand Iowa data center footprint" (2025). https://www.datacenterdynamics.com/en/news/google-pledges-7bn-to-expand-iowa-data-center-footprint/ [^13]: ConstructConnect, "Google Doubles Down on Iowa with $7 Billion Data Center Investment" (2025). https://news.constructconnect.com/google-doubles-down-on-iowa-with-7-billion-data-center-investment [^14]: Data Center Frontier, "Cedar Rapids, Iowa Gets Approval for Two Major Data Center Investments by Google and QTS" (2025). https://www.datacenterfrontier.com/site-selection/article/55268088/cedar-rapids-iowa-gets-approval-for-two-major-data-center-investments-by-google-and-qts [^15]: EPRI, "Powering Intelligence 2026: Updated Scenarios of U.S. Data Center Electricity Use and Power Strategies" (2026). https://esca.epri.com/products/3002034696/ [^16]: U.S. Energy Information Administration, "Iowa Quick Facts" (2025). https://www.eia.gov/state/print.php?sid=IA [^17]: Inside Climate News, "Clean Energy Brought Data Centers to Iowa. The Big Beautiful Bill Could Change That" (2025). https://insideclimatenews.org/news/28072025/big-beautiful-bill-iowa-data-centers/ [^18]: Federal Energy Regulatory Commission, "Interconnection of Large Loads to the Interstate Transmission System, Docket RM26-4-000" (n.d.). https://www.ferc.gov/rm26-4 [^19]: Holland & Knight, "FERC to Act on Large-Load Interconnection Docket in June" (2026). https://www.hklaw.com/en/insights/publications/2026/04/ferc-to-act-on-large-load-interconnection-docket-in-june [^20]: Pew Research Center, "Most new data centers in the U.S. are coming to rural areas" (2026). https://www.pewresearch.org/short-reads/2026/04/13/most-new-data-centers-in-the-us-are-coming-to-rural-areas/ [^21]: Pillsbury Winthrop Shaw Pittman, "Qualified Rural Opportunity Funds Are Set to Boost U.S. Heartland" (2025). https://www.pillsburylaw.com/en/news-and-insights/qualified-rural-opportunity-funds-boost-us-heartland.html [^22]: Data Center Watch, "Q1 2026 Data Center Watch Report" (2026). https://datacenterwatch.org/q1-2026 [^23]: Bisnow, "Senators Are Pushing To Kick Data Centers Out Of Opportunity Zones" (2026). https://www.bisnow.com/news/national/data-center/senators-are-pushing-to-kick-data-centers-out-of-opportunity-zones [^24]: National Conference of State Legislatures, "Does your state offer data center tax incentives?" (2026). https://www.ncsl.org/resources/details/does-your-state-offer-data-center-tax-incentives [^25]: POWER Magazine, "Regulator approves AEP Ohio's landmark data center tariff" (2025). https://www.powermag.com/regulator-approves-aep-ohios-landmark-data-center-tariff/ --- # Opportunity Zone data centers in Oklahoma URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-oklahoma Last reviewed: 2026-10-22 Oklahoma's income tax starts from federal adjusted gross income, so Opportunity Zone deferral and exclusion carry through to the state: an Oklahoma resident who invests a $10 million gain in a Qualified Opportunity Fund owes about $2,547,000 of combined federal and state tax at year five (23.8% plus 4.5% on $9 million), against $2,830,000 with no investment. The state has 413 tracts eligible for the 2027 zones, 188 of them rural, and its data center market is anchored by Google in Pryor and Stillwater and Meta in Tulsa. ## Key takeaways - Oklahoma has 413 census tracts eligible for the 2027 Opportunity Zones, 188 of them rural (45.5%), and the governor may nominate up to 25% of them, about 100 tracts. - Oklahoma is a rolling conformity state: its income tax begins with federal adjusted gross income, so federal Opportunity Zone deferral, step-ups and the 10-year exclusion flow through to the state return. - The top individual income tax rate is 4.5% from tax year 2026 under HB 2764, with further 0.25-point cuts only if revenue triggers are certified. - HB 2992 (2026) defines large-load customers as new facilities adding 75 MW or more, protects other ratepayers from their costs and requires notice within 60 days of buying land for a project; SB 259 bars data centers from evaporative cooling that consumes groundwater. - Oklahoma sits in the Southwest Power Pool, where FERC accepted a High Impact Large Load (HILL) study process effective January 15, 2026; OG&E filed a 75 MW large-load tariff in June 2026. ## How do Opportunity Zones and data centers fit together in Oklahoma? Oklahoma combines full state conformity to the Opportunity Zone rules, a large share of rural eligible tracts, and a data center market that hyperscalers have already proven. An Opportunity Zone is a low-income census tract designated under IRC §1400Z-1. An investor who puts an eligible capital gain into a Qualified Opportunity Fund (QOF) within 180 days defers federal tax for up to five years, gets a 10% basis step-up at year five (30% in a Qualified Rural Opportunity Fund, or QROF), and can exclude all appreciation on a sale after 10 years. The fund usually owns the data center through a Qualified Opportunity Zone Business (QOZB). In October 2026 the picture is this. Oklahoma's new zones are being selected and certified for January 1, 2027, and nearly half the eligible tracts are rural.[^2] The state income tax follows the federal treatment, so the benefit is larger than in a state with no income tax.[^2][^3] Google has expanded in Pryor and is building in Stillwater, and Meta broke ground in Tulsa in April 2026.[^9][^11] And in 2026 the Legislature set new rules for large loads, land purchases and groundwater, while Tulsa paused new data center permits through the end of the year.[^18][^20][^25] For the federal rules as they apply to data centers, see [data centers in Opportunity Zones](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Which Oklahoma census tracts can become Opportunity Zones in 2027? Oklahoma has 413 eligible census tracts for the 2027 designations, of which the governor may nominate up to 25%, about 100 tracts; the official list is being certified. Treasury's Rev. Proc. 2026-14 lists 25,332 eligible tracts nationwide, 8,334 of them wholly rural.[^1] The Oklahoma Department of Commerce counts 413 on-list tracts in Oklahoma and identifies 188 of them, 45.5%, as rural areas that would receive the rural benefits if nominated.[^2] Nationally, about a third of eligible tracts are wholly rural, so Oklahoma's rural share is well above average. A tract is eligible if its median family income is no more than 70% of the state or metro median, or if its poverty rate is at least 20% and its median family income is no more than 125% of that median. Eligibility uses 2020–2024 American Community Survey data.[^2] Commerce says the state's nomination period has ended and submitted nominations are under review.[^2] As of October 22, 2026 we have not found a published list of the tracts Oklahoma sent to Treasury. Treasury must certify nominations within 30 days of receiving them (60 days with an extension), and the new zones take effect January 1, 2027 and run through December 31, 2036.[^1][^2] **Figure: Oklahoma and the 2027 Opportunity Zone map** - 413: Oklahoma tracts eligible for nomination - 188: Eligible Oklahoma tracts that are rural (45.5%) - About 100: Maximum nominations under the 25% cap - 25,332: Eligible tracts nationwide *Tract counts are from the Oklahoma Department of Commerce; the national figure is from Treasury. Nominated tracts had not been published as of October 22, 2026.[^1][^2]* Rural status changes the economics. A rural area is anywhere outside a city or town of more than 50,000 people and the urbanized areas next to it.[^8] Outside Oklahoma City, Tulsa and their suburbs, most of the state meets that test. Property in a zone made up entirely of rural area needs improvements of only 50% of building basis within 30 months, and a QROF that keeps at least 90% of its assets in such zones gives investors a 30% step-up instead of 10%. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones) and [what a Qualified Rural Opportunity Fund is](https://ozdatacenters.com/guides/qualified-rural-opportunity-fund). ## Does Oklahoma follow the federal Opportunity Zone tax rules? Yes. Oklahoma has rolling conformity to federal income tax law, and its individual return begins with federal adjusted gross income, so a gain deferred federally is also deferred for Oklahoma, the step-up reduces the state inclusion, and appreciation excluded after 10 years is excluded for the state too.[^2] Novogradac's conformity table lists Oklahoma as full rolling conformity for personal income tax.[^3] That is consistent with our guide to [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones), which does not list Oklahoma among the states that decouple. Because conformity is rolling, Oklahoma picks up the current rules for amounts invested after December 31, 2026, including the rolling five-year deferral and the 30% rural step-up, unless the Legislature acts to decouple. The rate is falling. HB 2764 (2025) cut the top individual rate from 4.75% to 4.5% beginning with tax year 2026 and set up further 0.25-point cuts when the State Board of Equalization certifies revenue benchmarks; Governor Stitt signed it in May 2025.[^4][^5][^6] A lower state rate at year five means the deferred state tax may be smaller than today's, which slightly favors deferral. One Oklahoma rule can make deferral unnecessary at the state level. Oklahoma allows a deduction for qualifying capital gain on real or tangible personal property located in Oklahoma owned for at least five uninterrupted years, and on certain Oklahoma business ownership interests held for at least two years, claimed on Form 561.[^7] A resident whose gain already qualifies for that deduction pays no Oklahoma tax on it, so the QOF investment matters only for the federal tax. Check this before you model state savings. Illustrative worked example. An Oklahoma resident sells publicly traded stock in 2027 for a $10,000,000 long-term gain (not eligible for the Oklahoma capital gain deduction) and invests it in a QOF within 180 days. Assumptions: 23.8% federal rate (20% plus 3.8% net investment income tax), a flat 4.5% Oklahoma rate, no change in the fund's value at year five, and no federal deduction for the state tax. With no investment, tax today is $2,380,000 federal plus $450,000 Oklahoma, or $2,830,000. In a standard QOF the 10% step-up leaves $9,000,000 taxable at year five: $2,142,000 federal plus $405,000 Oklahoma, or $2,547,000, paid five years later. In a QROF the 30% step-up leaves $7,000,000: $1,666,000 plus $315,000, or $1,981,000. **Figure: Tax at year five on a $10 million gain for an Oklahoma resident** (illustrative) - Federal and Oklahoma tax if the gain were recognized today: 2830000 $ - 10% step-up: federal saving: -238000 $ - 10% step-up: Oklahoma saving: -45000 $ - Extra 20% step-up in a rural fund (QROF): -566000 $ - Year-5 tax in a rural fund: $1,981,000: 1981000 $ *Illustrative. Assumes a $10,000,000 long-term gain invested in 2027, 23.8% federal and 4.5% Oklahoma rates, no decline in the fund's value, and continued Oklahoma conformity. Tax is also deferred five years in every QOF case.* Corporate and other entity investors should confirm the Oklahoma treatment for their entity type with a tax adviser. For the federal mechanics, see [Opportunity Zone tax savings: a worked example](https://ozdatacenters.com/guides/opportunity-zone-tax-savings-example). ## Where are data centers being built in Oklahoma? Oklahoma's data center market is concentrated in a few large hyperscale campuses in the northeast and around the two metros, with more projects proposed. **Major Oklahoma data center sites** | Location | What is there | Opportunity Zone angle | | --- | --- | --- | | Pryor (Mayes County), MidAmerica Industrial Park | Google's long-running campus, which The Frontier described in 2022 as Google's second-largest in the world.[^13] Google announced $9 billion of Oklahoma investment in 2025, including an expansion here.[^9] | Rural county; tract status and nomination need checking parcel by parcel. | | Stillwater | A new Google AI and cloud campus, part of the $9 billion commitment.[^9][^10] | Stillwater is under 50,000 people, so tracts there may be rural if not part of a larger urbanized area. | | Tulsa | Meta broke ground in April 2026 on a facility of more than $1 billion in east Tulsa, with about 1,000 construction jobs at peak and 100 operating jobs.[^11][^12] Tulsa paused new data center permits through 2026, exempting this project.[^25] | Urban tracts; a standard QOF with the 10% step-up. | | Oklahoma City metro | Colocation and enterprise facilities, served largely by OG&E. | Urban and suburban tracts; check low-income eligibility tract by tract. | Demand comes from the same forces as elsewhere, hyperscale cloud and AI, plus Oklahoma's land, natural gas and wind resources and a utility regime that is now writing rules for large loads. The Southwest Power Pool (SPP) said in January 2026 that it had 12 large-load projects planned for Oklahoma in its queue.[^21] That is far smaller than ERCOT's queue in Texas, which is one reason Oklahoma sites can look attractive to developers who need power sooner; see [Opportunity Zone data centers in Texas](https://ozdatacenters.com/guides/opportunity-zone-data-centers-texas) for the comparison. ## What data center incentives does Oklahoma offer, and do they stack with Opportunity Zones? Oklahoma offers a sales tax exemption for computer services and data processing equipment and a five-year property tax exemption, and both reduce project costs without affecting the Opportunity Zone tests. **Oklahoma data center incentives as of October 2026** | Incentive | Key terms | Status and stacking notes | | --- | --- | --- | | Sales tax exemption for computer services and data processing machinery and equipment (68 O.S. §1357) | For data processing firms (NAICS 518210), at least 80% of revenue must come from out-of-state sales; electricity is not covered.[^17] No minimum investment, job or facility size requirement.[^16] | Reviewed by the state Incentive Evaluation Commission in 2026.[^16] | | Five-year ad valorem (property tax) exemption (68 O.S. §2902) | Computer services and data processing facilities may qualify; apply to the county assessor by March 15 each year.[^15] The state reimburses the local taxes.[^14] | A 2026 bill (HB 4424) to limit data centers' eligibility was introduced; we found no record that it was enacted.[^14] Eligibility rules have changed before, so confirm the current statute.[^13] | | Quality Jobs and other Commerce programs | Cash incentives tied to new payroll.[^15] | Data centers employ few people after construction, so payroll-based incentives are usually small. | On stacking: a sales tax exemption lowers equipment cost and a property tax exemption lowers operating cost, but neither changes the QOF 90% asset test or the QOZB 70% tangible property test. Where a local trust or authority takes title to deliver a property tax benefit and leases the facility back, the QOZB's property becomes leased property and the leased and related-party rules apply. See [state data center tax incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones) and [combining Opportunity Zones with other incentives](https://ozdatacenters.com/guides/stacking-incentives-with-opportunity-zones). ## How long does it take to get power for a data center in Oklahoma? Oklahoma's process is newer and, for projects that bring their own generation, potentially faster than in many markets. Most of the state is in SPP, and the main utilities are OG&E and Public Service Company of Oklahoma (PSO, an AEP subsidiary). - SPP High Impact Large Load (HILL) process: FERC accepted SPP's tariff revisions on January 14, 2026, effective January 15. A HILL is a new or increased load at one site of 10 MW or more at 69 kV or below, or 50 MW or more above 69 kV. A companion process (HILLGA) interconnects the generation needed to serve it.[^22] SPP described about a 90-day study and approval path for loads that bring their own generation or connect to new or existing generation.[^21] - OG&E large-load tariff: OG&E filed a draft tariff with the Oklahoma Corporation Commission on June 17, 2026 that would apply to customers using 75 MW or more in its territory; approval could take about six months.[^23] - PSO: the utility has said large customers should pay the direct cost of connecting and that it is developing a large-load tariff.[^24] - HB 2992, the Data Center Consumer Ratepayer Protection Act of 2026: signed in May 2026, it defines large-load customers as new facilities adding 75 MW or more, aims to keep their costs off other customers, and requires developers to notify adjoining landowners, county commissioners and the Corporation Commission within 60 days of acquiring land for a qualifying project.[^18][^19] > What this means for the Opportunity Zone clock: a QOZB may hold cash as working capital for up to 31 months under a written plan and schedule, extended to 62 months with overlapping plans, with tolling only for delays from government action on a completed application.[^26] Oklahoma's newer HILL path and utility tariffs can shorten the power timeline for well-prepared sites, but the 60-day notice under HB 2992 and any Corporation Commission review should be built into the written schedule. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines) and [the working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). ## What should you check when siting an Opportunity Zone data center in Oklahoma? Check zone and rural status, then power path, water and local rules. Oklahoma's main differences from its neighbors are a groundwater rule and a few local moratoria. **Figure: Rural versus metro Opportunity Zone sites in Oklahoma** - Rural tract (45.5% of eligible tracts) - QROF possible: 30% step-up at year five - Substantial improvement threshold of 50% of building basis - Large parcels near transmission and gas - Fiber and workforce may need building out - Groundwater limits on evaporative cooling apply - Metro tract (Tulsa, Oklahoma City) (Standard QOF) - 10% step-up at year five - Substantial improvement threshold of 100% of building basis - Dense fiber, labor and utility service - Local permitting pauses possible, as in Tulsa through 2026 - Smaller sites and higher land cost *Rural tracts carry larger tax benefits and more land; metro tracts carry fiber, labor and existing utility capacity. Rural share is from the Oklahoma Department of Commerce.[^2][^8]* - Water: SB 259, signed alongside HB 2992, prohibits data centers from using groundwater in open-air evaporative cooling or other systems that consume it through evaporation without recirculation, and adds water-use reporting.[^20] Plan for closed-loop or air-cooled designs, or surface water supply. - Local rules: Tulsa's City Council voted unanimously in March 2026 to pause new data center permits for about nine months.[^25] Check county and city rules before contracting land. - Statewide politics: a 2026 bill (SB 1488) proposed a statewide moratorium; we found no record that it was enacted, and lawmakers continued to study data centers in interim hearings in September 2026.[^14][^27] - Zone status: confirm the tract is on Treasury's certified list for January 1, 2027. See [how to check if a property is in an Opportunity Zone](https://ozdatacenters.com/guides/is-my-property-in-an-opportunity-zone). - Lease structure: a single-tenant triple-net lease is not, by itself, an active trade or business under the regulations.[^26] See [powered shell and triple-net data centers](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## What does this mean for investors, landowners and developers in Oklahoma? For Oklahoma investors, the Opportunity Zone benefit is worth more than in a no-income-tax state because the state tax is deferred, stepped up and, after 10 years, excluded along with the federal tax. In the example above, deferral and the step-up together cut combined tax from $2,830,000 today to $2,547,000 in five years, or $1,981,000 in a rural fund. First check whether the gain already qualifies for Oklahoma's capital gain deduction. Investors in other states get Oklahoma's project economics but their own state's conformity rules. For landowners in eligible rural tracts near transmission, gas or existing campuses, the 2027 designation and the QROF step-up can widen the buyer pool. HB 2992's 60-day notice requirement means a sale for a large project will become public soon after closing. A landowner selling appreciated land can defer that gain in a QOF. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). For developers, Oklahoma offers a defined large-load path through SPP and the utilities, conformity that helps raise in-state equity, and incentives that are under review but intact. OZ Data Centers sponsors funds of this kind and checks certified zone status, rural status and the utility path before raising capital. See [Opportunity Zones for data center developers](https://ozdatacenters.com/guides/opportunity-zones-for-data-center-developers). ## Common questions **Does Oklahoma tax Opportunity Zone gains?** Oklahoma follows the federal treatment. Its income tax begins with federal adjusted gross income under rolling conformity, so a federally deferred gain is deferred for Oklahoma, the step-up reduces the state inclusion, and appreciation excluded after 10 years is excluded for the state too. **How many Opportunity Zones will Oklahoma have in 2027?** Up to 25% of its 413 eligible tracts, or about 100. The Oklahoma Department of Commerce says nominations are under review; Treasury's certified list was not published as of October 22, 2026. **Are rural Oklahoma tracts eligible for the 30% step-up?** Yes, if the tract is designated and made up entirely of rural area, and the investment is made through a Qualified Rural Opportunity Fund holding at least 90% of its assets in such zones. Commerce counts 188 of the 413 eligible tracts as rural. **What is Oklahoma's income tax rate on capital gains?** The top individual rate is 4.5% from tax year 2026, with further 0.25-point cuts possible if revenue triggers are certified. Gains on Oklahoma property held long enough may qualify for a full state deduction instead. **Can data centers use groundwater for cooling in Oklahoma?** Not for open-air evaporative cooling or other systems that consume groundwater through evaporation without recirculation, under SB 259. Closed-loop systems are allowed. **Does Oklahoma have a data center moratorium?** Not statewide. A statewide moratorium bill was proposed in 2026 but not enacted. Tulsa paused new data center permits for about nine months from March 2026, with existing projects exempted. ## Sources [^1]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^2]: Oklahoma Department of Commerce, "Federal Opportunity Zones" (2026). https://www.okcommerce.gov/doing-business/business-relocation-expansion/incentives/federal-opportunity-zones/ [^3]: Novogradac, "State Tax Code Conformity: Personal Income" (n.d.). https://www.novoco.com/resource-centers/opportunity-zones-resource-center/state-tax-code-conformity-personal-income [^4]: Oklahoma State Senate, "Oklahoma Legislature sends comprehensive tax cuts and modernization plan to governor" (2025). https://oksenate.gov/press-releases/oklahoma-legislature-sends-comprehensive-tax-cuts-and-modernization-plan-governor [^5]: Oklahoma Policy Institute, "Individual Income Tax" (2026). https://okpolicy.org/individual-income-tax/ [^6]: Oklahoma Business Voice, "Gov. Stitt signs Oklahoma personal income tax cut into law" (2025). https://okbusinessvoice.com/2025/05/29/gov-stitt-signs-oklahoma-personal-income-tax-cut-into-law/ [^7]: Oklahoma Tax Commission, "Form 561, Oklahoma Capital Gain Deduction (software developer version)" (2025). https://oklahoma.gov/content/dam/ok/en/tax/documents/forms/software-developers/Dev561-P-25.pdf [^8]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill (Notice 2025-50)" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^9]: Data Center Dynamics, "Google to invest $9bn in cloud and AI infrastructure in Oklahoma" (2025). https://www.datacenterdynamics.com/en/news/google-to-invest-9bn-in-cloud-and-ai-infrastructure-in-oklahoma/ [^10]: Data Center Dynamics, "Google behind AI data center campus in Stillwater, Oklahoma" (2025). https://www.datacenterdynamics.com/en/news/google-behind-ai-data-center-campus-in-stillwater-oklahoma/ [^11]: Oklahoma Department of Commerce, "Meta Breaks Ground on New $1 Billion Data Center in Tulsa" (2026). https://www.okcommerce.gov/meta-breaks-ground-on-data-center-in-tulsa/ [^12]: Meta, "Breaking Ground on a New AI-Optimized Data Center in Tulsa, Oklahoma" (2026). https://about.fb.com/news/2026/04/breaking-ground-new-ai-optimized-data-center-tulsa-oklahoma/ [^13]: The Frontier, "Oklahoma lawmakers tried to cut a costly incentive for data centers, but gave Google a break" (2022). https://www.readfrontier.org/stories/oklahoma-lawmakers-tried-to-cut-a-costly-incentive-for-data-centers-but-gave-google-a-break/ [^14]: The Frontier, "From limiting tax breaks to moratoriums, Oklahoma legislators eye new rules for data centers" (2026). https://www.readfrontier.org/stories/from-limiting-tax-breaks-to-moratoriums-oklahoma-legislators-eye-new-rules-for-data-centers/ [^15]: Oklahoma Department of Commerce, "Oklahoma Business Incentives and Tax Guide (April 2026)" (2026). https://www.okcommerce.gov/wp-content/uploads/2026-Oklahoma-Business-Incentives-Tax-Guide.pdf [^16]: Oklahoma Incentive Evaluation Commission, "Computer Services and Data Processing Exemption Evaluation (draft)" (2026). https://oklahoma.gov/content/dam/ok/en/omes/documents/computer-services-exemption-draft.pdf [^17]: Oklahoma Department of Commerce, "Data Center Industry Tax Incentives" (n.d.). https://www.okcommerce.gov/wp-content/uploads/Data-Center-Industry-Tax-Incentives.pdf [^18]: Oklahoma Voice, "Ratepayer protections signed into law by Oklahoma governor" (2026). https://oklahomavoice.com/2026/05/13/ratepayer-protections-signed-into-law-by-oklahoma-governor/ [^19]: Data Center Dynamics, "Oklahoma enacts bill to shield ratepayers from cost increases associated with data center buildout" (2026). https://www.datacenterdynamics.com/en/news/oklahoma-enacts-bill-to-shield-ratepayers-from-cost-increases-associated-with-data-center-buildout/ [^20]: Daily Energy Insider, "Two Oklahoma laws create safeguards from data center risks" (2026). https://dailyenergyinsider.com/news/53354-two-oklahoma-laws-create-safeguards-from-data-center-risks/ [^21]: KGOU, "Oklahoma's power grid operator plans to expedite connection for certain data centers" (2026). https://www.kgou.org/science-technology-and-environment/2026-01-21/oklahomas-power-grid-operator-plans-to-expedite-connection-for-certain-data-centers [^22]: LexBlog, "FERC continues shaping the future of data center use of the transmission grid with approval of SPP's HILL and HILLGA" (2026). https://www.lexblog.com/2026/01/21/ferc-continues-shaping-the-future-of-data-center-use-of-the-transmission-grid-with-approval-of-spps-hill-and-hillga/ [^23]: KGOU, "OG&E proposes new data center agreement intended to prevent residential utility cost spikes" (2026). https://www.kgou.org/energy/2026-06-18/og-e-proposes-new-data-center-agreement-intended-to-prevent-residential-utility-cost-spikes [^24]: High Plains Public Radio, "As electricity demand and investments grow, what's being done to shield Oklahomans from higher monthly bills" (2026). https://www.hppr.org/hppr-news/2026-02-16/as-electricity-demand-and-investments-grow-whats-being-done-to-shield-oklahomans-from-higher-monthly-bills [^25]: The Tulsa Flyer, "Tulsa will pause new data center construction for 9 months after council vote" (2026). https://tulsaflyer.org/2026/03/25/news/post/tulsa-will-pause-new-data-center-construction-for-9-months-after-council-vote/ [^26]: eCFR, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^27]: Route Fifty, "'Not enough data or expertise': Oklahoma lawmakers consider future of data centers" (2026). https://www.route-fifty.com/artificial-intelligence/2026/09/not-enough-data-or-expertise-oklahoma-lawmakers-consider-future-data-centers/416331/ --- # Opportunity Zone data centers in North Carolina URL: https://ozdatacenters.com/guides/opportunity-zone-data-centers-north-carolina Last reviewed: 2026-10-22 North Carolina is a fast-growing data center state, but it does not follow the federal Opportunity Zone deferral or the 10-year exclusion: residents add the deferred gain back to state income in the year of sale. On an illustrative $10 million gain realized in 2027, a North Carolina resident who invests in a Qualified Opportunity Fund still owes about $349,000 of state tax up front while deferring $2.38 million of federal tax. The state may designate up to 202 of its 807 eligible tracts as zones from January 1, 2027, and Duke Energy's new large-load tariff will set the terms for powering data centers in them. ## Key takeaways - North Carolina may nominate up to 202 of its 807 eligible census tracts (431 rural, 376 non-rural) for the zones that take effect January 1, 2027; Treasury certification is pending. - G.S. 105-153.5 requires individuals to add back gain deferred under §1400Z-2(a), allows a later subtraction to avoid double tax, and adds back gain excluded by the 10-year basis step-up under §1400Z-2(c). - North Carolina's personal income tax rate is 3.99% for 2026 and 3.49% for 2027 to 2029 under the law signed July 7, 2026. - The 2026 budget repealed the sales tax exemption for electricity used at qualifying data centers, while the exemptions for data center equipment remain. - Duke Energy's October 2026 large-load settlement covers loads above 50 MW at high load factor or any load above 150 MW, with a 75% minimum bill, and awaits Utilities Commission approval. ## How do Opportunity Zones and data centers fit together in North Carolina? North Carolina offers strong data center demand and a large pool of eligible tracts, but a weaker state tax benefit than most states because it decouples from the Opportunity Zone rules. An Opportunity Zone is a low-income census tract designated by the governor and certified by Treasury. A Qualified Opportunity Fund (QOF) is a corporation or partnership that holds at least 90% of its assets in zone property, usually through a Qualified Opportunity Zone Business (QOZB) that owns and operates the project.[^1] The federal benefits work the same in North Carolina as anywhere: deferral of an eligible gain for up to five years, a 10% basis step-up at five years (30% for a rural fund), and tax-free appreciation after a 10-year hold.[^1] What differs is the state layer. North Carolina taxes the gain in the year of sale and also taxes the appreciation that the federal rules exclude.[^7] For a North Carolina resident, the federal benefit is the whole benefit. On the project side, JLL counts the Carolinas among the frontier markets where most North American data center development is now happening, and Amazon is building a $10 billion campus in Richmond County.[^27][^14] The constraints are power from Duke Energy, the loss of the electricity sales tax exemption and a wave of county moratoriums.[^22][^10][^24] For the national picture, start with [data centers in Opportunity Zones: the complete guide](https://ozdatacenters.com/guides/data-centers-in-opportunity-zones). ## Which North Carolina census tracts will be Opportunity Zones in 2027? North Carolina's 2027 zones will be up to 202 tracts chosen from 807 eligible tracts, and the list becomes official only when Treasury certifies it. Nationally, Rev. Proc. 2026-14 lists 25,332 eligible low-income tracts, 8,334 of them wholly rural, and a governor may nominate no more than 25% of the state's eligible tracts.[^2] The North Carolina Department of Commerce reports 807 eligible tracts in the state, 431 rural and 376 non-rural, and a nomination limit of 202.[^3] **North Carolina's 2027 Opportunity Zone nomination, as reported** | Item | North Carolina | Source | | --- | --- | --- | | Eligible tracts | 807 (431 rural, 376 non-rural) | NC Commerce[^3] | | Tracts the state may nominate | Up to 202 (25% cap) | NC Commerce[^3] | | Lead agency | NC Department of Commerce, designated by Gov. Stein | NC Commerce[^3] | | Public comment | Extended to June 21, 2026 | NC Commerce[^4] | | Nomination | Commerce said it would nominate 202 tracts; Axios reported the plan in July 2026 | Axios[^5] | | Designation period | January 1, 2027 to December 31, 2036 | IRS[^2] | We have not found a published copy of North Carolina's final nominated list or a Treasury certification for the state in the sources we reviewed, so treat any tract as a candidate until the certified list is out. See [the new Opportunity Zone maps taking effect in 2027](https://ozdatacenters.com/guides/new-opportunity-zone-maps-2027) for how certification works. Rural status matters for data center sites. A Qualified Rural Opportunity Fund (QROF), a QOF holding at least 90% of its assets in zones made up entirely of rural area, gives investors a 30% basis step-up at year five instead of 10%, and in wholly rural zones an existing building is substantially improved when 30-month additions to basis exceed 50% of its basis rather than 100%.[^6] Commerce's rural count may not use the same test as the statute, which defines rural as anywhere other than a city or town of more than 50,000 people and its adjacent urbanized area, so confirm each tract. See [rural Opportunity Zones](https://ozdatacenters.com/guides/rural-opportunity-zones). ## Does North Carolina tax Opportunity Zone gains? Yes. North Carolina taxes the gain in the year of sale even if it is invested in a QOF, and it taxes the appreciation the federal 10-year rule excludes. G.S. 105-153.5 makes three adjustments to an individual's federal adjusted gross income:[^7] 1. Add back the gain that would be included federally without regard to the §1400Z-2(a) deferral, in the year the gain is deferred. 2. Subtract, in a later year, gain included federally under §1400Z-2(a) to the extent North Carolina already taxed it, so the same gain is not taxed twice. 3. Add back gain that would be included in federal adjusted gross income but for the basis step-up under §1400Z-2(c), which is the 10-year exclusion. The North Carolina Department of Revenue has stated that gains reinvested into a QOF under §1400Z-2 are not deferred for corporate or individual income tax purposes.[^8] This matches our [state tax treatment of Opportunity Zone investments](https://ozdatacenters.com/guides/state-tax-conformity-opportunity-zones) guide, which lists North Carolina as decoupled. Because the add-back is in the statute itself, it applies regardless of North Carolina's Internal Revenue Code conformity date. North Carolina's flat personal income tax rate is 3.99% for 2026. Senate Bill 257, signed July 7, 2026, sets the rate at 3.49% for tax years 2027 through 2029, 3.24% for 2030 through 2032 and 2.99% for 2033 and 2034.[^9] ### Worked example: a $10 million gain invested by a North Carolina resident Illustrative assumptions: a North Carolina resident realizes $10,000,000 of long-term capital gain in 2027 and invests it in a standard QOF within 180 days. Federal rate 23.8% (20% plus 3.8% net investment income tax). North Carolina rate 3.49% for 2027. The QOF is held at least 10 years and doubles in value; the year-five value exceeds the deferred gain. **Figure: Tax due in the year of sale on a $10 million gain, North Carolina resident** (illustrative) - Federal $2,380,000 + North Carolina $349,000 if not invested: 2729000 $ - Federal capital gains tax (20%) deferred to year five: -2000000 $ - Net investment income tax (3.8%) deferred to year five: -380000 $ - Due in the year of sale with a QOF (North Carolina only): 349000 $ *Investing in a QOF defers the $2,380,000 federal tax but not the $349,000 North Carolina tax, which is due for the year of sale because of the G.S. 105-153.5 add-back. Illustrative; assumptions in the text.* At year five, federal tax applies to $9,000,000 after the 10% step-up, or $2,142,000. North Carolina allows a subtraction for gain it already taxed, so no further state tax is due on the original gain. The step-up never reduces North Carolina tax: the state taxed the full $10,000,000. **Figure: Federal and North Carolina tax on the same gain, by year** (illustrative) - Not invested: due in year of sale: $2,729,000 - QOF: North Carolina tax in year of sale: $349,000 - QOF: federal tax at year five: $2,142,000 - QOF: total on original gain: $2,491,000 - QOF: North Carolina tax on 10-year appreciation: $299,000 - QOF: federal tax on 10-year appreciation: $0 *Over the whole holding period, the North Carolina investor pays $2,491,000 on the original gain plus state tax on appreciation that is tax-free federally: about $299,000 on $10,000,000 of growth at an assumed 2.99% rate. Illustrative.* The federal benefit still dominates. Over 10 years the North Carolina resident saves the federal step-up ($238,000), five years of federal deferral on $2.38 million and federal tax on all appreciation ($2,380,000 on $10,000,000 of growth). The state cost of nonconformity is paying the state tax five years early and paying state tax on the appreciation. ## Where are North Carolina's data center markets, and how big are they? North Carolina's data centers cluster in the western Piedmont and foothills (Catawba and Caldwell counties), the Charlotte region, the Research Triangle and, increasingly, rural sites near large power plants such as Richmond County. **Figure: North Carolina data center and Opportunity Zone headline numbers** - 202 of 807: Eligible tracts North Carolina may designate for 2027 - $10B: Amazon's Richmond County campus, announced June 2025, with at least 500 jobs - ~6 GW: Duke Energy's projected large-load demand in its May 2025 forecast, up from 3.9 GW - $21.4M: Added General Fund revenue in FY2026-27 from repealing the data center electricity exemption *Eligible tracts from NC Commerce; Amazon's investment from WFAE; Duke's large-load projection from Canary Media; the repeal's revenue estimate from Data Center Knowledge.[^3][^14][^19][^29]* **Major North Carolina data center markets** | Market | Anchor projects | Notes | | --- | --- | --- | | Catawba County (Maiden, Conover, Hickory, Newton) | Apple's long-running Maiden campus; Microsoft's four-site, $1 billion-plus program across Conover, Hickory, Maiden and Newton[^16] | Microsoft paused and later resumed work; residents near the Conover site have raised noise and dust concerns[^16] | | Caldwell County (Lenoir) | Google's Lenoir campus, with a further $1 billion investment announced in 2025[^17] | Long-established hyperscale site in the foothills | | Richmond County (Rockingham) | Amazon's $10 billion campus, planned at up to 20 buildings[^14][^15] | Rural site about 80 miles east of Charlotte | | Charlotte region | Digital Realty's 156-acre Moores Chapel Road campus, estimated at up to 400 MW[^18] | Up to 3 million square feet in two phases | | Research Triangle | Enterprise and colocation demand around Raleigh and Durham | Durham city and county have paused large new data centers[^24] | Demand comes from hyperscale cloud and AI buildouts, a growing enterprise base in Charlotte and the Triangle, and available land near transmission. Duke's 2025 Carolinas Resource Plan projects net load across its two North Carolina systems rising 16% to 60% over 15 years, much of it from large loads.[^20] ## What data center incentives does North Carolina offer, and do they stack with Opportunity Zones? North Carolina's main incentive is a sales and use tax exemption for data center equipment, and it stacks with the federal Opportunity Zone benefits because the two are independent. A qualifying data center must invest at least $75 million of private funds within five years, and it must offer health insurance to employees and meet county-tier wage standards; the Department of Commerce has estimated the exemptions at roughly $50 million a year.[^12] The 2026 budget repealed the exemption for electricity used at qualifying data centers and eligible internet data centers.[^10][^11] **North Carolina data center tax status, October 2026** | Item | Status | Source | | --- | --- | --- | | Sales tax on data center equipment | Exempt for qualifying data centers ($75 million investment within five years) | WFAE[^12] | | Sales tax on data center electricity | Repealed by Session Law 2026-41; applies to billing periods beginning on or after August 6, 2026 | NCDOR[^10] | | Quarterly reporting of electricity tax | New requirement; first report due October 30, 2026 | NCDOR[^10] | | Future of the equipment exemption | Gov. Stein asked the Energy Policy Task Force to consider overhauling or repealing the exemptions | WUNC[^13] | | Opportunity Zone deferral and exclusion | Federal only; North Carolina adds back | G.S. 105-153.5[^7] | Electricity is now taxed at the combined general rate of 7%, according to EY's summary of the repeal.[^11] For a 100 MW facility, that is a material operating cost the pro forma must carry. The legislature's fiscal staff estimate the repeal raises $21.4 million in FY2026-27, rising to $28.6 million a year by FY2030-31.[^29] Local property tax incentives are negotiated by county and city, usually as performance-based grants rather than abatements. For an Opportunity Zone project, these programs change cash flow, not QOF eligibility. A lower equipment cost reduces the equity the QOZB must deploy under its [working capital safe harbor](https://ozdatacenters.com/guides/opportunity-zone-working-capital-safe-harbor). Compare North Carolina with other states in [state data center incentives and Opportunity Zones](https://ozdatacenters.com/guides/state-data-center-incentives-opportunity-zones). ## How does power work for a data center in a North Carolina Opportunity Zone? Most large North Carolina sites are served by Duke Energy Carolinas or Duke Energy Progress, which plan and build generation under the North Carolina Utilities Commission rather than through a regional wholesale market, and new large loads will soon take service under a dedicated tariff. Duke proposed the tariff in June 2026 to replace one-off confidential service agreements with standard terms, including a minimum bill for at least a decade.[^21] **Duke Energy's North Carolina large-load settlement (filed October 6, 2026; pending NCUC approval)** | Term | Settlement as reported | | --- | --- | | Who it covers | Loads above 50 MW that operate near peak consistently, or any load above 150 MW[^22][^23] | | Minimum bill | 75% of projected demand each month, even if usage is lower[^23] | | Contract term | Long-term contracts reported at 10 to 15 years[^21][^23] | | Dedicated facilities | Paid in full by the customer, with nonrefundable upfront payments[^22][^23] | | Early termination | Damages reported from $25 million to more than $587 million[^22] | | Parties | Duke and the Public Staff, supported by Amazon, Microsoft, Google and Meta; environmental groups did not sign[^22] | For a data center QOZB, these terms fix the cost of reserving capacity. A 75% minimum bill on a 10- to 15-year contract is a large fixed obligation, and it should be underwritten against a signed tenant. Timing is the other issue: the 31-month working capital safe harbor (62 months with sequential plans) has to cover the wait for interconnection and any new generation Duke builds. See [data center power timelines and the Opportunity Zone clock](https://ozdatacenters.com/guides/data-center-power-opportunity-zone-timelines) and [power interconnection for Opportunity Zone data centers](https://ozdatacenters.com/guides/power-interconnection-opportunity-zone-data-centers). ## What should you check before siting a data center in a North Carolina Opportunity Zone? Check the certified zone map, county zoning status, Duke's large-load terms, water and the lease structure. Several jurisdictions have paused data centers in 2026: Chatham County until February 11, 2027 or new rules; Davie County for one year from July 2026; and Durham County for nine months, exempting facilities under 100,000 square feet that use closed-loop cooling and no diesel backup.[^25][^26][^24] **Figure: Siting checklist for a North Carolina Opportunity Zone data center** - [fail] State tax conformity: Add-back of deferred gain and of the 10-year exclusion under G.S. 105-153.5 - [watch] Zone certification: Up to 202 tracts; Treasury certification pending - [watch] Power terms: Duke large-load settlement pending; 75% minimum bill, 10 to 15 years - [pass] Equipment sales tax exemption: Available with $75 million investment within five years - [fail] Electricity sales tax: Exemption repealed for billing periods from August 6, 2026 - [watch] Local approvals: Moratoriums in Chatham, Davie and Durham counties among others - [watch] Lease structure: Single-tenant triple-net leases are not an active trade or business *The federal rules work in North Carolina; the state tax treatment, local approvals and power terms are the watch items. Status as of October 2026.* Water and community impact are now part of every approval, as Durham's exemption for closed-loop cooling shows. Land is plentiful in rural eastern and Piedmont counties, but the largest sites sit near existing transmission and power plants, as Amazon's Richmond County site does.[^15] Fiber is strongest along the I-85 and I-40 corridors. Lease structure is a tax qualification issue. Under the Treasury regulations, merely entering into a triple-net lease is not the active conduct of a trade or business, so a QOZB that owns a powered shell leased to one hyperscaler on triple-net terms carries risk.[^28] Multi-tenant colocation, operator services or a QOZB that runs the facility are more defensible. See [powered shell and triple-net data centers in Opportunity Zones](https://ozdatacenters.com/guides/powered-shell-data-centers-opportunity-zones). ## What does this mean for investors, landowners and developers in North Carolina? - North Carolina residents with capital gains get the full federal benefit but no state benefit: plan for state tax in the year of sale (about $349,000 on a $10 million gain in 2027) and state tax on appreciation at exit. See [Opportunity Zones for investors with capital gains](https://ozdatacenters.com/guides/opportunity-zones-for-investors). - Residents of conforming states investing in a North Carolina data center fund generally get deferral and exclusion at home, because the residence state usually controls the treatment of the original gain. - Nonresidents should ask how the fund plans to exit. If it sells North Carolina property rather than fund interests, North Carolina may tax nonresident partners on gain sourced to the state, and the §1400Z-2(c) add-back could apply. This is our analysis, not settled guidance, so confirm it with your tax adviser. - Landowners with sites near Duke transmission in nominated tracts should confirm the certified map and county zoning before marketing land. See [Opportunity Zones for landowners](https://ozdatacenters.com/guides/opportunity-zones-for-landowners). - Developers should price the electricity sales tax and the large-load minimum bill into the pro forma, and favor counties with clear data center ordinances over those with pauses. > North Carolina's 2027 zones are not final until Treasury certifies them, and Duke's large-load settlement is not effective until the Utilities Commission approves it. Rates and figures here are as of October 22, 2026. ## Common questions **Does North Carolina tax capital gains invested in an Opportunity Zone fund?** Yes. North Carolina requires residents to add back gain deferred under the federal Opportunity Zone rules in the year of sale, and to add back appreciation excluded after a 10-year hold. A later subtraction prevents the deferred gain from being taxed twice. **How many Opportunity Zones will North Carolina have in 2027?** Up to 202. North Carolina has 807 eligible census tracts, 431 rural and 376 non-rural, and may nominate 25% of them. The zones take effect January 1, 2027 once Treasury certifies them. **What is North Carolina's income tax rate on capital gains?** North Carolina taxes capital gains at its flat personal income tax rate: 3.99% for 2026 and 3.49% for 2027 through 2029 under Senate Bill 257. **Do North Carolina data centers still get a sales tax exemption?** On equipment, yes, for qualifying data centers that invest at least $75 million within five years. The exemption for electricity was repealed in 2026 and applies to billing periods beginning on or after August 6, 2026. **What is Duke Energy's large-load tariff in North Carolina?** A settlement filed October 6, 2026 would cover loads above 50 MW at high load factor or above 150 MW, with a 75% minimum bill, long-term contracts and early termination damages. It needs Utilities Commission approval. **Is an Opportunity Zone fund still worth it for a North Carolina resident?** Often, because the federal benefits are much larger than North Carolina's tax. On a $10 million gain, federal deferral, the 10% step-up and the 10-year exclusion are worth far more than the roughly $349,000 of state tax due up front. ## Sources [^1]: U.S. Government Publishing Office (GovInfo), "26 U.S.C. 1400Z-2, Special rules for capital gains invested in opportunity zones" (n.d.). https://www.govinfo.gov/link/uscode/26/1400Z-2 [^2]: Internal Revenue Service, "Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill" (2026). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill [^3]: North Carolina Department of Commerce, "Opportunity Zones in North Carolina" (2026). https://www.commerce.nc.gov/data-tools-reports/opportunity-zones-north-carolina [^4]: North Carolina Department of Commerce, "NC Commerce extends public comment period to help identify new Opportunity Zones in North Carolina" (2026). https://www.commerce.nc.gov/news/press-releases/2026/06/04/nc-commerce-extends-public-comment-period-help-identify-new-opportunity-zones-north-carolina [^5]: Axios Raleigh, "North Carolina prepares for Opportunity Zone 2.0 and the investment it could bring" (2026). https://www.axios.com/local/raleigh/2026/07/16/north-carolina-opportunity-zone-designation-nomination-projects-investment [^6]: Internal Revenue Service, "Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill" (2025). https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-opportunity-zone-investments-in-rural-areas-under-the-one-big-beautiful-bill [^7]: North Carolina General Assembly, "G.S. 105-153.5, Modifications to adjusted gross income" (n.d.). https://www.ncleg.gov/enactedlegislation/statutes/pdf/bysection/chapter_105/gs_105-153.5.pdf [^8]: North Carolina Department of Revenue, "Important Notice: North Carolina's Reference to the Internal Revenue Code Updated, Impact on 2017 and 2018" (2019). https://www.ncdor.gov/taxes-forms/information-tax-professionals/tax-bulletins-directives-and-other-important-notices/important-notices-and-frequently-asked-questions-personal-taxes/important-notice-north-carolinas-reference-internal-revenue-code-updated-impact-2017-and-2018 [^9]: EY Tax News, "North Carolina law progressively lowers personal income tax rate over several years" (2026). https://taxnews.ey.com/news/2026-1630-north-carolina-law-progressively-lowers-personal-income-tax-rate-over-several-years [^10]: North Carolina Department of Revenue, "Important Notice: Repeal of Exemptions for Electricity Used at Datacenters" (2026). https://www.ncdor.gov/taxes-forms/sales-and-use-tax/other-sales-and-use-tax-resources/important-notices-issued-sales-and-use-tax-division/important-notice-repeal-exemptions-electricity-used-datacenters [^11]: EY Tax News, "North Carolina repeals sales and use tax exemption for electricity used at qualifying data centers" (2026). https://taxnews.ey.com/news/2026-1662-north-carolina-repeals-sales-and-use-tax-exemption-for-electricity-used-at-qualifying-data-centers [^12]: WFAE, "Data centers in NC don't pay taxes on supplies" (2026). https://www.wfae.org/2026-04-22/data-centers-nc-dont-pay-taxes-on-supplies [^13]: WUNC, "Gov. Stein asks energy task force to consider overhaul or elimination of NC's data center tax breaks" (2026). https://www.wunc.org/economy/2026-04-08/gov-stein-energy-task-force-overhaul-data-center-tax-breaks [^14]: WFAE, "Amazon announces $10 billion data center in Richmond County" (2025). https://www.wfae.org/business/2025-06-04/amazon-announces-10-billion-data-center-in-richmond-co [^15]: DatacenterDynamics, "Amazon breaks ground on $10bn data center complex in Richmond County, North Carolina" (2026). https://www.datacenterdynamics.com/en/news/amazon-breaks-ground-on-10bn-data-center-complex-in-richmond-county-north-carolina/ [^16]: WFAE, "What happens when a data center moves into your backyard" (2026). https://www.wfae.org/energy-environment/2026-07-13/what-happens-when-a-data-center-moves-into-your-backyard [^17]: DatacenterDynamics, "Google pledges $1bn investment in North Carolina data centers" (2025). https://www.datacenterdynamics.com/en/news/google-pledges-1bn-investment-in-north-carolina-data-centers/ [^18]: DatacenterDynamics, "Digital Realty files to develop 400MW data center campus in Charlotte, North Carolina" (2025). https://www.datacenterdynamics.com/en/news/digital-realty-files-to-develop-400mw-data-center-campus-in-charlotte-north-carolina/ [^19]: Canary Media, "As data centers go up, North Carolina weighs how to handle energy demand" (2025). https://www.canarymedia.com/articles/utilities/north-carolina-duke-plans-data-center-demand [^20]: Office of the Governor of North Carolina, "North Carolina Energy Policy Task Force 2026 Report" (2026). https://governor.nc.gov/documents/files/nc-energy-policy-task-force-2026-report/open [^21]: Canary Media, "Duke Energy proposes special rules for data centers in North Carolina" (2026). https://www.canarymedia.com/articles/data-centers/duke-energy-proposes-special-rules-for-data-centers-in-north-carolina [^22]: WUNC, "Duke Energy comes to an agreement on long-sought large load tariff for data centers in North Carolina" (2026). https://www.wunc.org/2026-10-07/duke-energy-comes-to-an-agreement-on-long-sought-large-load-tariff-for-data-centers-in-north-carolina [^23]: Axios Raleigh, "Duke Energy strikes deal with data center giants" (2026). https://www.axios.com/local/raleigh/2026/10/07/duke-energy-agrees-on-new-rules-for-large-energy-users-like-data-centers [^24]: WUNC, "Durham County data center moratorium" (2026). https://www.wunc.org/environment/2026-08-26/durham-county-data-center-moratorium [^25]: Chatham County, "Data Centers (Planning special topics)" (2026). https://www.chathamcountync.gov/government/departments-programs-i-z/planning/special-topics/data-centers [^26]: WFAE, "Davie County passes one-year data center moratorium" (2026). https://www.wfae.org/2026-07-07/davie-county-passes-one-year-data-center-moratorium [^27]: JLL, "North America Data Center Report Midyear 2026" (2026). https://www.jll.com/en-us/insights/market-dynamics/north-america-data-centers.html [^28]: Electronic Code of Federal Regulations, "26 CFR 1.1400Z2(d)-1, Qualified opportunity funds and qualified opportunity zone businesses" (n.d.). https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR39acf18047a56c8/section-1.1400Z2(d)-1 [^29]: Data Center Knowledge, "NC Ends Data Center Power Tax Break, Keeps Capital Incentives" (2026). https://www.datacenterknowledge.com/regulations/nc-ends-data-center-power-tax-break-keeps-capital-incentives