OZ 1.0 vs OZ 2.0

Last updated: March 2026

OZ 1.0 vs. OZ 2.0: What Is the Difference?

The most important rule in the OZ transition: tax treatment is determined by the date the capital is invested into the QOF — not the date the gain was realized. A gain realized in December 2026 can still qualify for OZ 2.0 benefits if the investor waits to fund the QOF until January 2027.

Side-by-Side Comparison

Feature	OZ 1.0	OZ 2.0
Investment date	On or before Dec 31, 2026	On or after Jan 1, 2027
Deferral structure	Fixed — gain recognized Dec 31, 2026	Rolling — gain recognized 5 years from investment date
Tax due date	April 2027	5 years + 1 year after investment date
Basis step-up	0% (impossible to earn before Dec 31, 2026 deadline)	10% after 5-year hold
Rural basis step-up	Not available	30% after 5-year hold via QROF
10-year appreciation exclusion	Available	Available
Depreciation recapture at exit	Eliminated via FMV election	Eliminated via FMV election
Exit window	FMV election through 2047 (original)	Rolling 30-year window from investment date
Zone map	Original 8,764 tracts — valid through Dec 31, 2028	New map ~6,544 tracts — effective Jan 1, 2027
Program permanence	Original sunset provisions	Permanent under OBBBA

The Decision That Drives Everything: When to Fund the QOF

For any investor with a 2026 capital gain, the critical question is: can I delay funding my QOF until January 1, 2027?

If yes, OZ 2.0 benefits apply — including the rolling five-year deferral and the 10% (or 30% rural) basis step-up.

If no — if the 180-day window expires in 2026 — the investor is locked into OZ 1.0 rules with zero basis step-up and a tax bill due in April 2027.

The July 6, 2026 Date

For investors with direct capital gains (stock sales, direct real estate sales):

Gain realized before July 6, 2026: 180-day window expires in 2026. Must invest under OZ 1.0.
Gain realized on or after July 6, 2026: 180-day window extends into January 2027 or later. Investor can choose OZ 2.0.

The K-1 Bridge Strategy

For investors receiving gains through a partnership Schedule K-1:

The 180-day clock can be elected to start on December 31, 2026 or March 15, 2027 — regardless of when the underlying asset was sold during 2026. This means most K-1 investors can delay funding their QOF until January 1, 2027 and capture full OZ 2.0 benefits on a 2026 gain. This is one of the most valuable and least-known planning opportunities in the current transition.

The Two-Year Dual-Map Overlap

The original OZ 1.0 zone map does not disappear when OZ 2.0 launches. The two maps overlap:

New OZ 2.0 map: effective January 1, 2027
Original OZ 1.0 map: remains valid through December 31, 2028

From January 2027 through December 2028, both maps are simultaneously valid. A project in a tract that qualifies under the 2018 map but is removed from the 2027 map still has a two-year window for new investment under OZ 1.0 rules. Sponsors evaluating sites should verify both maps before committing.

What the Zero Basis Step-Up Actually Costs

A worked example on a $1,000,000 capital gain:

Investing in 2026 (OZ 1.0):

Deferred gain recognized: December 31, 2026
Tax due: April 2027 (at 23.8% federal rate = approximately $238,000)
Basis step-up: $0
Original gain eventually taxed: $1,000,000

Investing in 2027 (OZ 2.0, standard zone):

Deferred gain recognized: 5 years from investment date
10% step-up after 5 years: $100,000 of the gain permanently eliminated
Tax eventually paid: on $900,000 instead of $1,000,000 (saving approximately $23,800)
All appreciation after the investment date: excluded from federal tax after 10 years

Investing in 2027 (OZ 2.0, rural QROF):

30% step-up after 5 years: $300,000 permanently eliminated
Tax eventually paid: on $700,000 (saving approximately $71,400)

Frequently Asked Questions

If I realize a gain in 2026, do I automatically get OZ 2.0 benefits? No. The investment date — when you actually fund the QOF — controls which rules apply. A 2026 gain invested before December 31, 2026 falls under OZ 1.0. The same gain invested after January 1, 2027 falls under OZ 2.0.

What if my property is in a zone that gets removed in the 2027 map refresh? Your existing investment is grandfathered. The redesignation does not retroactively disqualify investments made while the tract was designated. New investments in removed tracts may still qualify under the original map through December 31, 2028.

Does OZ 2.0 change the 10-year appreciation exclusion? No. The 10-year exclusion remains unchanged. OZ 2.0 extends the FMV election window to 30 years from the investment date and adds a deemed step-up on the 30th anniversary.