OZ HQ

2026 Zone Designation Guide

Last updated: March 2026

How Will OZ 2.0 Zone Designations Work?

Beginning July 1, 2026, governors will have 90 calendar days to nominate up to 25% of their state's eligible low-income census tracts for Opportunity Zone status. The U.S. Treasury then has 30 days to certify each state's nominations. Certified designations take effect January 1, 2027 and remain in place for 10 years through December 31, 2036. These designations cannot be revised once certified.

The Designation Timeline

Eligibility Criteria Under OZ 2.0

Census tracts must meet at least one of these thresholds to be eligible for designation:

For metropolitan tracts, the benchmark is the metro area's median family income. For non-metropolitan tracts, the benchmark is statewide median family income.

These tightened criteria reduce the eligible pool of tracts from approximately 8,764 under OZ 1.0 to roughly 6,300 under OZ 2.0, a reduction of approximately 20%. The reduction varies significantly by state. Louisiana and New Mexico are expected to see slight increases. States in the upper Midwest face the steepest reductions.

What Changed From OZ 1.0 Designations

The OBBBA tightened eligibility in three important ways:

1. Lower income threshold. The MFI cutoff dropped from 80% to 70% of the relevant benchmark, removing some higher-income-adjacent tracts that drew criticism under OZ 1.0.

2. Contiguous zones eliminated. Under OZ 1.0, a tract could qualify if it was adjacent to a qualifying low-income tract, even if the tract itself was not low-income. OZ 2.0 eliminates this provision entirely. Every designated tract must qualify on its own merits.

3. Governors must be more selective. With approximately 20% fewer eligible tracts, governors have less room for political allocation and more pressure to designate tracts with genuine investment potential.

What Makes a Good OZ Tract

The Economic Innovation Group (EIG) identifies three tests that effective OZ tracts should pass:

The community test: Areas that genuinely need new investment to grow and diversify their economies.

The market test: Areas that, with the incentive's help, have a reasonable chance to attract private capital and put it to productive use.

The policy test: Areas where state and local policies are investment-friendly and conducive to economic development.

In practice, the tracts that attracted the most OZ investment under 1.0 shared specific characteristics: they were zoned for multifamily or mixed-use development, contained underutilized land with latent potential, and had reasonable growth prospects. Census tracts zoned exclusively for single-family housing rarely attracted meaningful OZ capital.

The Two-Year Dual-Map Overlap

The OZ 1.0 map does not disappear when OZ 2.0 launches. From January 1, 2027 through December 31, 2028, both maps are simultaneously valid. A project in a tract that appears on the original 2018 map but is removed from the 2027 map can still attract new OZ investment under OZ 1.0 rules, as long as the investment is made before December 31, 2028.

For sponsors evaluating sites in late 2026 or 2027, verifying status on both maps is essential.

Rural Designation Considerations

Under OZ 1.0, rural areas represented one-third of designated tracts but captured only one-tenth of investment, approximately $6.1 billion through 2022. OZ 2.0 adds enhanced incentives to close this gap:

A "rural area" is defined as any location outside a city or town with a population greater than 50,000.

These incentives create real opportunity, but governors should avoid over-designating rural tracts solely because of the enhanced benefits. The investor base remains thin in many rural markets, and the usual market hurdles, limited infrastructure, workforce constraints, still apply.

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