OZ Transition Period
Change note: Corrected designation and post-2026 qualification rules.
Key Takeaways
- • Designation status and qualification of property or equity acquired after 2026 are separate questions.
- • Notice 2026-40 section 5.01 generally applies new applicable-start-date requirements to post-2026 acquisitions, subject to specified transition and ordinary-course exceptions.
- • The December 31, 2026 deemed inclusion does not itself end potential ten-year treatment, but it cannot simply be rolled into a fresh deferral.
How Does the OZ 1.0 to OZ 2.0 Transition Work?
Existing qualifying investments are not retroactively disqualified solely because of a redesignation. That conclusion is different from whether newly acquired property or equity qualifies after 2026. Notice 2026-40 is announced guidance, not final regulations.
Legacy designations and new acquisitions
Do not describe the legacy map as an unrestricted source of new investments through December 31, 2028. Notice 2026-40 section 5.01 generally requires post-2026 acquisitions to meet new applicable-start-date requirements, subject to specified exceptions. Verify designation, acquisition date, and property or equity qualification separately.
Working-capital transition
The section 5.01 transition treatment depends on a written plan in place by December 31, 2026, acquisitions consistent with that plan, at least 10% of estimated working capital received and 5% expended by that date, and applicable binding-agreement treatment. Section 5.01(2)(c) addresses equity acquired pursuant to the plan. The ordinary-course replacement or modernization exception is not a general expansion or new-business exception.
The mandatory December 31, 2026 deemed inclusion in Notice section 4.01 cannot simply be rolled into a fresh deferral, but it does not end potential ten-year benefits. Actual inclusion events differ.