Opportunity Zones: How Census Tract Changes Affect Eligibility and Planning

For many Opportunity Zone (OZ) investors and Qualified Opportunity Fund (QOF) managers, the next few years won’t just be about tax benefits — they’ll be about timing, documentation, and defensible decisions. 

There’s now initial transition guidance addressing how OZ 1.0 investments, projects, and compliance requirements interact with the permanent OZ framework beginning in 2027. 

Although the U.S. Department of Treasury and the IRS still intend to issue proposed regulations, the guidance establishes important rules for post-2026 investments, property acquisitions, working capital plans, and continued compliance in previously designated zones. 

This is a moment where clarity matters — not just on what the rules say, but on how they apply to your specific project, fund structure, or investment timeline. Learn why understanding the interaction between OZ 1.0 and OZ 2.0 designations is essential for OZ investment planning, QOF operations, and project execution.

Background: Opportunity Zones and changing census tracts 

OZ designations were originally established in 2018 based on then‑existing census tract boundaries. Although the 2020 Census introduced renumbering and boundary updates, the IRS confirmed OZ eligibility continues to follow the original 2018 tract lines. Updated census maps alone don’t change a tract’s OZ status.

Separately, the One Big Beautiful Bill Act, enacted in 2025, established a permanent Opportunity Zone framework effective beginning January 1, 2027. New QOZ designation periods generally will run for 10 years, with the first new designation period running from January 1, 2027, through December 31, 2036.

Planning through the OZ transition

As the program evolves, an overlap period is approaching from January 1, 2027, through December 31, 2028. 

The IRS transition guidance confirms previously designated OZ 1.0 tracts generally remain designated through December 31, 2028, while the first OZ 2.0 designation period begins January 1, 2027. Puerto Rico tracts deemed designated under the original statute expire one year earlier, on December 31, 2027.

The overlap doesn’t mean all post-2026 investment or property acquisition in an OZ 1.0 tract will continue to qualify. Property acquired after December 31, 2026 generally must be located in an OZ 2.0 tract unless it qualifies under the transition rules for certain pre-2027 working capital plans or ordinary-course replacement and modernization property.

The transitional guidance resolves several significant questions about legacy tracts, including:

• Expiration dates of OZ 1.0 designations
• Treatment of property acquired after 2026
• Continued application of certain QOF and QOZB compliance rules after a designation expires

Nevertheless, fund sponsors and project operators must carefully document how each post-2026 acquisition qualifies, particularly where a project is located in an OZ 1.0 tract that’s not redesignated under OZ 2.0.

OZ transition frequently asked questions

If you’re actively managing or considering an OZ investment, consider:

• Is the project located in an OZ 1.0 tract, an anticipated OZ 2.0 tract, or both?
• Will the QOZB acquire tangible property after December 31, 2026?
• If post-2026 property will be acquired in an OZ 1.0-only tract, does the project satisfy the transition rule for a written working capital plan?
• Was the written plan adopted by December 31, 2026?
• Has the QOZB received at least 10% of the total estimated working capital assets identified in the plan by December 31, 2026?
• Has the QOZB expended at least 5% of those estimated working capital assets by December 31, 2026, including qualifying amounts subject to a binding agreement entered into before January 1, 2027?
• Are future property acquisitions substantially consistent with the written plan?
• Are later QOF equity contributions tied to cash needed to complete the project contemplated by the qualifying plan?
• Does anticipated post-2026 property represent project expansion, which generally doesn’t qualify under the ordinary-course replacement exception, or replacement and modernization necessary to continue existing operations?
• Are fund documents, capital-call provisions, budgets, development schedules, and investor disclosures consistent with these transition requirements?

The transitional guidance requires:

• A qualifying plan to be adopted by December 31, 2026
• Relevant acquisitions to be substantially consistent with the plan
• At least 10% of the estimated working capital assets to be received by year-end
• At least 5% to be expended by year-end 
• Amounts required to be spent under a binding pre-2027 agreement count toward the expenditure requirement

Current interpretation: Continuing validity of OZ 1.0 tracts

For OZ 1.0 tracts, eligibility continues to be determined using the tract numbers and boundaries in effect when those tracts were designated. Guidance confirms 2020 Census changes don’t shrink, expand, or otherwise modify the boundaries of a previously designated QOZ. 

It also confirms the OZ 1.0 designation period ends December 31, 2028 for previously designated tracts outside Puerto Rico. Puerto Rico tracts deemed designated under the original statute expire December 31, 2027.

Updated Census geography doesn’t alter the boundaries of OZ 1.0 tracts. However, the designation period itself isn’t indefinite. OZ 1.0 designations generally expire at the close of December 31, 2028, with the applicable Puerto Rico designations expiring at the close of December 31, 2027. 

Interaction between OZ 1.0 and OZ 2.0

Beginning in 2027, OZ 2.0 will create a new designation cycle rather than automatically extending the OZ 1.0 map. 

Some OZ 1.0 tracts may also be designated under OZ 2.0, but prior designation doesn’t guarantee redesignation. Investors, QOFs, and QOZBs should separately verify the tract’s status under each designation cycle. This is especially important for tangible property acquired after December 31, 2026 because property in an OZ 1.0-only tract generally won’t qualify as QOZ business property unless a transition exception applies. 

Transitional guidance provides two principal pathways for certain property acquired after December 31, 2026 in a previously designated OZ 1.0 tract that is not redesignated under OZ 2.0:

Property acquired under a qualifying written working capital plan

• The plan must be adopted by December 31, 2026
• The acquisitions must be substantially consistent with the plan 
• The QOZB must receive at least 10% of the plan’s total estimated working capital assets by December 31, 2026
• The QOZB must expend at least 5% of the total estimated working capital assets by that date
• Certain amounts required to be expended under a binding agreement entered into before January 1, 2027 are treated as expended

Ordinary-course replacements and modernization

Property necessary to replace or modernize existing tangible business property may qualify if the other QOZ business property requirements are met. The exception doesn’t cover property acquired to expand the business or transition into a new trade or business.

These rules are illustrated through examples involving a warehouse expansion, apartment-unit replacements, restaurant modernization, and a multiyear mixed-use development plan. New Qualified Opportunity Zone guidance addresses post-2026 property acquisitions, written working capital plans, gain recognition, and ongoing compliance.

How CLA can help with Opportunity Zone planning

Opportunity Zones were designed to encourage long-term investment, but long-term strategies still need to adapt as rules evolve. With overlapping designations and shifting census data, many investors are taking a closer look at how their current approach holds up under different scenarios.

CLA’s tax professionals can help investors and Qualified Opportunity Fund managers evaluate eligibility questions arising from census‑tract updates, model the implications of the 2026 inclusion year, and prepare for OZ 2.0’s enhanced reporting and redesignation requirements. 

If you’re weighing how these changes intersect with an existing or planned OZ investment, a brief conversation can help clarify your next steps. 

Contact us

Take a closer look at Opportunity Zone planning needs and strengthen your strategies across the lifecycle. Complete the form below to connect with CLA.