Key insights
- If your business can meaningfully root its workforce, operations, and assets in an Opportunity Zone, OZ 2.0 may offer a powerful way to attract investment while supporting long-term growth and job creation.
- The Opportunity Zone program is no longer temporary, giving operating businesses and investors a more predictable framework for planning expansion, raising capital, and pursuing long-term projects.
- For many operating businesses, the biggest qualification hurdle is the 50% gross income test, but several safe harbors can provide practical paths to meeting the requirement.
- Rural businesses may have some of the most significant opportunities under OZ 2.0, thanks to enhanced tax benefits and incentives that can make expansion or relocation more financially attractive.
Learn how OZ 2.0 can help your business grow.
While Opportunity Zones (OZ) are often associated with real estate projects, the updated rules may create meaningful opportunities for operating businesses as well. With the One Big Beautiful Bill Act (OBBBA) making OZs a permanent part of the tax code, businesses and investors now have a more predictable framework for long-term planning.
Manufacturers, distributors, technology companies, health care providers, and other businesses rooted in their communities could benefit from new investment, expanded growth plans, and enhanced incentives for rural areas.
If your business is considering expansion, a new facility, or outside investment, now is a good time to understand how OZ 2.0 works, what has changed, and whether your operations could qualify.
A quick refresher on OZ 2.0
Signed into law on July 4, 2025, OBBBA converted OZs from a temporary, sunsetting experiment into a permanent fixture of the Internal Revenue Code.
The mechanics investors have come to know remain largely intact: Capital gains are reinvested into a Qualified Opportunity Fund (QOF), which in turn invests in qualifying property or businesses within a designated zone.
But several features have been streamlined or enhanced for investments made on or after January 1, 2027:
- A permanent program. The December 31, 2026, sunset is gone. New zones will be redesignated by governors every 10 years, with the first new map taking effect January 1, 2027.
- A rolling five-year deferral. Instead of a fixed 2026 recognition date, under §1400Z-2(b) as amended, the trigger is the earlier of (i) disposition of the QOF interest, or (ii) the fifth anniversary.
- A cleaner basis step-up. Investments held at least five years receive a 10% basis step-up (30% for a qualifying rural fund), and appreciation is still excluded from tax after a 10-year hold.
- A rural emphasis. New Qualified Rural Opportunity Funds offer triple the step-up and a reduced substantial-improvement threshold — a meaningful detail for businesses in smaller communities.
- Tighter zones and real reporting. Eligibility standards are stricter, and funds and the businesses they invest in now face detailed annual reporting requirements, with penalties for noncompliance.
- For post-2026 investments under OBBBA, the FMV basis election on a sale after year 10 is now capped at the fair market value on the 30th anniversary of the investment. If a QOF interest is held past year 30, gain accruing after that date is no longer sheltered.
What’s kept operating businesses from attracting Opportunity Zone capital?
If the incentive was built with jobs in mind, why has so little money followed?
The various surveys and studies on the split between real estate and non-real estate deals don’t all agree on the precise numbers, but they point to the same conclusion: Most OZ investment is real estate, with non-real estate operating businesses drawing only a modest share.
The shortfall comes down to two things: risk and testing requirements.
Operating businesses often represent a higher-risk investment
Real estate offers something tangible. An investor generally gets back at least what was put in, and the asset tends to grow in value over time precisely because there’s a physical property behind it — and because value is relatively easy to monitor.
Operating businesses are a different proposition. The money can go in and, if the venture fails, there’s rarely a hard asset to fall back on. That means meaningfully higher risk — though, just as importantly, meaningfully higher potential return.
Compounding the issue is a matter of sequence: The infrastructure typically must come first. You generally need the real estate — a building, a facility, a desirable place to operate in — before an operating business can locate and thrive inside a zone.
Testing requirements aren’t always straightforward
To qualify as a Qualified Opportunity Zone Business (QOZB), a company must satisfy several tests, and not all of them carry equal weight.
The 70% tangible property test is rarely the sticking point — for real estate and operating businesses, it’s generally manageable. The real hurdle is the 50% gross income test, which requires at least half of the business’s gross income to be derived from the active conduct of its trade or business within the zone.
For real estate, that’s comparatively easy: The property sits in the zone and doesn’t move, so the income is plainly earned there. For an operating business, revenue can be generated in many ways and through many channels, and tying that income back to a specific qualifying zone tract can be genuinely difficult.
The encouraging news is this isn’t a dead end — several safe harbors give a taxpayer practical paths to meet the 50% gross income test.
How businesses qualify for OZ benefits
The typical structure is a two-tier arrangement: Investors put capital into a QOF, and the QOF acquires an interest in a lower-tier operating entity known as a Qualified Opportunity Zone Business (QOZB).
The QOF must hold at least 90% of its assets in qualifying property, tested twice a year, and its interest in a properly qualified QOZB counts toward that test. The work, then, is at the operating-company level.
To be — and remain — a QOZB, a trade or business generally must satisfy each of the following.
The 70% tangible property test
At least 70% of the tangible property the business owns or leases must be Qualified Opportunity Zone Business Property (QOZBP).
To count as QOZBP, the property must be:
- For OZ 2.0 investments made after December 31, 2026, the acquisition date for QOZBP is tied to the Opportunity Zone's applicable start date rather than December 31, 2017. For most zones designated in the first decennial cycle, the applicable date will be January 1, 2027, making the 2017 date irrelevant for the new program.
- Either put to original use in the zone or substantially improved (its adjusted basis doubled within 30 months, though a rural zone requires only a 50% increase to basis)
- Used substantially all within the zone
- Qualified as QOZBP during substantially all — 90% or greater — of the QOZB’s holding period for the property
The 50% gross income test
At least half of the business’s gross income must come from the active conduct of its trade or business within the zone. This is often the most challenging test for an operating business.
The 40% intangibles test
At least 40% of the business’s intangible property must be used in the active conduct of its trade or business in the zone, keeping the enterprise genuinely connected to the community rather than parked there on paper.
The less-than-5% nonqualified financial property test
The test is that less than 5% of the average of the aggregate unadjusted bases is nonqualified financial property, which is where the working capital safe harbor becomes essential.
The excluded “sin” businesses
Certain businesses — such as golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, gambling facilities, and liquor stores — are ineligible.
4 ways to satisfy the 50% gross income test
Because the 50% gross income test is so often the deciding factor for operating businesses, it’s worth a closer look. At least half of the QOZB’s total gross income must be derived from the active conduct of a trade or business in the OZ.
The regulations offer four ways to get there — three bright-line safe harbors and, if none applies, a facts-and-circumstances analysis.
Safe harbor 1 — The hours test
At least 50% of the total hours worked by the QOZB’s employees and independent contractors occur within the OZ.
Safe harbor 2 — The compensation test
At least 50% of the total compensation the QOZB pays to those workers — employees and independent contractors alike — is for services performed within the OZ.
Safe harbor 3 — The tangible property and management test
Tangible property located in the zone and the management or operational functions performed in the zone are each necessary to generate at least 50% of the business’s gross income.
Facts and circumstances
Where no safe harbor is satisfied, the QOZB may still qualify by demonstrating, based on all the facts and circumstances, that at least 50% of its gross income is derived from the active conduct of its trade or business in the zone.
How OZ 2.0 can benefit operating businesses
The new rules are especially friendly to the long, patient timelines operating businesses require.
Because the five-year deferral now runs from the date of investment rather than a fixed calendar deadline, an investor backing a manufacturer or a growing service company is no longer penalized for a multi-year buildout. The rolling structure rewards genuine business growth instead of a race against the clock — exactly the kind of investment horizon a scaling company needs.
Not every enterprise is an equally natural fit, but certain industries tend to align well with the OZ structure.
| Industry | Why it can be a strong OZ fit |
|---|---|
| Manufacturing | Capital-intensive facilities and equipment, with employees often concentrated in a single location |
| Technology | Can qualify when employees, management, and core operations are meaningfully based within the zone |
| Logistics and distribution | Warehouses, transportation assets, and operational staff are typically tied to a physical location |
| Health care | Clinics, specialty practices, and other providers may qualify when they bring needed services and jobs to a community |
Rural Opportunity Zones bring bigger incentives and higher accountability
The rural incentives may be the most compelling development of all for operating companies. Many of the country’s manufacturing plants, food processors, agricultural enterprises, and logistics operations in smaller communities may now fall within rural opportunity zones.
A 30% basis step-up — triple the standard benefit — combined with a lower improvement threshold can materially improve the economics of locating or expanding a business in these areas. In rural communities across the country, where main-street employers often anchor entire towns, that’s a powerful tool for attracting and retaining jobs.
The trade-off is accountability. OBBBA introduced detailed annual reporting for funds and the businesses they hold — asset values, employee counts, wages, locations, and industry codes, among other data — with penalties for failures. For an operating business, this means good recordkeeping is no longer optional; it’s part of preserving the benefit.
The upside is this same data finally lets the program demonstrate what it was built to do: create jobs. Businesses treating compliance as a discipline from day one will be far better positioned than those that treat it as an afterthought.
Example: A rural manufacturer’s path through OZ 2.0
Suppose an investor with a $5 million capital gain backs a metal-fabrication company looking to build a new plant in a rural OZ. The gain is rolled into a Qualified Rural Opportunity Fund, which invests in the manufacturer as a QOZB.
Because the plant doesn’t exist yet, the company adopts a written working capital plan and draws on the safe harbor to hold and deploy the cash over roughly the next two-to-three years while it builds the facility, installs equipment, and hires and trains a local workforce.
Once operating, the business clears the 70% tangible property test easily — its machinery and equipment sit squarely in the zone — and it satisfies the 50% gross income test using the services safe harbors, since substantially all of the hours worked and wages paid are for production performed at the in-zone facility, even though finished goods are shipped to customers across the country.
Hold the investment 10 years and the appreciation comes out tax-free; hold it at least five and the rural 30% basis step-up applies to the original deferred gain. And a rural community that needed jobs now has a new employer — precisely the outcome the program was designed to produce.
How CLA can help with Opportunity Zone planning and compliance
Opportunity Zones have shown they can attract capital. The next chapter is showing they can help businesses grow and create jobs — and OZ 2.0 gives operating companies a more stable, predictable framework to do that.
For manufacturers, distributors, technology firms, and service companies in the communities these zones were designed to help, now’s the time to start planning. Businesses understanding the rules early may be well positioned to put this permanent program to work.
CLA’s Opportunity Zone team helps investors, developers, and project sponsors move from concept to execution with confidence, providing support across the full OZ lifecycle:
- Tax compliance and planning. Preparing and filing required returns, elections, and reporting, and planning proactively to enhance tax advantages — helping to preserve qualifying status and mitigate risk.
- Structuring and advisory services. Designing the two-tier QOF/QOZB arrangement and advising on the qualification tests before capital moves, so the structure is sound from day one.
- Fund administration and fund services. Providing the ongoing administration and operational support a Qualified Opportunity Fund needs to stay compliant and run smoothly.
- Modeling and analysis. Modeling the potential tax benefits and projected outcomes of an opportunity, so investors can weigh the trade-offs and make informed decisions.
- Wealth advisory and management. Helping investors align an OZ strategy with their broader financial picture — coordinating investment, estate, and wealth planning so the tax benefits fit within their long-term goals.