Census Tract Eligibility for OZ 2.0 – Considerations for Urban & Rural Communities

The 90-day period for designation of new Opportunity Zones has been set.  American communities and OZ fund managers shouldn’t wait to tell officials about the potential impact of OZ investments on their areas.

Proponents of Opportunity Zones (OZ) were thrilled by the inclusion of a new OZ initiative as part of the One Big Beautiful Bill Act (OBBBA). Starting in 2027, new zones will be eligible for OZ tax incentives, which will now be a permanent part of the tax code.

A fresh selection process for OZ 2.0 was welcome news for communities that had been left out when the original Opportunity Zones were chosen. New guidance sheds light on how the selection process will work and shows community leaders and fund managers what they can do to affect the process and advocate for their local communities.

How the original Opportunity Zones were selected and what’s different this time

The Opportunity Zones initiative was created as part of the Tax Cuts and Jobs Act of 2017, providing tax incentives for capital gains reinvested in areas designated as Qualified Opportunity Zones (QOZs). State governors could nominate up to 25% of the state’s low-income communities (LIC) to be designated as OZs. In addition, up to 5% of tracts could be those that did not qualify as LICs so long as they were contiguous to a designated LIC tract and had a median income less than 125% of the median income of the adjacent tract. A later rule also designated all LICs in Puerto Rico as QOZs.

The original OZ designations lasted for 10 years, with no renewal, as the initiative was set to expire in 2028. Over the years, OZ tax incentives brought a great deal of investment to designated tracts, but we also saw what was lacking in the original version, as some OZs failed to attract investment.

OZ 2.0 includes a narrower definition for a low-income community. The LIC designation is now limited to census tracts where “the median family income is less than 70% of the metropolitan area’s median family income (for non-metropolitan areas, the standard will be the state median family income). This is reduced from 80% in the original OZ definition.” A census tract can also qualify if it has a poverty rate at or above 20% and a medium family income less than 125% of the metropolitan area or statewide median family income. In addition to eliminating contiguous tracts, OZ 2.0 also ends the special rules for Puerto Rico.

New QOZ designations will take effect on Jan. 1, 2027, and will be valid for 10 years, with new zones selected for 2037. New information from the IRS informs stakeholders of exactly how and when the first round of QOZs will be chosen.

What IRS guidance says about how new Opportunity Zones will be selected

According to an IRS release, the Chief Executive Officer (CEO) of each state, the District of Columbia, and U.S. territories will select Opportunity Zones from a list of eligible tracts: “Beginning on July 1, 2026, and lasting a period of 90 days, subject to a single 30-day extension, State CEOs will begin nominating eligible census tracts to be designated as QOZs. Following the nomination process, the Secretary of the Treasury will certify and designate the nominated census tracts as QOZs.”

25,332 census tracts have been identified as LICs eligible for nomination. Of these, 8,334 qualify as rural areas (more on the special rules for rural zones later). Revenue Procedure 2026-14 states that “the number of population census tracts in a State that may be designated as QOZs may not exceed, during any QOZ designation period, 25 percent of the number of LICs in the State.” If the number of LICs is not divisible by four, they will round up to the next whole number. In addition, “if a State contains fewer than 100 LICs for a designation period, then a total of 25 LIC tracts may be designated. For example, a State with 24 LICs may nominate all of those 24 LICs.”

State CEOs will have 90 days to make their selections using the Treasury Department’s online nominating tool and can “make multiple submissions of nominations of eligible population census tracts rather than submitting all nominations at once.” Once a list is submitted, it is not final until the end of the 90-day period: CEOs can “modify previously submitted nominations as long as the modifications are received by the end of the 90-day period.” If more time is required, “the State CEO may request, and receive, a 30-day extension of this deadline, which would conclude, at the latest, on October 28, 2026.”

One area of emphasis for OZ 2.0 was driving investment to rural areas, which had struggled to attract projects in OZ 1.0. The new initiative does this by offering enhanced tax incentives for investments in rural OZs, along with changes to the substantial improvement threshold.

According to a release on rural zones, “a rural area means any area other than a city or town with a population greater than 50,000, and any urbanized area contiguous and adjacent to a city or town with a population greater than 50,000.”

The enhanced tax incentives should make rural projects more attractive to prospective investors. To take advantage of this increased interest, communities and fund managers need to make sure that their areas are designated as QOZs.

What communities can do to encourage their inclusion as Opportunity Zones under the new initiative

Communities that hope to attract OZ investment should not simply rest on their laurels and hope to be selected. These tracts will last for 10 years, and as we saw with OZ 1.0, communities that fail to achieve OZ designation can miss out on a great deal of economic impact.

The good news is that there’s no mystery about who will be making the decisions. Community stakeholders, business leaders, and local public officials can advocate for their areas to the state CEO. And since the list of selected tracts can be updated at any time during the 90-day period, that’s 90 full days that can be used to the fullest.

Even if a community doesn’t find itself on the current list of eligible tracts, there’s no reason to give up hope. As Rev. Proc. 2026-14 explains, “there may be population census tracts that could be eligible for nomination as a QOZ that do not appear on this list. The Secretary will consider a State CEO’s nomination of a population census tract not listed in the Appendix or Information Resource to the extent that the nomination is accompanied by a detailed analysis, including current data collected at the census tract level, demonstrating the nominated population census tract satisfies the requirements.”

Providing this data and analysis to the state CEO could go a long way toward convincing the CEO and Secretary of the Treasury that the community deserves consideration. Another thing communities can do is present specific projects that will come to fruition once OZ 2.0 begins in 2027.

What Opportunity Fund managers can do in advance of census tract selection

There are plenty of deserving communities in the U.S. that could benefit from OZ investment, many of which will not receive designation. But as we saw with OZ 1.0, some communities that received designation weren’t able to attract investment. What’s required is not only a need for impact, but a viable project that can create that impact. The OZ fund managers sourcing these projects can do a lot to advocate for their census tracts.

By showing the state CEO a specific project that has been economically evaluated, fund managers can join with community leaders to demonstrate that investment will come, that the project will get off the ground, and that the community will receive the desired benefit if it is allowed to do so. If the state CEO has to choose between two underserved areas, one of which has a viable shovel-ready project, it should be an easy choice between the two.

Beyond project financials, fund managers can demonstrate the projected impact of a project on the local community. Data on job creation, affordable housing, salaries, infrastructure, and other downstream effects could be the deciding factor. To accurately calculate this impact requires an understanding of the latest metrics, comparable projects, and how impact can affect different communities in different ways.

During the first iteration of Opportunity Zones, JTC made a name for ourselves through social impact reporting. Though not required under law, our impact reports were a game-changer for fund managers who wanted to show impact investors that their projects were bringing positives changes to American communities.

In addition to bespoke impact reporting tailored to the unique objectives of each Qualified Opportunity Fund, JTC also works with other types of impact funds, and provides project evaluations for impact sectors like EB-5, allowing us to bring new perspectives on measuring impact to the OZ space. When presenting your project to investors, community stakeholders, or public officials, use the latest data techniques to show you care about the impact that can be created when dedicated fund managers apply themselves to OZ.

Learn more about JTC’s OZ services

JTC does not provide legal, tax or investment or other professional advice and, whilst it may review and report upon such advice received, JTC does not give, accept or endorse and should not be understood to be giving, accepting or endorsing such advice.