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Experts: Opportunity Zones 2 adds rural incentives, reporting and narrows eligibility — what local leaders should know
Summary
Novogradic and EIG speakers explained that OZ2 makes the tax incentive permanent, introduces a rolling five-year deferral, adds reporting rules, narrows tract eligibility (an estimated 20–25% reduction), and increases rural benefits (a cited 30% partial forgiveness after five years for rural investments starting 2027).
Kevin Wilson, a partner at Novogradic, and Kenan Vickery, senior fellow at the Economic Innovation Group, used GoBiz’s OC2 webinar to explain how federal changes in Opportunity Zones 2 alter investor incentives and what local leaders should emphasize when nominating tracts.
Wilson described three core investor benefits under OZ2: a gain-deferral gateway (now simplified to a rolling five-year deferral), a partial forgiveness of deferred gains after five years that is larger for rural investments, and potential tax-free treatment of new gains after a 10-year hold. "The incentive was made a permanent part of the tax code," Wilson said during his presentation. He added that the statute’s eligibility criteria were tightened, which he estimated will result in about 20–25% fewer eligible census tracts under the new rules.
On rural incentives, Wilson said OZ2 raises the partial forgiveness for rural investments: "starting 01/01/2027, 30% would not be subject to tax" after five years for rural investments versus 10% for nonrural investments, and the substantial-improvement threshold for rural property was reduced to encourage investment in lower-density areas. Wilson also cautioned that IRS Revenue Procedure 2026-14 published a list of eligible tracts but "some of those tracts that are not on the list might still meet the statutory eligibility criteria" because of missing population data or large margins of error in income estimates.
Vickery focused on where OZ capital has flowed and how communities can use the incentive. Citing Treasury data through 2022, he said roughly $100 billion has been invested through qualified opportunity funds nationally and about $9.5 billion was invested in California in the program’s first five years. He said OZ investments have most commonly translated into new or substantially rehabilitated multifamily rental housing, adaptive reuse and commercial real estate, and that designated tracts have in many places shown accelerated housing-unit growth after designation.
Practical guidance: both presenters urged states and localities to combine quantitative screening with on-the-ground qualitative knowledge (zoning, shovel-ready sites, planned public investment) when selecting tracts. Vickery recommended a three-part test — community need, market attractiveness and policy readiness — and shared case studies demonstrating how partnerships and prepackaging deals can help attract OZ capital.
What to watch: Wilson highlighted the new reporting requirements directing Treasury to publish annual data on OZ investment location, volume and impacts, which is intended to improve transparency and allow states and communities to assess outcomes.
