A Preview Of OZ 2.0

OZ 2.0 is officially on the horizon, and in this special live-recorded panel from OZ Pitch Day, Jimmy Atkinson is joined by Catherine Lyons and Jason Watkins to break down what the next era of Opportunity Zones will look like. Together, they discuss new benefits, rural incentives, and how states and investors are already preparing for the January 2027 launch.

Guests: Catherine Lyons & Jason Watkins

Opportunity Zone Maps

About The Opportunity Zones Podcast

Hosted by OpportunityZones.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Episode Summary

Jimmy opens the session by welcoming attendees to the OZ Pitch Day afternoon panel, describing it as a preview of OZ 2.0. He introduces the two panelists: Catherine Lyons, Senior Director of Policy and Coalitions at the Economic Innovation Group, and Jason Watkins, a partner at Novogradac & Company and chairman of both the Novogradac Opportunity Zones Working Group and the upcoming Novogradac OZ Summit in Las Vegas. Jimmy notes that many presenters on Pitch Day are still raising capital for OZ 1.0 projects, but a growing number of attendees are asking what OZ 2.0 will mean, when it takes effect, and what benefits it will offer.

Catherine’s Overview of OZ 2.0

Jimmy turns to Catherine for a quick overview of OZ 2.0. She explains that the One Big Beautiful Bill Act passed earlier in the summer made Opportunity Zones a permanent part of the tax code, giving investors and communities long-term certainty. OZ 2.0 represents the next phase as the program transitions from the original experimental period into permanence.

Catherine outlines several key features. The core benefits remain: tax deferral, step-up in basis, and permanent exclusion of gains after a long-term hold. But OZ 2.0 introduces a rolling deferral period tied to each investor’s investment date, lasting five years, eliminating the fixed backstop date that existed under OZ 1.0. A standard five-year hold provides a 10% basis step-up, with stronger benefits for rural investments. The 10-year hold requirement for permanent exclusion remains unchanged.

She also explains that the new OZ map goes into effect on January 1, 2027, with a redesignation every ten years. Governors will again nominate eligible tracts, selecting up to 25% of their eligible low-income census tracts. Catherine notes that rural zones receive enhanced benefits under OZ 2.0, including tripling the standard step-up from 10% to 30% for rural investment holds.

Investor and Fund Manager Questions in the Transition

Jimmy moves to Jason for insight into what investors and fund managers are asking during this transition from OZ 1.0 to OZ 2.0. Jason says the biggest questions involve how ongoing OZ 1.0 projects will continue to qualify as the current designations begin expiring, as well as how investors can position themselves to take advantage of the new benefits beginning January 1, 2027. His working group recently submitted a lengthy recommendations letter to Treasury addressing these issues.

Jason reports growing interest in rural investments due to OZ 2.0’s enhancements. Under OZ 2.0, an investment made on or after January 1, 2027 receives a 30% basis step-up for rural projects after the five-year deferral period, compared to 10% for non-rural projects. He also highlights the reduced substantial improvement test for rural properties, which is already in effect: rural projects only need to increase basis by 50% rather than the prior 100% requirement.

The Updated OZ 1.0 Rural Map

Jimmy shares on-screen the updated map at OpportunityZones.com showing which existing OZ 1.0 tracts the IRS has designated as rural. In the Dallas–Fort Worth region, for example, blue tracts represent non-rural zones and orange tracts show rural zones eligible for the reduced substantial improvement requirement. Jimmy notes that this rural designation matters immediately, because that reduced test is already active, while the 30% basis step-up will not be available until January 1, 2027.

Jimmy asks Catherine what impact she expects the rural enhancements to have. Catherine says states are already showing substantial interest, especially in areas where rural economic development strategies are in place. She emphasizes, however, that rural projects still face infrastructure and capacity challenges, and OZs alone won’t solve those issues. Still, because the official rural definition is broad, encompassing any area outside cities or towns with population over 50,000 and their adjacent urbanized areas, roughly 38% of OZ 1.0 tracts qualify as rural. She notes that many of these tracts lie on the edges of metro areas and may be attractive locations for industrial or commercial projects.

Novogradac’s OZ 2.0 Eligibility Map

Jimmy next shares Novogradac’s preliminary map of tracts likely to be eligible for OZ 2.0. Jason explains that the map is based on American Community Survey data from 2019–2023, with updated ACS data expected December 11. That update is likely to form the official eligibility dataset for governors during the nomination process. Jason describes the map’s color coding: purple for likely-eligible non-rural tracts, green for likely-eligible rural tracts.

He explains that OZ 2.0 eligibility rules tighten income requirements, reducing the area median income threshold from 80% to 70% and removing the contiguous tract option that existed in OZ 1.0. As a result, Jason estimates that the total number of zones will decline by 25–30% compared to OZ 1.0. He also notes that OZ 1.0 designations continue through the end of 2028, meaning there will be a two-year overlap with new OZ 2.0 designations starting January 1, 2027.

Preparing for the 2027 Redesignation

Jimmy reminds attendees that the official designation period begins July 1 of next year and lasts 90 days, with a possible 30-day extension. Governors, the mayor of Washington, D.C., and territorial executives—including Puerto Rico—will all nominate new OZ 2.0 designations.

Jimmy asks Catherine what activity has already begun ahead of that process. Catherine explains that state policymakers are far more informed this time around than they were in early 2018, when many were unaware of the OZ provision. EIG is already fielding inquiries, partnering with national organizations, and preparing a guidance document for governors detailing lessons learned from OZ 1.0, including examples of successful selection strategies. She emphasizes that states should be preparing now rather than waiting until July.

Q&A Highlights

Jimmy then addresses audience questions. When asked whether there are meaningful differences between EIG’s eligibility map and Novogradac’s, Catherine says both organizations relied on the same data and assumptions, and the maps should largely align apart from visual presentation.

Another question asks whether metros might lose eligible tracts if governors shift emphasis toward rural areas. Jason and Catherine agree it will vary state by state, depending on each administration’s economic development priorities. Catherine notes that states like Colorado heavily emphasized rural tracts in OZ 1.0 and succeeded because they paired designations with technical assistance and marketing resources.

Closing and About the Organizations

Before concluding, Jimmy asks Catherine and Jason to briefly describe their organizations’ roles. Catherine explains that EIG’s OZ Coalition represents a broad spectrum of OZ stakeholders and informs both regulatory efforts and legislative improvements. Jason describes the Novogradac Opportunity Zones Working Group as a coalition of practitioners, funds, and OZ businesses focused on best practices and regulatory advocacy, including multiple forthcoming comment letters. He also promotes the upcoming Novogradac OZ Summit on December 3 in Las Vegas.

Jimmy thanks both guests, shares their LinkedIn profiles and the summit registration link (including discount code OZ10), and closes the session before moving on to the next OZ Pitch Day presentation.