The original OZ 1.0 census tracts are designated through the end of 2028, but IRS Notice 2026-40 gives projects in tracts that are not re-designated during the OZ 2.0 cycle only until the end of 2026 to qualify. Novogradac partner Jason Watkins, chairman of the Novogradac Opportunity Zones Working Group, joins the show to discuss that transition guidance, Treasury's request for comments in Notice 2026-55, and the proposed rules on new QOF and QOZB reporting requirements.
Plus, Jason previews the Novogradac 2026 Opportunity Zones Conference, October 29 and 30 in Washington, D.C., and explains why he expects the first half of 2027 may deliver the largest two quarters of OZ investment ever.
Guest: Jason Watkins
Discussed on This Episode
- Novogradac 2026 Opportunity Zones Conference (Use promo code OZCOM26 to save 10%)
- Novogradac Opportunity Zones Working Group
- OZ Insiders dinner in Washington DC
- IRS Notice 2026-40
- IRS Notice 2026-55 (Comments due November 23, 2026)
- IRS Notice of Proposed Rulemaking on OZ Reporting (Comments due October 26, 2026)
- OpportunityZones.com OZ 2.0 State Tracker
- Novogradac QOF Equity Raising Data Thru June 30, 2026
- Treasury WP-128: Use of the Opportunity Zone Tax Incentive through 2024
- Executive Order 14394: Removing Regulatory Barriers to Affordable Home Construction
Episode Summary
OZ 2.0 Nominations Hit Their First Deadline
Monday, September 28 was the original due date for states to submit their Opportunity Zone nominations to the Treasury Department. Jason described the state nomination processes as a whirlwind over the last three months, with Treasury now starting to look at what the states have submitted. The location of all OZ 2.0 census tracts may not be known until the end of November (or later). More information on the timeline is available here: OZ 2.0 Nominations: Where Things Stand After the 90-Day Deadline
Notice 2026-40 and the OZ 1.0 Transition
Jason walked through Notice 2026-40, issued in June, which spells out what an Opportunity Zone business must do for tangible property acquired in an OZ 1.0 census tract that is not ultimately re-designated to qualify. The business must be legally formed with a working capital safe harbor written plan and schedule in place. By the end of 2026, it must have raised at least 10 percent of that capital and spent 5 percent of the total projected capital to construct the project, either actually spent or under a binding commitment to spend. That leaves barely three months to qualify one of these projects.
Jimmy said he feels Treasury pulled the rug out on OZ 1.0, since Congressional intent was for the OZ 1.0 tracts to remain Opportunity Zones through the end of 2028. Jason noted the House version of the One Big Beautiful Bill Act cut off the tracts in 2026, but the Senate got rid of that provision, and he doesn't think many people expected a 2026 cutoff. Many deals expected to close in 2027 can't shoehorn into the safe harbor, so there's going to be less investment. Jimmy added that sponsors still don't know which sites will be OZ 2.0 tracts, which has led to confusion and pausing in the marketplace.
Notice 2026-55 Reopens the Regulations
Jimmy praised Treasury for Notice 2026-55, the request for additional comments on issues under 1400Z-2. Jason said its question of whether existing guidance should be retained, modified, or supplemented tells him Treasury is willing to look at about anything in the current regulations.
The first big topic is whether the OZ incentive can expand investment in single-family home construction, following Executive Order 14394. Treasury wants legal analysis supporting regulations that would make the interim gain issue a non-issue for Opportunity Zone businesses developing and selling single-family homes to homeowners, not to corporations. The notice also asks whether a business should be allowed to modify its working capital safe harbor, something the Novogradac Opportunity Zones Working Group has recommended for several years, and how to encourage more investment in operating businesses. Comments are due November 23.
The 10-Year Hold Problem for Operating Businesses
Jason explained that the private equity and venture capital investors who typically back operating businesses don't have a 10-year hold strategy. The long-term fix he described would let those investors defer any gain from selling a business after a couple of years, as long as they put all the proceeds back into other Opportunity Zone investments, like a 1031 exchange for operating businesses instead of real estate. He added that the tangible property requirements in the regs make it very difficult, if not impossible, for an existing operating business to expand using OZ capital. Jimmy said a few tweaks could put Opportunity Zones on steroids in a good way.
New Reporting Requirements for QOFs and QOZBs
The notice of proposed rulemaking on information reporting interprets the One Big Beautiful Bill Act's new reporting requirements. From the statute, QOFs knew they would report the type of business invested in, the number of full-time equivalent jobs, and the number of housing units created. Treasury added new data points, including whether an Opportunity Zone business is utilizing a working capital safe harbor, and the start date for substantially improving tangible property, which it has 30 months to do.
The big news item for Jason is the due date. For a December 31 year-end, an Opportunity Zone business must report all of this information to the QOFs invested in it by February 1, under penalty of perjury, when many have not even finished closing their books. Jason expects a revised Form 8996 but has not seen a draft yet.
First-Ever Rules for QOF Decertification
Jason said there have never been any rules around decertification before. The proposed regs require contemporary documentation at the fund level, potentially retroactive to all of 2026. Because decertification is an inclusion event that gives investors a new 180-day period, a fund needs to tell investors right away so they can re-defer the gain. He called it welcome news.
Fundraising Flattens Ahead of 2027
Jason said Novogradac's survey captures roughly a third of the marketplace, and its most recent quarter is one of the lowest quarters of fundraising ever. That is completely expected, because the 5-year deferral and basis step up aren't available for investments made today but are for investments made in January. He fully expects the first half of 2027 to be the largest two quarters of investment ever. Jimmy noted Treasury reported $112 billion of investment through 2024, and Jason said Treasury's actual data has always been three times what Novogradac's surveys show.
Novogradac, the Working Group, and the Conference
Novogradac is a national full service accounting firm specializing in place based tax incentives, including Opportunity Zones. Jason described the Novogradac Opportunity Zones Working Group, started in 2017 and now in its 10th year, as a collection of stakeholders on the front lines of helping craft proposed regulations and developing best practices used by funds.
The Novogradac 2026 Opportunity Zones Conference runs October 29 and 30 at the Fairmont in Georgetown, with two half-day workshops on October 28. Jason expects legal, accounting, and consulting professionals, big funds, investors, and people from HUD, Treasury, and the Council of Economic Advisors, calling it probably the most heavily attended event since the first one. OZ Insiders will be hosting a dinner on October 28 just down the street from the conference venue. Jimmy will sign copies of The Opportunity Zones Playbook at the OpportunityZones.com exhibit booth.
The OpportunityZones.com audience can save 10 percent on registration with promo code OZCOM26.