The one question that decides it
Ashley boils it down this way: "For all intents and purposes, the only difference between 1.0 and 2.0 is when you put your money in and whether or not you are going to be redesignated as a zone." The date the fund was formed does not matter. The date of your investment does.
For the full background on the new law, see What is OZ 2.0? This page is the side-by-side.
Side by side
| OZ 1.0 | OZ 2.0 | |
|---|---|---|
| Which money | Invested in a fund through December 31, 2026 | Invested on or after January 1, 2027 |
| Deferral ends | December 31, 2026, or an earlier sale or inclusion event | Five years after you invest, or an earlier sale |
| Gain reduction | 10% at five years and 5% more at seven, only if reached by December 31, 2026. In practice, gone for new money | 10% at five years, or 30% in a qualified rural fund |
| Tax-free growth | After 10 years. Protected for sales through December 31, 2047 | After 10 years. Value is frozen at the 30th anniversary if you hold longer |
| The map | Zones designated in 2018, in effect through December 31, 2028 (2027 in Puerto Rico) | New zones every ten years. The first set runs January 1, 2027 to December 31, 2036 |
| Income test for a zone | Poverty rate of 20% or more, or median family income at or below 80%. Some contiguous tracts allowed | Median family income at or below 70%, or 20% poverty with income at or below 125%. No contiguous tracts |
| Property must be bought after | December 31, 2017 | The zone's start date, January 1, 2027 for the first new zones |
| Rural | 50% improvement test in rural zones since July 4, 2025. No extra reduction | 50% improvement test and the 30% reduction for a qualified rural fund |
| Reporting | Every fund files Form 8996 and every investor files Form 8997. The statute's new business-level reporting and daily penalties reach tax years beginning after July 4, 2025, for 1.0 and 2.0 funds alike. The IRS has not yet issued the forms or final rules | |
What OZ 1.0 still has going for it
For new money, the deferral and step-ups under 1.0 are effectively gone. What 1.0 still offers is location. Many original zones were picked under a looser income test and the 2010 census, and some will not qualify again. In Ashley's words, "The one thing that tips the scales in favor of 1.0 is that you've got a lot of tracts that were designated based upon the 2010 census."
Projects in those tracts can keep going. Notice 2026-40 says the IRS intends to propose rules under which property a business already holds, ordinary-course replacements, and property bought under a qualifying plan can keep being treated as in a zone for the use test through December 31, 2047. New property bought after 2026 in an original zone that is not on the new map generally needs a written working capital plan adopted by December 31, 2026, with 10% of the capital received and 5% spent or under contract by then. See the working capital plan deadline.
These rules come from IRS Notice 2026-40, which describes regulations the IRS plans to propose. Confirm the current status with your advisor before acting.
Moving from one to the other
- A 2026 gain from a sale on or after July 9, 2026 can wait and go into a fund in January 2027 under OZ 2.0. Sales on July 6 to 8 are a close call. See Can a 2026 gain use OZ 2.0?
- The gain original investors recognize on December 31, 2026 cannot be rolled into a new fund.
- Recognizing that gain does not end the ten-year clock on the original investment.
- Under the rules the IRS has announced it will propose, interests bought after 2026 under a qualifying working capital plan would be treated as meeting the new date rules. For other new money into a project in a tract that is not on the new map, the rules are less settled. Get advice before you rely on it.
Eligible is not the same as designated
Treasury published a list of eligible tracts. Governors nominate up to 25% of the eligible tracts in their state, and Treasury certifies them. Only certified tracts are OZ 2.0 zones. As Ashley says, "Eligible does not mean designated." Check any address on the OZ 2.0 map before you plan around it, and book a 15-minute call if your project sits in a tract that may not carry over.