The federal Opportunity Zone (OZ) program has been fundamentally transformed. After years of uncertainty about the program’s future and persistent criticism that it failed to deliver meaningful investment to rural communities, Congress enacted sweeping changes as part of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. The program is now permanent, redesigned, and—for the first time—provides meaningful incentives specifically targeting rural investment.
For businesses, developers, and investors in Maine and New Hampshire, this transformation creates a timely and significant opportunity. Governors across the country—including here in the region—must submit new zone nominations to the U.S. Treasury by late September 2026 (with an extension available to October 28, 2026), with new designations taking effect January 1, 2027. The decisions made in the coming months will shape private investment patterns for an entire decade. This update reflects both the OBBBA itself and the additional procedural guidance issued by the IRS in early April 2026 (Rev. Proc. 2026-12), which provides the official nomination procedures, eligible tract data, and key deadlines that will govern the redesignation process.
What Changed: OZ 2.0 at a Glance
The program is now permanent
Under the original 2017 Tax Cuts and Jobs Act, the OZ program was scheduled to sunset. The OBBBA eliminates that expiration entirely. Going forward, zones will be redesignated every ten years on a rolling basis, with the first new cycle beginning July 1, 2026. This permanence removes a major source of investor hesitation and allows for long-term planning that was previously impossible.
A new focus on rural communities
Perhaps the most important change in OZ 2.0 is the explicit prioritization of rural investment—an acknowledgment that the original program largely bypassed rural areas. Data from the first round showed that roughly 75% of OZ investment flowed to urban areas, and a significant share of rural zones received little or no capital at all. The new rules are designed to change that dynamic in several concrete ways:
- Enhanced basis step-up for rural funds: Investors in Qualified Rural Opportunity Funds (QROFs)—funds that invest at least 90% of their assets in rural zones—receive a 30% basis step-up on deferred gains after five years, compared to only 10% for standard zones. This meaningfully increases the after-tax return on rural investments.
- Reduced “substantial improvement” threshold: For rural properties, the amount an investor must put into improvements is cut in half—from 100% of the property’s adjusted basis to 50%. This makes rehabilitation of rural buildings and facilities economically viable in ways it simply was not before.
- Mandatory rural representation: At least 25% of each state’s designated zones must be located in rural areas.
- Rural defined broadly: A “rural area” is any community that is not a city or town of 50,000 or more people, or contiguous to one—which encompasses a wide swath of northern New England.
Redesignation: A once-in-a-decade decision
Rev. Proc. 2026-12, issued by the IRS on April 6, 2026, provides the official mechanics of the redesignation process. Based on 2020–2024 American Community Survey data, Treasury has identified 25,332 population census tracts nationally that are eligible for nomination as 2027 QOZs—of which 8,334 are comprised entirely of rural areas. A public online mapping tool is being developed by Treasury that will allow anyone to see the location of every eligible tract and key demographic data, including rural designation status.
Governors have a 90-day window beginning July 1, 2026 to submit nominations, with a base deadline of September 28, 2026. A 30-day extension is available upon request, pushing the outer deadline to October 28, 2026. Importantly, governors may submit and modify nominations during the window—they are not required to submit everything at once—which creates real opportunity for advocates and project sponsors to engage with their governor’s office throughout the summer. Any modification request after October 28, 2026 will be denied.
Each governor may designate up to 25% of their state’s eligible low-income census tracts. Eligibility criteria have also tightened under OZ 2.0: tracts must now fall below 70% of the relevant median family income (down from 80% under prior law), or alternatively, have a poverty rate of at least 20% and a median family income no greater than 125% of the area median. The contiguous tract exception—which previously allowed higher-income tracts adjacent to qualifying ones to be included—has been eliminated entirely.
Importantly, existing OZ 1.0 designations are not automatically carried over. Communities that were previously designated will need to independently qualify and be renominated under the new criteria to remain in the program past 2026. The new 2027 QOZ designation period runs from January 1, 2027 through December 31, 2036.
One additional avenue worth noting: Rev. Proc. 2026-12 confirms that Treasury will consider nominations of tracts not on the official eligible list, provided the governor’s submission is accompanied by a detailed analysis—using current census-tract-level data—demonstrating the tract meets the LIC requirements. This is a meaningful opening for communities that may fall just outside the published criteria but can marshal data to support their case.
Other key program updates
- Rolling five-year deferral: For investments made after December 31, 2026, capital gains are deferred for five years from the date of investment—a rolling window rather than the prior fixed deadline. This removes pressure to invest at the start of a cycle and gives flexibility throughout the decade.
- Streamlined step-up schedule: The prior 10%/15% tiered step-up is simplified and, importantly, made more powerful for rural investments. Here is how the mechanic works: when an investor rolls a capital gain into a QOF or QROF, they defer paying tax on that gain for five years. At the five-year mark, the amount of the original gain that is subject to tax is permanently reduced—by 10% for a standard QOF, or by 30% for a Qualified Rural Opportunity Fund. In practical terms: an investor who deferred a $500,000 gain into a standard QOF would ultimately owe tax on $450,000 of that original gain; the same investor in a QROF would owe tax on only $350,000—a $75,000 difference in taxable income before accounting for any appreciation. The additional step-up at seven years that existed under the prior law has been eliminated, but the enhanced rural step-up more than compensates for that change.
- Gains exclusion preserved: The signature benefit of the entire program—exclusion of all appreciation on a QOF or QROF investment held at least ten years—remains fully intact. This means that any growth in the value of the investment itself, above and beyond the original deferred gain, is never taxed.
- New reporting requirements: Qualified Opportunity Funds now face enhanced annual reporting obligations, including data on assets, investment amounts, employment, and housing. Non-compliance can carry penalties of up to $50,000. These requirements are in effect now, for tax years beginning after July 4, 2025.
A Rural OZ Investment in Practice
To illustrate how these incentives work together, consider the following hypothetical scenario.
The Project: Workforce housing in a rural New England town
A local developer in a small northern New England town—call it a community of 4,000 people—has identified a need for 40 units of workforce housing. Land is available, the project is economically viable, but conventional financing alone leaves a gap. The community is in a census tract that qualifies as a low-income community under OZ 2.0 eligibility criteria, and the governor nominates it as part of the new designation cycle effective January 1, 2027.
The Participants
- The Developer / Sponsor: A regional developer who has identified the project, controls the site, and will manage construction and operations. The developer forms a Qualified Rural Opportunity Fund (QROF) as the investment vehicle—typically organized as an LLC or partnership—and contributes the project entity as a Qualified Opportunity Zone Business.
- The Investors: A small group of four to six individuals or entities, each of whom has recently realized a capital gain—perhaps from selling a business, a piece of real estate, or a block of appreciated stock. Each investor has 180 days from the date of that sale to roll the gain proceeds into the QROF and lock in deferral. In this example, the fund raises $2 million in total equity, with investors contributing between $250,000 and $500,000 each.
- The Fund: The QROF itself is the legal entity that holds the investment. It must deploy at least 90% of its assets into qualified rural opportunity zone property within defined timeframes. The fund files its own annual returns and is subject to the new reporting requirements.
The flow of capital
Each investor contributes their deferred gain proceeds to the QROF. The fund, in turn, capitalizes the project LLC that owns and develops the 40-unit housing community. Combined with conventional debt financing, the $2 million in OZ equity covers a meaningful share of the project cost and allows the development to move forward on terms that would otherwise not pencil out.
The back-end benefits to investors
The OZ structure rewards patient capital. Here is what each investor stands to receive over the life of the investment, using $500,000 as an illustrative contribution:
- At investment (Year 0): The investor defers the $500,000 capital gain entirely. No tax is owed at the time of contribution. The investor’s clock starts running.
- At Year 5: The 30% QROF step-up applies. The investor’s deferred taxable gain is reduced from $500,000 to $350,000. When the deferred gain eventually comes due, the investor owes tax only on $350,000—permanently sheltering $150,000 from taxation.
- At Year 5 (deferred gain recognized): Under the rolling five-year deferral structure, the original deferred gain is recognized and taxed in the year following the five-year anniversary of investment. At that point, the investor pays capital gains tax on the reduced $350,000 amount. Using a combined federal and state effective rate of approximately 25%, that is roughly $87,500 in tax on a gain that was originally $500,000—a significant deferral and reduction.
- At Year 10 or beyond (exit): When the QROF investment is sold or the fund winds down, any appreciation in the value of the investment above the investor’s original basis is completely excluded from income. If the $500,000 investment has grown to $800,000, the $300,000 of appreciation is never taxed—at the federal level or, in most states, at the state level either.
In addition to the investor benefits, the community gains 40 units of much-needed workforce housing, and the developer gains access to patient equity that conventional financing cannot provide. That alignment of private return and public benefit is precisely what the program is designed to create—and why the rural enhancements in OZ 2.0 matter so much for communities like those across northern New England.
How We Can Help
At Bernstein Shur Strategic Economic Solutions, we are deeply familiar with how the Opportunity Zone designation process works—and how to use it strategically. Taylor Caswell was personally involved in designating New Hampshire’s original Opportunity Zones in his prior role with the State, and he brings that firsthand understanding of the state and federal process to our client work.
As the former Commissioner for economic affairs, Taylor acknowledges that the first round of OZ designations did very little for rural New Hampshire and Maine. Investment that was intended to reach distressed communities often landed in areas that were already on an upward trajectory, while genuinely rural and economically struggling places saw little benefit. The 2025 reforms are a direct response to those shortcomings, and the redesignation process is an opportunity to do better this time—if the right tracts are nominated and the right projects are positioned to attract investment.
If you have a specific project—a manufacturing facility, mixed-use development, agricultural or energy venture, housing project, or other business investment—that could benefit from OZ designation in your community, now is the time to act. With the nomination window opening July 1 and the ability to submit and modify nominations throughout the summer, there is a real opportunity to engage early and meaningfully with the governor’s office. And for communities that may not appear on Treasury’s published list of eligible tracts, the revenue procedure leaves open a path to nomination supported by a detailed data analysis—something we can help prepare.
We can assist clients with:
- Evaluating whether a specific project location is eligible for designation under OZ 2.0 criteria, including tracts that may not appear on Treasury’s published eligible list
- Advising on strategies for advocating to state officials for particular census tract nominations, including engagement during the modification window
- Structuring Qualified Opportunity Fund investments, including the new Qualified Rural Opportunity Fund structure
- Combining OZ incentives with complementary programs such as state tax credits, EB-5, and bonus depreciation provisions
- Navigating the new and more rigorous reporting requirements
The window for influencing which zones get designated is short, and the impact of those decisions will last a decade. We encourage clients with projects or investments in potentially eligible areas to reach out now.
Taylor Caswell is the Managing Director of Bernstein Shur Strategic Economic Solutions, a new consultancy helping public and private businesses, real estate developers, institutions and nonprofits plan, design, and implement complex economic development projects and growth strategies. The former Commissioner of New Hampshire’s Department of Business and Economic Affairs, Taylor combines high level government experience and economic strategy with practical problem-solving to help clients move transformative initiatives forward, offering expert advice on economic and business development strategy, advocacy and regulatory consulting, public funding, and public-private partnerships. He can be reached at [email protected].