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Opportunity Zones Are Now Permanent. Here's What That Means for 2027.
The One Big Beautiful Bill, signed into law on July 4, 2025, made the Opportunity Zone program a permanent part of the U.S. tax code and introduced a new framework for investors starting in 2027. If you're anticipating a capital gain next year, here's what you need to know.
- Opportunity Zones are now permanent. The One Big Beautiful Bill, signed July 4, 2025, wrote the program into the U.S. tax code and removed its expiration date.
- A new “OZ 2.0” framework begins January 1, 2027, with a zone map redrawn every decade and a rolling five-year deferral on invested gains.
- The 10-year tax-free exit is preserved. Hold a Qualified Opportunity Fund investment at least 10 years and taxes on any profits generated by the fund may be eliminated at the federal level.
- Eligibility tightened. Under the new 70%-of-median income test, 95 census tracts across the San Jose metro qualify as eligible Low-Income Communities—89 of them in Santa Clara County.
See the 95 eligible San Jose-metro tracts on the interactive map ›
What Are Opportunity Zones 2.0?
Opportunity Zones 2.0 is the permanent, reformed version of the federal Opportunity Zone program. It became law through the One Big Beautiful Bill on July 4, 2025, and it governs all new Qualified Opportunity Fund investments made on or after January 1, 2027.
The original Opportunity Zone program was created by the Tax Cuts and Jobs Act of 2017. It allowed investors to defer and potentially reduce federal capital gains taxes by investing in designated communities through Qualified Opportunity Funds. That program was always set to expire. OZ 2.0 changes that.
On July 4, 2025, the One Big Beautiful Bill was signed into law, permanently extending the Opportunity Zone program and reforming several of its key mechanics. For investors with capital gains events in 2027 and beyond, a new set of rules now applies.
The current OZ program remains in effect under its original terms for gains invested before the recognition date. OZ 2.0 governs all new investments made on or after January 1, 2027.
Explore the Eligible Tracts
Under the stricter OZ 2.0 eligibility rules, 95 census tracts across the San Jose metro qualify as eligible Low-Income Communities, 89 of them in Santa Clara County. Use the interactive map below to see exactly where they fall, including which sit within the City of San Jose. Hover over any tract to view its number and detail.
Eligibility data: U.S. Treasury OZ2 eligible-LIC tract list (March 2026). Boundaries: U.S. Census Bureau. Tract eligibility does not guarantee designation; final Opportunity Zones are nominated by states and certified by the U.S. Treasury.
Key Changes Under OZ 2.0
Permanent Status
Opportunity Zone policy is no longer sunset-dated. The program is now a standing component of the tax code, giving investors and developers long-term certainty.
Rolling Five-Year Deferral
Qualifying gains invested after 2026 receive a rolling five-year deferral that begins at the time of investment, not at a single predetermined date.
New Step-Up Schedule
Standard QOF investors receive a 10% basis step-up after five years. Investors in Qualified Rural Opportunity Funds receive a 30% step-up.
10-Year Tax-Free Exit
Under OZ 2.0, investors who hold a QOF investment for at least 10 years may owe no federal capital gains taxes on any profits generated by the fund, subject to individual circumstances.
Zones Redrawn Each Decade
Governors select new Opportunity Zone tracts every 10 years, with the first new designations taking effect January 1, 2027.
Tighter Eligibility
The income threshold for qualifying tracts falls from 80% to 70% of area median family income, and the contiguous-tract exception is eliminated.
How the Tax Benefits Work
Realize a Capital Gain
You sell a stock, a business, real estate, or another appreciated asset and generate an eligible capital gain.
Invest Within 180 Days
You generally have 180 days from your capital gains event to invest those proceeds into a Qualified Opportunity Fund.
Potential Tax Deferral
Your federal capital gains taxes on the original gain may be deferred for five years from the date of your investment.
Potential Basis Step-Up
After five years, you may receive a 10% step-up in the basis of your deferred gain, which could reduce the amount ultimately taxed.
Potential Tax-Free Exit After 10 Years
If you hold your QOF investment at least 10 years, any profits generated by the fund may be excluded from federal capital gains taxes, subject to individual circumstances.
These are potential benefits subject to individual circumstances and applicable tax law. Consult a qualified tax advisor.
What Gains Are Eligible?
To access the potential tax benefits of OZ 2.0, investors must invest capital gains — not ordinary income — into a Qualified Opportunity Fund within 180 days. Common eligible sources include:
Sale of Stock
Company equity, stock options, RSUs, or public market investments.
Sale of a Business
Proceeds from selling a partial or full ownership stake.
Sale of Real Estate
Investment property, commercial real estate, or a primary residence above the exclusion.
Sale of Cryptocurrency
Realized gains from the sale of digital assets.
OZ 2.0 vs. OZ 1.0
| OZ 1.0 (before 1/1/2027) | OZ 2.0 (from 1/1/2027) | |
|---|---|---|
| Program status | Temporary (set to expire) | Permanent |
| Gain deferral | Fixed recognition date | Rolling five-year deferral |
| Basis step-up | 10% at 5 yrs, 15% at 7 yrs (10% ended after 2021; 15% ended after 2019) | 10% at 5 yrs (30% for rural QROFs) |
| 10-year exit | Federal tax-free on any profits generated | Federal tax-free on any profits generated |
| Zone map | Set in 2018, in effect through 12/31/2028 | Redrawn every 10 years from 2027 |
| Reporting | Limited | Expanded transparency requirements |
This comparison is provided for informational purposes only and is not a recommendation or an indication that either framework is more suitable for any investor. Suitability depends on individual circumstances.
Urban Catalyst and OZ 2.0
Urban Catalyst has operated in the Opportunity Zone space since the program's inception, developing a portfolio of ground-up projects in downtown San Jose — including multifamily, hospitality, and more.
As both fund manager and developer, Urban Catalyst controls the full development process, and continues to focus on downtown San Jose as the OZ 2.0 framework takes effect. Any future fund offering would be made only through formal offering documents to eligible investors.
Frequently Asked Questions
Yes. Investors who hold their Qualified Opportunity Fund investment for at least 10 years continue to owe no federal capital gains taxes on any profits generated within the fund. This benefit was preserved in the final legislation.
Under OZ 2.0, your original deferred gain is recognized at the end of the five-year deferral period. At that point you will owe federal capital gains taxes on the deferred amount, less any step-up in basis you have accrued.
No. Investors can live anywhere. The Opportunity Zone designation applies to where the investment is deployed, not where the investor resides.
A 1031 exchange defers gains by reinvesting real estate proceeds into like-kind property. OZ investing is not limited to real estate gains, does not require like-kind reinvestment, and offers a tax-free exit on any profits generated by the fund after 10 years — though you invest in a fund structure rather than controlling a specific property.
Investors have 180 days from the date of their capital gains event to invest those proceeds into a Qualified Opportunity Fund and qualify for the deferral. Some gain types have different timing — consult your tax advisor.
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