The IRS recently issued Notice 2026-40, providing transitional guidance for Qualified Opportunity Zones (QOZs) following changes enacted by the One Big Beautiful Bill Act (OBBBA). The guidance confirms that deferred gains tied to qualifying Qualified Opportunity Fund (QOF) investments made on or before December 31, 2026, generally must be included in income in the tax year that includes December 31, 2026. For qualifying investments made on or after January 1, 2027, the general gain inclusion rule shifts to the tax year that includes the fifth anniversary of the investment.
Pre-2027 QOF Deferral Ends in 2026
If you deferred gains by investing in a QOF before year end 2026, the deferral period ends in the tax year that includes December 31, 2026. Taxpayers should prioritize tax planning, including estimating the 2026 tax impact and planning for liquidity to pay the resulting liability.
Property Aquired After 2026
Notice 2026-40 also addresses property acquired after 2026 in previously designated zones. While post-2026 acquisitions are generally restricted, exceptions may apply for property acquired under certain written working capital safe harbor plans adopted by December 31, 2026, and for ordinary-course replacement or modernization property (but not expansion into a new trade or product line).
Safe Harbors
Finally, the notice provides safe harbors allowing certain compliance tests to continue treating expired zones as QOZs through December 31, 2047.
Please contact us to discuss how these transition rules may affect your investments and tax planning strategy.
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