Opportunity Zones Enter Transition Phase, Putting Pressure on 2026 Exit and Development Timing

Short summary

IRS Notice 2026-40 establishes transition rules for Opportunity Zone investments moving from the original 2017 framework into the revised regime, creating a split system for legacy and new investments. Investors face a key tradeoff: reinvesting triggered QOF gains resets the 10-year holding period for exclusion of post-acquisition appreciation, while the December 31, 2026 inclusion date remains fixed. Projects relying on phased development must have a written working capital plan and meet specific capital thresholds by year-end 2026 to keep future phases within the OZ regime.

• •IRS Notice 2026-40 resets reinvestment mechanics: reinvested QOF gains start a new 10-year holding period rather than continuing the original investment
• •December 31, 2026 deferred-gain inclusion date is unchanged and cannot be re-deferred
• •Phased development projects need a written working capital plan by end of 2026 to keep future phases qualifying as OZ business property

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