IRS Provides Transitional Guidance for Qualified Opportunity Zones
The IRS issued Notice 2026-40 to provide transitional guidance regarding the Qualified Opportunity Zone (QOZ) program under Sections 1400Z-1 and 1400Z-2 of the Internal Revenue Code. The notice outlines key planning opportunities for investors before December 31, 2026—the deadline by which deferred gains must be included in income or reinvested into a Qualified Opportunity Fund (QOF). This guidance addresses how existing rules apply to investments made under the original QOZ program and transitions them into the new framework established by The One Big Beautiful Bill Act of July 2025, known as the 'second tranche' beginning January 1, 2027. The notice clarifies that previously designated QOZs will not count against the 25% limitation for future designations starting in 2027. It also confirms that gains realized and reinvested into a QOF by December 31, 2026 are subject to existing rules but must be included in income no later than that date unless an earlier inclusion event occurs. The guidance ensures continuity of tax deferral benefits for qualifying investments while preparing the market for new regulations expected from the IRS. The transitional framework aims to prevent regulatory gaps between the first and second phases of QOZ programs, offering clarity on how deferred gains will be treated as the program evolves.
Topics: IRS_guidance qualified_opportunity_zones Tax_Cuts_and_Jobs_Act