DevelopOhio

The Opportunity Zone program is moving into its next phase, and communities should start preparing now.

Under the One Big Beautiful Bill Act (OB3A), the program is now permanent and will operate on a rolling 10-year redesignation cycle. The next group of Opportunity Zones (OZ) will take effect on January 1, 2027, which means communities and developers have an opportunity to advocate for the inclusion of census tracts when the nomination period opens in Ohio on June 10, 2026.  For our Ohio partners, it is expected that the number of opportunity zones designated within the state will decrease by 20%. This makes having a strategy to secure the nomination of an eligible census tract much more important for communities and developers alike in 2026.

Opportunity Zones: an overview

The federal OZ program is primarily a capital gains reinvestment incentive. In general, a taxpayer that realizes an eligible capital gain may elect to defer recognition of that gain by reinvesting the gain amount into a Qualified Opportunity Fund (QOF) within one hundred eighty (180) days of the date the gain would otherwise be recognized. Eligible capital gains generally include capital gains and qualified §1231 gains recognized for federal income tax purposes.[1] The QOF must then invest in qualifying OZ property, which may include QOZ Stock, QOZ Partnership Interests, or QOZ Business Property (QOZBP, and collectively, with QOZ Stock and QOZ Partnership Interests, “Qualified OZ Property”).[2]

OZ’s are different from many traditional economic development tools. For communities and developers, an OZ designation can become part of the project’s capital formation strategy. The incentive isn’t operated as a direct grant, loan, abatement, or tax credit to the project. Instead, it provides federal capital gains tax benefits to qualifying investors, including deferral and partial reduction of recognized capital gains, and, for investments held at least ten (10) years, exclusion of post-investment appreciation from federal capital gains tax. It is a powerful tool to attract additional equity and potentially expand the pool of investors for your community or project.

Obtaining an OZ designation for a census tract within your community or project creates an investment opportunity that, generally speaking, includes three (3) elements:

1. The investor may defer recognition of the eligible capital gain by investing the gain amount into a QOF within one hundred eighty (180) days. The deferred gain is recognized on the earlier of (i) the fifth (5^th) anniversary of the QOF investment, or (ii) the date the investor disposes of the QOF interest.[3] In practical terms, this deferral functions as an interest-free postponement of the federal tax liability that otherwise would have been due on the original capital gain.[4]
2. If the investor holds the QOF investment for at least five (5) years, the investor is entitled to receive a basis increase equal to ten percent (10%) of the deferred gain, reducing the amount of the original deferred gain that is ultimately taxed. For investments in a Qualified Rural Opportunity Fund the basis increase is thirty percent (30%) of the deferred gain.[5] For example, a $1,000,000 eligible gain invested in a standard QOF would generally result in only $900,000 of the deferred gain being recognized after the five (5) year period; if invested in a Qualified Rural Opportunity Fund, only $700,000 of the deferred gain would generally be recognized after the initial five (5) year investment period.[6]
3. If the investor holds the QOF investment for at least ten (10) years, the investor may elect to step up the basis in the QOF investment to fair market value, thereby excluding post-investment appreciation from federal capital gains tax.[7] This is often the most significant investor-side benefit because the appreciation in the QOF investment itself may be excluded if the holding period and other statutory requirements are satisfied. In practical terms, this means the investor would pay federal capital gains tax only on the reduced deferred gain (after the ten percent (10%) or thirty percent (30%) basis step-up) recognized at year five (5), while any appreciation in the QOF investment itself that accrues during the holding period is permanently excluded from federal capital gains tax upon a qualifying disposition after year ten (10). The exclusion is subject to a thirty (30) year outer limit: for investments held longer than thirty (30) years, the basis step-up is frozen at the fair market value as of the thirtieth (30^th) anniversary of the investment, and any further appreciation after that date would be subject to federal capital gains tax upon disposition.[8]

As mentioned above, the next OZ census tract designation process opens on June 10, 2026, in Ohio, with communities and developers able to submit applications for the designation of census tracts to the Ohio Department of Development. Under OB3A, the Governor has a ninety (90) day window to nominate new census tracts beginning on July 1, 2026 (with a possible thirty (30) day extension), during which eligible census tracts may be nominated for designation as OZs effective January 1, 2027.[9] Nominations are iterative—submissions may be revised during the nomination window—which means project-specific advocacy can influence the final slate of nominations put forth by the Governor’s office this year. Because the designations will remain in place for the next ten (10) years, decisions made during this process will shape where OZ-related investment can occur for the next decade within Ohio.

A practical first step for communities is to identify potentially eligible tracts and then compare those tracts against the community’s development pipeline, or for private developers, whether you’ve got projects located within a potential OZ.

For communities and developers, a well-rounded submission answers the following;  

1. Which tracts include priority sites?
2. Which tracts have active developer interest?
3. Which tracts align with local plans or infrastructure investments?
4. Which tracts could realistically see investment if OZ status is added to the mix?
5. Was this tract previously designated and if so, has it received investment into QOFs?
6. Status of site control, zoning, infrastructure, or planning within the census tract
7. Alignment with local or regional economic development plans
8. Estimated private investment in the tract within the next ten (10) years
9. Potential job creation or retention within the next ten (10) years
10. Support from developers, employers, institutions, or local officials
11. Housing, commercial, industrial, or mixed-use impacts
12. Brownfield or redevelopment opportunities

The most persuasive nominations will connect the dots between eligibility, readiness, and impact. A well-framed submission should include more persuasive information as to why it deserves to be designated as an OZ census tract other than “this census tract qualifies under the revised OZ criteria.” It should include project-ready sites and be positioned to turn designation into private investment and measurable economic development outcomes. State decision-makers will look for tracts where designation can do more than check a statutory box. They will be looking for places where the incentive can help support real activity and help local communities grow.

If you have any questions about Opportunity Zone designations, the nomination process, or how to position your community or project for the next cycle, please contact our Economic Development Services team at Bricker Graydon Wyatt.

[1] 26 U.S.C. § 1400Z-2(a)(1)(A), as amended by OB3A § 70421; Treas. Reg. § 1.1400Z2(a)-1(b)(7), (b)(11) (180-day investment period; eligible gains include capital gains and qualified § 1231 gains).

[2] 26 U.S.C. § 1400Z-2(a), as amended, (d)(2)(A)–(C).

[3] 26 U.S.C. § 1400Z-2(b)(1), as amended by OB3A § 70421, 139 Stat. 72, 225–26 (deferred gain recognized on earlier of 5th anniversary or disposition of QOF interest).

[4] 26 U.S.C. § 1400Z-2(a)(1), (b)(1), as amended by OB3A § 70421.

[5] 26 U.S.C. § 1400Z-2(b)(2)(B)(i)–(ii), as amended by OB3A § 70421(c)(2), 139 Stat. 72, 225–26 (10% basis step-up standard; 30% for Qualified Rural Opportunity Fund).

[6] See 26 U.S.C. § 1400Z-2(b)(2)(B)(i)–(ii), as amended (illustrating basis step-up with $1M example).

[7] 26 U.S.C. § 1400Z-2(c), as amended by OB3A § 70421 (election to step up basis to FMV after ten-year hold).

[8] 26 U.S.C. § 1400Z-2(c), as amended by OB3A § 70421(c) (basis step-up frozen at FMV as of 30th anniversary; appreciation after year 30 is taxable).

[9] 26 U.S.C. § 1400Z-1(c)(2)(B)–(C), as amended by OB3A § 70421(b) (governor nomination process; 90-day nomination window; iterative submissions permitted; possible 30-day extension).