QOZ 1.0 vs. 2.0: The Investor’s Guide to What’s New, What’s Not, and Where the Opportunity Is

Quick Take: The One Big Beautiful Bill Act overhauled the Qualified Opportunity Zone program in ways that genuinely benefit investors — a rolling five-year deferral of federal taxes, a restored 10% basis step-up, and a permanent program structure. For certain investors with capital gains realized in 2026, those gains can be deployed under QOZ 2.0 rules beginning January 1, 2027. The new law presents a welcome investment opportunity. But the new map — drawn on recent census data under tighter eligibility criteria — raises a question every investor should be asking before committing capital: where, exactly, is the investable opportunity?

QOZ 2.0 — A Permanent Version of 1.0

We have been involved in the QOZ space since the program’s inception in 2017 and have watched each iteration of the rules shape — and in some cases constrain — what the program could actually deliver for investors. The One Big Beautiful Bill Act, signed July 4, 2025, is the most consequential change the program has seen. Gain recognition moves from a fixed calendar date to a rolling five-year clock. The basis step-up is restored. The program is permanent. For investors evaluating QOZ as a 2026 tax planning strategy, the mechanics are worth understanding precisely — because the structural changes materially expand what the program can deliver today.

Under QOZ 2.0, the gain deferral starts on the date of investment. An investor who deploys capital into a qualified opportunity fund in March 2027 defers their gain until March 2032. An investor who deploys in September 2028 defers until September 2033. The deferral period is tied to the investor’s entry date, not to a calendar cliff. That flexibility matters most to investors who cannot control when their gains are realized — those navigating business sales, concentrated stock positions, or gains flowing through partnerships on K-1 schedules.

The 10% basis step-up is restored and made permanent for all QOZ 2.0 investments held at least five years. The additional 5% step-up at seven years — which expired under QOZ 1.0 — has been eliminated. The mechanics are cleaner: hold for five years, reduce the eventual tax bill by 10% of the original deferred gain. Hold for ten years, and appreciation on the QOZ investment itself is permanently excluded from income. That 10-year exclusion is unchanged — it remains the program’s most powerful benefit, and the reason a 10-year hold discipline is non-negotiable.

The program itself is now permanent, with zones redesignated every ten years. The first redesignation cycle is underway — governor nominations run July 1 through September 29, 2026, with Treasury certification expected in late 2026.

Source: One Big Beautiful Bill Act (Public Law 119-21), July 4, 2025; Rev. Proc. 2026-14; Origin Investments analysis. QOZ 2.0 zone count reflects maximum eligible designations under the 25% nomination cap — final map pending governor nominations (July 1–September 29, 2026) and Treasury certification.

Because the 180-day reinvestment window runs from the date of gain realization, investors with capital gains realized in the second half of 2026 who have not yet deployed those gains can qualify for QOZ 2.0 treatment by investing in a qualified opportunity fund beginning January 1, 2027. For gains flowing through pass-through entities — partnerships, S-corps, trusts — investors may also use the last day of the entity’s tax year or the entity’s filing deadline as the start of the 180-day clock, pushing the QOZ 2.0 investment window meaningfully further into 2027.

The New Map Will Make Investing More Difficult

The final QOZ 2.0 designations aren’t published yet — governor nominations close September 29, 2026, with Treasury certification to follow. But the eligibility rules are already in place, and they tell us something meaningful about what the new map will look like.

Under QOZ 1.0, zones were drawn using 2010 census data, and a provision allowed transitional neighborhoods adjacent to distressed areas to qualify even when they themselves no longer met the income threshold. That combination — old data plus geographic flexibility — captured many neighborhoods that were already in the early stages of transformation by the time capital started flowing in 2018 and 2019. Improving demographics, rising rents, new infrastructure — the economic data said distressed. The ground said something different. That gap is where we believe the best QOZ returns may be generated.

The new rules use current census data and eliminate the adjacency provision entirely. A tract that qualifies today is distressed by today’s numbers — which is precisely what the program was designed to target. The question for real estate investors is whether areas that meet the new criteria also carry the demand and rent fundamentals to support institutional-quality development. Present-day economic distress and investable real estate do not always occupy the same geography. We have been investing in transitional multifamily markets since long before the QOZ program existed, and the sites we identified within the 1.0 map reflect that experience. The 2.0 map will require the same discipline — applied to a different and, in most cases, smaller universe of viable sites.

The Opportunity — Where QOZ 1.0 and 2.0 Intersect

The new QOZ 2.0 map will likely make investable opportunities harder to find. But the transition rules create a narrow and potentially powerful opening: QOZ 2.0 capital can be invested into funds that are invested in certain QOZ 1.0 projects that were already identified, acquired, entitled, and structured under the original program. For investors with 2026 capital gains, that combination may be one of the most compelling opportunities the QOZ program has produced — better tax law, QOZ 1.0 geography, and an investment window that opens on January 1, 2027.

The key requirement is Working Capital Safe Harbor (WCSH) compliance. Under IRS Notice 2026-40, a QOZ 1.0 project can accept QOZ 2.0 capital after January 1, 2027, if it has a valid written Working Capital Safe Harbor plan in place by December 31, 2026. The project also must have at least 10% of total estimated working capital received and at least 5% expended — or committed under binding contracts — by that date. A Working Capital Safe Harbor is the IRS-approved mechanism that allows a development project to hold capital as cash during construction without failing QOZ compliance requirements. Projects that meet these conditions can continue accepting QOZ 2.0 capital into QOZ 1.0 sites in accordance with their WCSH plans even after the original zone designations expire.

For existing QOZ 1.0 investors, QOZ 2.0 capital coming into compliant projects is a welcome addition. New investors bringing 2026 gains alongside existing capital helps fully capitalize projects that have been waiting for the right moment to move forward. Deals get started. Development timelines advance. QOZ 1.0 funds and QOZ 2.0 funds may benefit from the same underlying real estate outcome.

Many high-quality QOZ 1.0 development sites were stalled after multifamily headwinds began building in late 2022. Higher construction costs, a wave of new supply, higher interest rates, and expanded cap rates caused many shovel-ready projects to pause until conditions improved. Origin was not immune to that cycle.

With significant capital committed to the QOZ space — ranked 11th out of 993 QOZ fund managers by equity raised, according to Novogradac as of June 30, 2025 — we had to make the same decision every disciplined developer faced: force projects forward into a deteriorating market or wait for a better entry point. We waited.

The market is now showing signs of recovery. Leasing velocity is improving. Occupancy is rising in many markets. New supply is being absorbed. Construction costs and operating expenses have begun to stabilize or decline in select markets, and rent growth is reappearing in places where supply has been digested. QOZ 2.0 adds a second tailwind: new capital with improved tax mechanics that can help bring high-quality QOZ 1.0 projects back into motion.

Sawtell and Edgehill, which we believe are two of the best development sites in their respective markets, are clear examples of projects that will benefit from QOZ 2.0 capital. Origin OZ Funds acquired the land for both projects during the QOZ 1.0 window. Initial work was completed with the intention of developing that land within 30 months of acquisition; however, when rates, cap rates, and construction costs moved against us, we chose patience over forced execution. That discipline now matters. Both sites are positioned in high-conviction neighborhoods and are being structured to satisfy WCSH requirements that will allow them to accommodate QOZ 2.0 capital coming into the market.

We also recently put another QOZ 1.0 deal under contract in Phoenix at the former Paradise Valley Mall site. We have been pursuing an opportunity there since 2023. Paradise Valley is one of the highest-income submarkets in the Phoenix metro, with median household income of approximately $247,000 — more than double the Phoenix metro and national averages, according to U.S. Census data.¹ The site is part of a planned $2 billion mixed-use redevelopment, and we are actively structuring it to enable QOZ 2.0 capital investment.

The opportunity is not simply that QOZ 2.0 created better tax mechanics. The opportunity is that those mechanics may now be applied to select QOZ 1.0 sites that were already acquired, entitled, and patiently held through a difficult cycle. That is where the QOZ 2.0 law and QOZ 1.0 geography intersect.

Sawtell — Atlanta, Georgia

Chosewood Park sits approximately two miles southeast of the Atlanta CBD, directly along the Atlanta BeltLine — 22 miles of trails, transit, and parks that have become the most significant driver of neighborhood transformation in the American South. A decade ago this corridor was industrial and underserved. Today it is one of Atlanta’s most actively sought addresses, with new restaurants, retail, and residential demand following the trail in both directions. The QOZ 1.0 designation here was drawn on 2010 census data — which means it captured this neighborhood at exactly the right moment, before the transformation was reflected in the numbers.

Edgehill — Nashville, Tennessee

The Gulch is what happens when a city’s industrial past becomes its most coveted urban address. A former rail yard sitting just west of downtown Nashville, it has spent the past decade transforming into one of the Southeast’s most-watched live-work-play districts — drawing Amazon, Oracle, and Asurion as anchor employers and generating some of the strongest multifamily demand fundamentals in the region. Edgehill sits at the edge of that corridor, perched on a hill with sweeping views of the Nashville skyline and walkable access to everything the Gulch has produced.

PV Mall — Phoenix, Arizona

The former Paradise Valley Mall site represents a different kind of opportunity. This is not a transitional neighborhood story — it is a large-format redevelopment in one of the highest-income submarkets in the Phoenix metro, bordering the Town of Paradise Valley and the Scottsdale city limits. The $2 billion mixed-use redevelopment of this 100-acre site has been underway since 2023, transforming a dormant regional mall into a next-generation live-work-play district designed to serve the demand profile of the surrounding corridor — one of the wealthiest and most supply-constrained in the Southwest. We have been working to secure a position on this site since 2023 and recently put it under contract.

Investors with 2026 Capital Gains: Your Window May Still Be Open

If you realized capital gains in 2026, you may still have time to act. Under QOZ 2.0, the 180-day reinvestment window runs from the date of gain realization — which means gains realized in the second half of 2026 will still have an open window on January 1, 2027, when QOZ 2.0 investment becomes eligible. For gains flowing through partnerships, S-corps, or trusts, the window may run from December 31, 2026 or the entity’s filing deadline, extending your eligibility further into 2027.

If you have 2026 gains and want to learn more about investing in any of the opportunities outlined above, we invite you to reach out to our investor relations team and indicate which opportunity or opportunities interest you. We will be in touch as subscription agreements become available.

This article does not constitute an offer to sell or a solicitation of an offer to buy any securities. Any offering of interests in a qualified opportunity fund managed by Origin Investments will be made only to accredited investors (as defined under Rule 501 of Regulation D) pursuant to a confidential private placement memorandum and related subscription documents. This article is intended for informational and educational purposes only and is not intended to provide, and should not be relied on, for investment, tax, legal, or accounting advice. Certain statements in this article may constitute forward-looking statements, including statements regarding market conditions, rent growth, occupancy trends, and construction cost dynamics. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. The information is provided as of the date of publication and is subject to change without notice. Origin Investments does not have any obligation to update the information contained herein. Certain information presented or relied upon in this article may come from third-party sources. We do not guarantee the accuracy or completeness of the information and may receive incorrect information from third-party providers. Investing in Qualified Opportunity Zone funds involves significant risk, including the potential loss of principal. Consult your tax advisor before making any investment decision.

Sources
1. Median household income for the Town of Paradise Valley, AZ. Source: U.S. Census Bureau, American Community Survey (ACS) 1-Year Estimates, via Census Reporter (censusreporter.org)
2. One Big Beautiful Bill Act (OBBBA), Public Law 119-21, signed July 4, 2025 — QOZ permanence, rolling 5-year deferral, 10% basis step-up, zone redesignation framework, QROF provisions. (External — primary legislation)
3. Rev. Proc. 2026-14 — identifies 25,332 census tracts eligible for QOZ 2.0 nomination; governor nomination window July 1–September 29, 2026; 25% cap on state designations; 8,334 rural tracts identified. (External — IRS/Treasury guidance)
4. IRS Notice 2026-40, June 18, 2026 — Working Capital Safe Harbor transition rules, post-2026 property acquisition requirements, compliance safe harbors through December 31, 2047. (External — IRS guidance)
5. PwC, “IRS provides transitional guidance on Opportunity Zone changes,” June 2026. (External — third-party legal/tax analysis)
6. Holthouse Carlin & Van Trigt, “Opportunity Zones: 10 Key Takeaways from IRS Notice 2026-40,” June 2026. (External — third-party legal/tax analysis)
7. Vinson & Elkins, “Navigating the New QOZ Landscape: IRS Notice 2026-40 Explained,” June 2026. (External — third-party legal analysis)
8. Seyfarth Shaw, “7 Key Changes to the Qualified Opportunity Zone Incentive Under the One Big Beautiful Bill Act,” July 2025. (External — third-party legal analysis)
9. Plante Moran, “The OBBB and Opportunity Zones 2.0,” November 2025. (External — third-party tax analysis)
10. Greenberg Traurig, “President Trump Signs One Big Beautiful Bill Act,” July 2025. (External — third-party legal analysis)
11. Origin Investments, “Opportunity Zones Update: Navigating the Transition to OZ 2.0,” RIA Webinar Presentation, May 2026. (Internal — Origin marketing and educational materials)
12. Origin Investments, QOZ Fund III Q1 2026 Investor Report. (Internal — fund reporting)
13. Economic Innovation Group, eligible OZ tracts under the 2025 budget reconciliation act.