Arizona Opportunity Zones

Arizona Opportunity Zones | Arizona Opportunity Zones ARIZONA OPPORTUNITY ZONES Opportunity Zones are economically distressed, lower-income census tracts that have received an Opportunity Zone designation by the Department of Treasury, after having been nominated by governors across the country. The Opportunity Zone designation is meant to spur investment in these areas, as those who invest in Opportunity Zones receive tax breaks. Opportunity Zones were created as a one-time initiative in the 2017 Tax Cuts and Jobs Act to incentivize investment in underserved areas. The resulting first generation of Opportunity Zones (now called OZ 1.0) were designated in 2018, and those areas retain Opportunity Zone designation through 2028. In 2025, Congress passed the One Big Beautiful Bill Act (OBBA) that made the Opportunity Zone incentives a permanent part of the Internal Revenue Code, with new zones to be designated every 10 years. A second generation of Opportunity Zones (called OZ 2.0) will be nominated by governors in mid-2026, and after Treasury certifies the nominated tracts, OZ 2.0 designations are slated to take effect on January 1, 2027. This means there will be a two-year overlap in the lifespans of tract designations of the first and second generations of Opportunity Zones. As with the first generation of Opportunity Zones, governors may nominate up to one quarter of the eligible tracts in their states for second-generation Opportunity Zones designation. However, the economic criteria for eligibility are more tightly restricted for OZ 2.0, meaning fewer tracts will be eligible for second-generation Opportunity Zone status. The OBBA also sought to promote rural development by creating a new designation for rural Opportunity Zone tracts and increases one of the three income tax benefits for investors in those tracts, while also lowering the minimum investment required to improve rural properties with structures on them. First Generation Opportunity Zones (OZ 1.0) Second Generation Opportunity Zones (OZ 2.0) TRACTS Effective dates Mid-2018 to Dec. 31, 2028 Jan. 1, 2027 to Dec. 31, 2036 Number in AZ One-fourth of eligible tracts: 168 One fourth of eligible tracts: 125 Qualification criteria Median family income of 80% or less of the metro area's median family income (if tract is in an MSA) or the state's median family income (if tract is not in an MSA) OR Poverty rate of 20% or more Median family income of 70% or less of the metro area's median family income (if tract is in an MSA) or the state's median family income (if tract is not in an MSA) OR Poverty rate of 20% or more AND a median family income not more than 125% of the metro area's median family income (if in an MSA) or the state's median family income (if not in an MSA) Contiguous tracts Allowed up to 5% of the state's OZs to not meet the economic criteria above, if each such tract were: Contiguous with a tract that satisfied the criteria and was designated as an OZ The contiguous tract's median family income was not more than 125% of the low-income community census tract with which it was contiguous Arizona has eight contiguous-tract OZs in its first-generation OZs. OZ 2.0 and future OZ designations will not allow for contiguous tracts. BENEFITS TO INVESTORS General benefits to investors DEFERRAL, EXCLUSIONS ON DEFERRED GAIN: Investors who had an eligible gain and invested in a timely manner (generally, within 180 days of gain realization) in a Qualified Opportunity Fund (QOF) by Dec. 31, 2019, could defer being subject to income taxes on the eligible gain until Dec. 31, 2026 (taxes due in 2027) and receive a 15% exclusion from income tax on the deferred eligible gain (in the form of a basis step up). Those who invested in 2020 and 2021 could receive a 10% exclusion. Those who invested in 2022 and beyond got only the deferral.