IRS Will Not Change OZ Boundaries

May 14, 2021

OZ investors no longer need to be concerned about a possible change in zone boundaries after the 2020 census. The Internal Revenue Service has issued a statement that says opportunity zone boundaries as they were established by the 2017 tax cut law will not be changed by any finding of the 2020 census.

In the announcement, the IRS wrote, “In response to questions from the public on the effect, if any, of the 2020 decennial census, recently released by the U.S. Census Bureau, on boundaries of qualified opportunity zones (each, a QOZ) listed in Notice 2018-48, 2018-28 I.R.B. 9, or Notice 2019-42, 2019-29 I.R.B. 352 (each, a Designated QOZ), this announcement confirms that the boundaries of the Designated QOZs were established at the time they were designated and are not subject to change.”

The letter went on to note that the 2017 Tax Cuts and Jobs Act—the major tax law overhaul that established the Opportunity Zone program—established a fixed process and limited timeframe to designate Qualified Opportunity Zones. Designated census tract numbers were based on the 2010 census. No provision was made to adjust them.

“Accordingly, boundaries of a Designated QOZ do not shrink or expand if the 2020 decennial census results in a change to the boundaries of a census tract,” the agency wrote.

While this comes as a relief to many investors that had previously invested in certain zones, others will be disappointed that zones will not be expanding as result of the new census data.

With many of Biden’s tax plans threatening to reduce tax breaks for real estate investors including doubling capital gains for certain individuals, ending or limiting 1031 exchanges, and possibly ending basis step-up on death, OZ investments are becoming an attractive alternative for investors looking for certainty. This announcement increases certainty for investors knowing that the QOZ boundaries are locked in.

2 minutes
Ashley Dillard, CCIM

Senior Director

Ashley has an extensive knowledge of the Chicago commercial real estate market. After graduating from University of Kansas with a degree in architectural studies, she worked in Kansas City as a commercial leasing agent at a 2.1 million square foot office park. While working for an institutional owner, she learned valuable skills such as client reporting, communication and accountability.

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Opportunity Zones By The Numbers

8,764 CENSUS TRACTS

The total number of census tracts certified as Opportunity Zones by the U.S. Treasury.

$6.1 TRILLION

Potential unrealized capital gains eligible for Qualified Opportunity Fund investment and tax treatment.

$100 BILLION

Treasury Secretary Steven Mnuchin’s estimate of private capital that will flow into Opportunity Zones.