The Treasury Department and IRS have finally answered one of the biggest open questions hanging over Opportunity Zone investing: what happens to projects already in motion when zone designations expire. For developers and Qualified Opportunity Funds with capital deployed or committed, the new guidance offers what the market has lacked for more than a year—certainty.
Notice 2026-40 lays out transition rules that allow many projects in expiring Opportunity Zones to continue qualifying for tax incentives under the program's newly permanent structure. The guidance follows last year's legislative overhaul, which extended the Opportunity Zone program indefinitely but left investors unclear on how existing deals would be treated once original census tract designations sunset.
At the center of the notice is a practical, investor-friendly framework that preserves eligibility for projects already underway. Property acquired after December 31, 2026, can still qualify for Opportunity Zone treatment—even if the underlying tract is no longer designated—so long as development had meaningfully progressed before that deadline. To meet that threshold, developers must have adopted a written working capital plan by the end of 2026, raised at least 10% of planned working capital, and either deployed or contractually committed at least 5% of that capital, while continuing to execute the original development strategy.
The IRS also created a long runway for compliance. Projects that began operations in a qualifying zone before its designation expires—or that are proceeding under a valid working capital plan—can continue treating the area as a qualified Opportunity Zone for key tax tests through December 31, 2047. That safe harbor is particularly significant for multifamily and mixed-use assets with long stabilization timelines, where investors depend on predictable holding periods to realize tax benefits.
Just as important, the guidance confirms that ongoing capital expenditures remain eligible. Routine modernization, renovations, and equipment replacements tied to continued operations will still qualify for favorable treatment even after a zone expires, removing a major source of ambiguity around asset management and reinvestment strategies.
The notice addresses several unresolved issues that had lingered since Congress permanently extended the program, including whether partially completed developments would lose eligibility and whether future capital injections would still receive tax advantages. According to the Real Estate Roundtable, those uncertainties had begun to weigh on deal flow, delaying projects, dampening new Opportunity Fund formation, and slowing housing production in targeted communities.
The organization, which had pushed Treasury and the IRS to adopt transition rules, said the final guidance reflects key elements of a framework it proposed earlier this year. In particular, the decision to grandfather projects with qualifying working capital plans allows developments already in the pipeline to proceed without restructuring or incurring adverse tax consequences.
For investors, the takeaway is straightforward: projects that have cleared early capital and planning hurdles now have a defined path to retain Opportunity Zone benefits, even as the map of designated tracts evolves. That clarity could help unlock stalled capital and bring a measure of stability back to a market segment that has been operating in a holding pattern.
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