Opportunity Zones After Notice 2026-40: What Treasury Confirmed, What It Granted, and Why Both Matter Before Year-End

By Aaron Mayer, Director of Sherbert Consulting and Moxie Investments amayer@sherbertconsulting.com

Treasury and the IRS issued Notice 2026-40 (I.R.B. 2026-28) on June 18, 2026, initially addressing the transition between the original Opportunity Zone regime and the amendments made by the One Big Beautiful Bill Act (P.L. 119-21). For anyone holding an already-underway OZ project or sitting on 2026 gain, it is the most consequential OZ guidance in years.

The Notice is guidance of a particular kind, however: it announces regulations that have not yet been proposed. Some of what it says follows directly from the statute. Other parts are an accommodation that exists only because Treasury has announced its intention to write it into regulations. That difference should drive how much weight you place on any position you take between now and December 31.

Start with what the Notice is

The Notice announces Treasury’s intent to issue proposed regulations. Section 1 says only that those regulations are anticipated to include rules “similar to” sections 3 through 5 of the Notice — language that stops well short of a commitment that the final rule will match what the Notice describes.

There is no express grant of reliance. Notices meant to be relied upon generally say so (“taxpayers may rely on this notice until…”), and this one does not. Section 6 states that the proposed regulations are anticipated to apply to taxable years ending after the Notice’s issuance date, citing §7805(b)(1)(C). That provision matters mechanically: §7805(b)(1) bars a regulation from applying to any taxable period ending before the earliest of (A) the date the regulation is filed with the Federal Register, (B) for a final regulation, the date the related proposed or temporary regulation was filed with the Federal Register, or (C) the date a notice substantially describing the expected contents of the regulation is issued to the public. By describing the forthcoming rule, the Notice moves that earliest permissible date back to June 18, 2026.

That works in the taxpayer’s favor to the extent it establishes that the rule was knowable as of that date. But it also means that June 18, 2026 becomes a potential retroactivity date under §7805(b)(1)(C). Whether any departure from the Notice ultimately could be applied back to that date would depend on the contents of the regulations and the operation of §7805.

What the Notice confirms (low risk)

Several points now have clear articulation, and each flows from the statute rather than from Treasury’s discretion:

The regime line is the investment date. Investments made on or before 12/31/2026 fall under the prior regime; investments made on or after 1/1/2027 fall under the amended statute. This is the case even if the property is in a 1.0 vintage tract – see below for more on that. (§§4.01, 4.02.)
Deemed inclusion still happens. Remaining deferred gain from a pre-2027 investment is included on December 31, 2026 — in the taxable year that includes that date (§4.01(2)). The underlying §1400Z-2(a) election survives, which preserves the ten-year fair market value election on eventual sale. (§4.01(2)–(3).)

If your analysis already assumed these, the Notice is confirmation rather than news.

What the Notice grants (higher risk)

Three items are relief that exists only in the Notice, with no statutory analogue:

Provision	What it does	Statutory basis
§5.01(2)	Working capital safe harbor transition — lets post-2026 property qualify under a pre-2027 plan	None; Notice only
§5.01(3)	Ordinary-course replacement and modernization of existing business property	Interpretation of §1400Z-2(d)(2)(D)
§5.02	Treats expiring tracts as QOZs through 12/31/2047 for use, income, and intangibles testing	None; Notice only

Section 5.02 matters most to long-hold projects: designations otherwise sunset 12/31/2028 (12/31/2027 for Puerto Rico), and §5.02 lets use, income, and intangibles testing continue past that date. It is arguably the most expansive of the three relief provisions because it is based primarily on Treasury’s interpretation of the continuing operation of §1400Z-2(c) and existing regulations rather than on an explicit statutory transition rule.

One practical note: a notice is “authority” for purposes of Reg. §1.6662-4(d)(3)(iii), but a notice announcing only an intent to propose regulations should not be assumed, standing alone, to resolve the substantial-authority question on these positions, particularly where the position depends on relief found only in Section 5 of the Notice and not in the statute itself.

The acquisition cliff: why post-2026 purchases in previously designated tracts fail

The problem section 5.01 addresses is a drafting consequence of the OBBBA amendments that is easy to miss. Two separate questions are in play. First, which regime governs the investment — that is keyed to the date the investment is made. Second, does the project’s property qualify as QOZBP — that is keyed to the tract. The two answers do not have to agree. An investor who puts money into a project in a previously designated tract in 2027 is under the amended statute, and the property that project buys in 2027 can still fail to qualify.

Tangible property must be purchased — per §179(d)(2) — after the zone’s applicable start date to satisfy §1400Z-2(d)(2)(D)(i)(I). That amendment applies to property acquired after 12/31/2026 (OBBBA §70421(c)(4)(A), (c)(5)(B)).

Here is the catch: a previously designated tract has no applicable start date. (Notice 2026-40 §5.01(1): “A previously designated QOZ does not have an ‘applicable start date’ under § 1400Z-1(e)(2)…”) Section1400Z-1(e)(2) assigns start dates only to tracts designated after 7/4/2025. So property acquired after 12/31/2026 for use in an old tract cannot be qualified opportunity zone business property at all — unless the tract is also designated effective 1/1/2027, or one of the two Notice exceptions applies — the working capital safe harbor transition rule in §5.01(2), or ordinary-course replacement under §5.01(3). (§5.01(1).)

Straddle projects: the working capital safe harbor transition rule under §5.01(2)

This is the sharpest exposure in the Notice, and it applies to a specific and common profile: a project that closed in 2025 or earlier, has deployed most or all of its OZ equity, is mid-construction, and will still be acquiring tangible property in 2027 — remaining hard costs, FF&E, final trade contracts, etc.

For that profile, the §5.01(2)(b) funding gates are usually the easy part. They require that the business has received at least 10% of total estimated working capital assets and expended at least 5% by 12/31/2026 (binding-agreement amounts count as expended). A project two years into deployment would typically clear both comfortably.

The hard parts are different:

Whether the existing plan covers the 2027 spend. A plan adopted before the Notice was issued was written for the original deployment schedule, and §5.01(2)(b)(ii) requires that the acquisitions be made substantially consistent with the plan. A plan that never contemplated 2027 purchases may not carry them. Helpfully, Reg. §1.1400Z2(d)-1(d)(3)(v)(E) permits a business to use the safe harbor more than once, so long as each application independently satisfies the regulation’s requirements. That points toward adopting a supplemental plan covering the remaining scope — which, because of §5.01(2)(b)(i), has to happen on or before 12/31/2026.
Construction loan draws. The safe harbor machinery contemplates equity-funded working capital. Where post-2026 acquisitions are funded by debt draws rather than from the plan’s working capital, it is not clear the transition rule reaches them. The Notice does not address this.
No amendment mechanism. The Notice does not provide an express amendment mechanism. If a plan’s scope needs to change materially after 2026, there is no stated way to amend it, and a new plan would not satisfy the pre-2027 adoption gate. That argues for scoping the plan broadly now rather than narrowly.

There is also a genuine sequencing squeeze. Whether you need the §5.01(2) door at all depends on whether your tract is designated effective 1/1/2027 — in which case post-2026 purchases qualify directly under §5.01(1)(i) and the transition rule is unnecessary. Nominations are due at the close of the 90-day determination period on September 28, 2026, and Treasury then has a 30-day consideration period to certify. Either period may be extended by 30 days on a governor’s request, state by state. Because Rev. Proc. 2026-14 treats every nomination as received at the end of the determination period, the consideration clock does not start for any state until September 28 — early filing buys no early answer. With no extensions, certification lands in late October, roughly nine weeks before year-end. With both, it can run to the last days of December, leaving effectively no window to adopt a plan in response. Whether your state’s nomination deadline was extended will be known on September 28; whether Treasury’s review runs long will not be known until it happens. Plan drafting cannot wait on either.

The practical resolution is to treat the safe harbor plan as insurance you may not need: start drafting it now, scope it broadly, and hold the final adoption decision until the designation answer is known and any further guidance has issued. Preparing a plan that turns out to be unnecessary costs very little. Needing one and not having it puts the QOZBP status of every 2027 acquisition at risk.

Investors with 2026 gain: investing before or after 12/31/2026

For an investor with 2026 gain and genuine flexibility as to when the investment goes in, the investor-tier comparison is not close:

	Investment by 12/31/2026	Investment on/after 1/1/2027
Deferral	Included in the year containing 12/31/2026 — effectively none	Rolling five-year deferral
Basis step-up	Windows closed	Available at five years; enhanced rural treatment under §1400Z-2(b)(2)(C)
Regime	Sunsetting	Permanent

The counterweights sit elsewhere. On the property side, the acquisition cliff described above applies: property purchased in 2027 for use in a tract that is not redesignated is not QOZBP absent §5.01(2) or §5.01(3), which puts the qualified opportunity zone business’s (QOZB’s) 70% tangible property test at risk.

The investor-tier answer generally favors 2027 when timing remains flexible and all other variables are equal; the deal-level answer may not. Both have to be considered.

Open questions after Notice 2026-40

Three items stand out. First, §5.01(2)(b)(ii) requires acquisitions be “substantially consistent” with the plan without quantifying that standard; the phrase is carried over from the existing regulations, which likewise do not provide a bright-line definition of the term. Second, the treatment of post-2026 construction funded by loan draws rather than working capital. Third, a gap on the back end: tracts designated effective 1/1/2027 carry ten-year designations that lapse 12/31/2036, and §5.02 — which lets a lapsed tract continue to be tested as a QOZ through 12/31/2047 — is written against the original regime’s expiration dates; there is no equivalent for the 2036 lapse, which matters for any model assuming three decades of compliance.

Proposed regulations should address several of these. Until then, the distinction between what the statute gives you and what the Notice gives you is the one worth tracking.

Whether you need the §5.01(2) door at all is a fact question — tract status, plan scope, and how your remaining acquisitions are funded. If you’d like a second read on where your project lands, reach me at amayer@sherbertconsulting.com.

This article is for general informational purposes and is not tax or legal advice. Information updated as of September 8, 2026. Section citations are to Notice 2026-40 unless otherwise indicated. OZ transition planning is fact-specific; consult your own advisors before acting.

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