IRS signals new opportunity zone rules after tax law overhaul

The IRS has put opportunity zone planning back into the live deal queue. Notice 2026-40 says Treasury and IRS intend to issue proposed regulations for qualified opportunity zones under sections 1400Z-1 and 1400Z-2, as amended by the One, Big, Beautiful Bill Act, and it makes clear that transitional guidance will matter for investments that were made under the old law.

That matters because the notice draws a line between the post-OBBBA framework and the prior-law rules that still govern qualifying investments under the earlier regime. The guidance also points ahead to a new round of proposed regulations that are expected to track the transitional rules in sections 3 through 5 of the notice, signaling that fund managers, developers and tax advisors should not treat the rule change as a clean reset. Existing structures may need to be rechecked for filing positions, documentation and due diligence before capital is committed or terms are finalized.

The timing is especially important for 2026 transactions. Earlier IRS guidance issued on April 6, 2026 said the first new round of QOZ designations under the OBBBA will take effect on January 1, 2027, with new designation rounds every 10 years. The IRS identified 25,332 low-income census tracts eligible for nomination, including 8,334 tracts comprised entirely of a rural area, and said states generally may not nominate more than 25% of their low-income communities. It also pointed to a separate rural benefit, including a 30% basis step-up for investments in qualified rural opportunity funds.

That set off the same question tax and deals teams are already hearing from clients: move now, amend the structure, or wait. The Real Estate Roundtable warned in a December 19, 2025 letter that uncertainty could slow 2026 capital deployment into distressed communities, affordable and workforce housing, retail, mixed-use and small-business projects. The group said opportunity zones had already mobilized more than $120 billion in private capital nationwide and pressed Treasury and IRS for a grandfathering safe harbor for certain existing projects that stayed aligned with their working-capital plans. The draft of that letter was developed by KPMG’s Orla O’Connor and Michael McMahon.

For KPMG’s credits, incentives, real estate and transaction tax teams, Notice 2026-40 is more than a technical update. It is a sign that client conversations will shift quickly from policy theory to contract language, model assumptions and risk allocation. KPMG’s June 18 TaxNewsFlash treatment of the notice shows the firm is already framing it as an active client issue, and the next milestone will be the proposed regulations themselves, where the transition from the TCJA-era structure to the permanent framework will be tested in real deals.