A qualified opportunity zone business (QOZB) is a corporation or partnership whose stock or partnership interest a Qualified Opportunity Fund can count as Opportunity Zone property, provided that at year end at least 70 percent of its tangible property qualifies, at least 50 percent of its gross income comes from active business in a zone, at least 40 percent of its intangible property is used there, less than 5 percent of its property is nonqualified financial property, and it is not a listed "sin" business (26 CFR 1.1400Z2(d)-1(d)). As of October 2026, these tests are unchanged by the 2025 law; what changed is the purchase-date rule for property.
In this two-tier structure, the QOF invests cash into a partnership or corporation, and that entity owns and runs the property or business. The business faces a 70 percent tangible property test, while a fund that owns property directly must meet the 90 percent asset test itself. The fund-level test is on the 90 percent asset test.
The QOZB checklist
| Test | Threshold | How it is measured | Relief |
|---|---|---|---|
| Tangible property | At least 70% is QOZ business property | Value of qualifying tangible property owned or leased over value of all tangible property owned or leased, inside or outside a zone | Property being bought or improved under a working capital plan counts as qualifying |
| Gross income | At least 50% from active conduct of a business in a zone | Any one of four safe harbors, or published guidance | Income from safe-harbored working capital counts toward the 50% |
| Intangible property | At least 40% used in active conduct of a business in a zone | Use must be normal for the business and contribute to its income in the zone | Intangibles bought under a working capital plan satisfy the test while the plan is on track |
| Nonqualified financial property | Less than 5% of average aggregate unadjusted bases | Stock, debt, partnership interests, options and similar property, excluding reasonable working capital | Working capital safe harbor: written plan, written schedule, spent within 31 months |
| Sin businesses | None | Listed business types, and leasing more than a de minimis amount of property to them | None |
| Failure on a test date | Not applicable | Any of the QOF's semiannual test dates | One 6-month cure per business per QOF |
QOZB status is determined at the end of the entity's tax year, and it applies for the entire year (26 CFR 1.1400Z2(d)-1(d)(1)). QOZBs do not file Form 8996 themselves. Under the new section 6039L, each QOZB held by a QOF must give the fund a written statement with the information the fund needs for its own return.
The 70 percent tangible property standard
At least 70 percent of the tangible property the business owns or leases must be qualified opportunity zone business property. The test is a fraction by value: qualifying tangible property over all tangible property, wherever it sits (26 CFR 1.1400Z2(d)-1(d)(2)).
Tangible property is qualified opportunity zone business property only if three things are true (26 U.S.C. 1400Z-2(d)(2)(D)(i); 26 CFR 1.1400Z2(d)-2):
- Purchased after the applicable date from an unrelated person. For the 2018 zones, that has been after December 31, 2017. For property acquired after December 31, 2026 for a newly designated zone, the date is the zone's applicable start date, which is January 1, 2027 for the first new round. Related means the section 267(b) or 707(b)(1) tests at 20 percent.
- Original use or substantial improvement. Its original use in the zone starts with the business, or the business substantially improves it by adding more than its adjusted basis within 30 months (50 percent in a zone made up entirely of rural area). See original use and substantial improvement.
- Used in the zone. During at least 90 percent of the holding period, at least 70 percent of the property's use must be in a zone (26 CFR 1.1400Z2(d)-2(d)).
Property that later stops qualifying can still be treated as qualifying for the lesser of 5 years or until the business no longer holds it (section 1400Z-2(d)(3)(B)).
The 50 percent gross income requirement
At least 50 percent of the business's gross income for each year must come from the active conduct of a trade or business in one or more zones. The regulations say a business meets this if it satisfies any one of four safe harbors (26 CFR 1.1400Z2(d)-1(d)(3)(i)):
- Hours. At least 50 percent of the hours of services performed for the business by employees, service partners, independent contractors and contractors' employees are performed in a zone.
- Amounts paid. At least 50 percent of the amounts the business pays for services are for services performed in a zone.
- Property and functions. The tangible property in a zone and the management or operational functions performed in a zone are each necessary to generate at least 50 percent of gross income.
- Facts and circumstances. Based on all the facts, at least 50 percent of gross income comes from active business in a zone.
The regulation's examples include a landscaping company headquartered in a zone, which passes the property-and-functions test, and a company whose only zone presence is a P.O. box, which does not. A third example is a developer whose leased-up commercial building in a zone produces at least half its income, which passes on the facts.
Rental real estate and triple-net leases
For these rules, owning and operating real property, including leasing it, is the active conduct of a trade or business. Merely entering into a triple-net lease, where the tenant pays taxes, insurance and maintenance, is not (26 CFR 1.1400Z2(d)-1(d)(3)(iii)).
The regulation gives two examples. A company that triple-net leases an entire office building to one tenant is not active, even with staff on site. A company that triple-net leases one floor but manages and operates the other two floors itself is active for the building as a whole.
Intangible property and financial property
Intangibles. A "substantial portion" of intangible property, defined as at least 40 percent, must be used in the active conduct of business in a zone. Use counts if it is normal, usual or customary in the business and is part of an activity in the zone that contributes to gross income (26 CFR 1.1400Z2(d)-1(d)(3)(ii)).
Nonqualified financial property. Less than 5 percent of the average of the aggregate unadjusted bases of the business's property may be nonqualified financial property, such as stock or debt. Reasonable working capital held in cash, cash equivalents or debt instruments with a term of 18 months or less is excepted (paragraph (d)(3)(iv)). The safe harbor that makes large cash balances workable during construction is on the working capital safe harbor page.
Excluded businesses
A business cannot be a QOZB if it is a private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or a store whose principal business is selling alcoholic beverages for consumption off premises. The bar extends to a business that leases more than a de minimis amount of property to one of those businesses (26 CFR 1.1400Z2(d)-1(d)(4)). See sin business exclusions.
Leased property
Leased tangible property can count toward the 70 percent test. Under 26 CFR 1.1400Z2(d)-2(c), the lease must have been entered into after December 31, 2017 and must be at market rate when signed. Leases between unrelated persons are presumed to be market rate, and leases from state, local or tribal governments are not treated as related-party leases.
Leases from a related lessor carry two extra conditions. The lessee may not prepay more than 12 months of rent. And for leased personal property whose original use does not start with the lessee, the lessee must acquire qualifying property of at least equal value within the testing period. Real property leased with a plan to buy it later for other than fair market value does not qualify.
How the fund's interest qualifies
A QOF's stock or partnership interest in a QOZB counts as Opportunity Zone property only if the QOF acquired it for cash from the business itself, and the business is a QOZB for at least 90 percent of the fund's holding period (Notice 2026-40, sec. 2.03(3)(a)). For interests acquired after December 31, 2026, the acquisition date is measured against the "applicable date," defined by reference to the QOZB's earliest qualifying property (Public Law 119-21, sec. 70421(c)(4)(B)).
If a QOZB fails the requirements on a test date, the QOF may treat its interest as qualifying for that date if the failure is corrected within 6 months. Each QOF gets one such correction per business, and a failure on the last test date of the year qualifies only if the QOF files a valid extension (26 CFR 1.1400Z2(d)-1(d)(6)).
2018 zones after December 31, 2026
Property bought after December 31, 2026 for use in a 2018 zone generally cannot be qualified opportunity zone business property, unless the tract was designated again after July 4, 2025 or a transition exception applies (Notice 2026-40, sec. 5.01(1)). Two exceptions exist:
- Working capital plan in progress. Purchases under a plan adopted by December 31, 2026, where the business had received at least 10 percent of the planned working capital and spent at least 5 percent by that date. See working capital safe harbor.
- Ordinary-course replacements. Property that replaces or modernizes existing property, such as appliances or flooring in an apartment building or a restaurant's kitchen and point-of-sale system. Expansions and new lines of business do not qualify; the IRS example of a new warehouse bought in 2028 to expand a factory fails.
After a 2018 zone expires, a business active there by the expiration date, or under a qualifying written plan, may keep treating the zone as an Opportunity Zone for the property-use, gross income and intangible tests through December 31, 2047. The full transition rules are on the Notice 2026-40 transition rules.
This page explains the tests. It is not tax or legal advice, and QOZB status should be confirmed by a tax adviser with the business's actual numbers. For project debt that has to fit inside these tests, see Opportunity Zone financing and the Opportunity Zone capital stack.
Common questions
What is a qualified opportunity zone business?
A corporation or partnership engaged in a trade or business that meets the tests in section 1400Z-2(d)(3), as measured at the end of its tax year. A QOF can hold its stock or partnership interest as Opportunity Zone property, instead of owning property directly.
What is the 70 percent tangible property test?
At least 70 percent of the tangible property a QOZB owns or leases, by value, must be qualified opportunity zone business property: bought or leased after the applicable date, original use or substantially improved, and used substantially all in a zone.
How does a QOZB meet the 50 percent gross income test?
At least 50 percent of gross income must come from the active conduct of a business in a zone. The regulations offer four ways to meet it: at least half of service hours performed in the zone, at least half of amounts paid for services performed in the zone, tangible property and management functions in the zone that are each necessary for half the income, or a facts-and-circumstances test.
Can a rental property be a qualified opportunity zone business?
Owning and operating real property, including leasing it, counts as the active conduct of a trade or business for these rules. Merely entering into a triple-net lease does not, according to the regulations.
Which businesses cannot be a QOZB?
Private or commercial golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks or other gambling facilities, and stores whose principal business is selling alcohol for consumption off premises. The bar also covers businesses leasing more than a de minimis amount of property to them.
What happens if a QOZB fails a test?
The QOF may treat its interest as qualifying on that test date if the failure is corrected within 6 months, and each QOF gets one such cure per business. If the failure falls on the last test date of the year, the cure is available only if the QOF files a valid extension for its return.