Seven kinds of business cannot be a qualified opportunity zone business (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. As of October 2026, that list is unchanged by the 2025 law, and the regulations allow small amounts of excluded activity under 5 percent tests.
This page uses "OZ 1.0" for investments made through December 31, 2026 and "OZ 2.0" for investments made after that date. The exclusion applies to businesses in both regimes.
Where the list comes from
The statute defines a QOZB as a trade or business that, among other tests, "is not described in section 144(c)(6)(B)" (26 U.S.C. 1400Z-2(d)(3)(A)(iii)). Section 144(c)(6)(B) is a tax-exempt bond rule. It bars redevelopment bond proceeds from being used to provide the facilities listed below (26 U.S.C. 144(c)(6)(B)).
The regulations restate the list and extend it to landlords (26 CFR 1.1400Z2(d)-1(d)(4)(i)). These businesses, and businesses leasing more than a de minimis amount of property to them, cannot be QOZBs:
| Item | Excluded business | What the text says, and does not say |
|---|---|---|
| (A) | Any private or commercial golf course | Covers both private and commercial courses. |
| (B) | Country club | No size or membership threshold is stated. |
| (C) | Massage parlor | The hotel spa example below shows how incidental massage services are treated. |
| (D) | Hot tub facility | Stated without qualification. |
| (E) | Suntan facility | Stated without qualification. |
| (F) | Racetrack or other facility used for gambling | Casinos and other gambling facilities, not only racetracks. |
| (G) | Any store the principal business of which is the sale of alcoholic beverages for consumption off premises | A "principal business" test, aimed at liquor stores. Sale for consumption on premises is not named. |
The Form 8996 instructions repeat the same seven items as the fourth requirement for a QOZB.
The 5 percent de minimis tests
The regulations add two allowances, both set at 5 percent (1.1400Z2(d)-1(d)(4)(ii) and (iii)):
- Leased property. A business may lease a de minimis amount of property to an excluded business. For real property, de minimis means less than 5 percent of the net rentable square feet. For all other tangible property, less than 5 percent of the value.
- Gross income. De minimis gross income from an excluded activity does not disqualify a business. Here de minimis means less than 5 percent of the QOZB's gross income.
Both tests say "less than," so exactly 5 percent is over the line.
Hypothetical example
Suppose a QOZB owns a 40,000 net rentable square foot retail building in a zone and leases space to several tenants, one of them a liquor store. Less than 5 percent of 40,000 is anything under 2,000 square feet. A 1,800 square foot liquor store lease stays within the allowance. A 2,000 square foot lease does not, and the landlord business would fail the QOZB definition.
Edge cases the regulations resolve
The regulations include three examples (1.1400Z2(d)-1(d)(4)(iv)):
A hotel with a spa
A QOZB runs a hotel in a zone, and the hotel operates a spa that provides massages. Less than 5 percent of the hotel's total gross income, less than 5 percent of its net rentable square feet, and less than 5 percent of the value of its other tangible property are attributable to the spa. The spa does not stop the hotel from qualifying.
Leasing a golf course to an operator
A QOZB buys a commercial golf course and leases it to a third party to run. The leased property is more than 5 percent of the business's net rentable square feet and of the value of its other tangible property. The business fails to be a QOZB, even if the property meets every other requirement. Using a lease does not get around the list.
A fund that owns the course directly
A Qualified Opportunity Fund owns and runs a commercial golf course itself, not through a QOZB. The example says the prohibition "is not applicable at the QOF level," so the course property can count as Opportunity Zone business property held by the fund if it meets the requirements of section 1400Z-2(d)(2)(D).
Businesses that are not on the list
Section 144 has a second, longer list for small-issue bonds in section 144(a)(8)(B). That list adds tennis clubs, skating facilities (including roller skating, skateboard and ice skating) and racquet sports facilities, and does not include the "other facility used for gambling" or liquor store language (26 U.S.C. 144(a)(8)(B)). The Opportunity Zone statute points to section 144(c)(6)(B), not to that longer list, so those recreation businesses are not named as excluded.
Restaurants and bars that serve alcohol on premises are not named either. The alcohol item covers only stores whose principal business is off-premises sales.
Not being on the list is not the same as qualifying. Every QOZB must also meet the other tests: at least 70 percent of its owned or leased tangible property must be Opportunity Zone business property, at least 50 percent of gross income must come from active business in a zone, at least 40 percent of its intangible property must be used in that business, and less than 5 percent of its property basis may be nonqualified financial property, apart from reasonable working capital. See qualified opportunity zone business.
If a business fails mid-hold
A business that falls into an excluded category, or tips over a 5 percent line, fails the QOZB definition. If that causes its fund to fail the 90 percent asset test on a test date, the fund may still count the interest as qualifying for that date if the business corrects the failure within 6 months, once per business (1.1400Z2(d)-1(d)(6)). See the 90 percent asset test for the cure rules and the penalty.
Status under OZ 2.0
The 2025 law did not amend section 1400Z-2(d)(3)(A)(iii) or the list it borrows. The regulations quoted here are the 2020 final regulations (T.D. 9889), which as of October 29, 2026 eCFR still shows without amendments for the 2025 law. IRS Notice 2026-55, with comments due November 23, 2026, asks for comments on all aspects of implementing the amended section 1400Z-2. It changes no rules.
A business owner whose plan includes any of these activities, even a small part, can ask a tax adviser to measure the 5 percent tests on the actual lease and income figures.
Common questions
What businesses are excluded from Opportunity Zones?
Seven types: private or commercial golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks or other facilities used for gambling, and stores whose principal business is selling alcoholic beverages for consumption off premises. Businesses that lease more than a de minimis amount of property to them are also barred.
Can a hotel with a spa be a qualified opportunity zone business?
It can. An IRS example in the regulations describes a hotel whose spa offers massages. Because less than 5 percent of the hotel's gross income, net rentable square feet and other tangible property value is attributable to the spa, the spa does not stop the hotel from qualifying.
Can a landlord lease space to a liquor store or a gym with tanning beds?
A business may lease up to a de minimis amount of property to an excluded business. For real property, de minimis means less than 5 percent of net rentable square feet; for other tangible property, less than 5 percent of value. Above that, the landlord business cannot be a qualified opportunity zone business.
Does the sin business rule apply to the fund itself?
No. An IRS example says the prohibition applies to qualified opportunity zone businesses, not at the Qualified Opportunity Fund level. A fund that owns and runs a commercial golf course directly may still treat the course property as Opportunity Zone business property if it meets the property requirements, though the anti-abuse rules still apply.
Are restaurants and bars excluded from Opportunity Zones?
They are not on the list. The excluded list names stores whose principal business is selling alcohol for consumption off premises, which describes a liquor store, not a restaurant or bar that serves on premises. Every business still has to meet the other qualified opportunity zone business tests.