OZ 1.0 Retrospective

What the investment data showed

Significant private capital did flow into OZ-designated tracts. Qualified Opportunity Funds (QOFs) self-certified with the IRS via Form 8996, and Treasury's filings showed meaningful fund formation and asset accumulation. The Trump White House Council of Economic Advisers, in its August 2020 initial assessment, characterized the program as generating substantial investment and job creation in designated areas. Treasury economists Coyne and Johnson, with access to the full Form 8996 universe, documented approximately $48 billion in total QOF assets by end of 2020 — rising from $4 billion in 2018 to $28 billion in 2019.

The geographic distribution of that capital, however, was skewed. Kennedy and Wheeler, using Form 8996 data accessed via the Joint Committee on Taxation, found that only 1,347 of 8,764 designated OZ tracts received any investment in 2019 — and the top 1% of tracts absorbed 42% of all capital, with the top 5% taking 78%. By 2020 coverage had broadened (3,242 tracts funded), but 63% of OZ tracts still received zero investment from electronic filers. Coyne and Johnson found that 84% of all QOZ investment was concentrated in the top 20% of communities that received any investment at all. Investment concentrated in already-appreciating urban tracts, not the high-distress rural and legacy industrial communities the program was conceived to help.

The absence of enforceable disclosure requirements under OZ 1.0 made it difficult to assess outcomes precisely. QOFs filed Form 8996 but faced no meaningful penalty for non-filing or incomplete data. Coyne and Johnson's analysis — the most comprehensive ever done using the full IRS data — estimated roughly 21,000 individual investors in 2020, with a median adjusted gross income of approximately $730,000, compared to a national median household income of $69,000 (Kennedy & Wheeler, using IRS records for the same period).

The JCT staff's May 2024 analysis, drawing on electronically filed returns through tax year 2022, documented $84.7 billion in cumulative QOF investment — of which $77.2 billion could be matched to specific census tracts. Only 8.5 percent of that tract-matched investment reached rural areas, and 94 percent of tracts in the top investment decile were metropolitan. These figures confirm that OZ 1.0 capital formation continued steadily through the program's TCJA-era lifespan while the metro concentration problem documented in 2019–2020 persisted.

By the numbers

What the academic research found

The academic literature on OZ 1.0 is largely null-to-modest in its findings, particularly on the outcomes that advocates most prominently claimed.

On housing prices — the most-studied outcome — Chen, Glaeser, and Wessel's study published in the Journal of Urban Economics (2023, NBER Working Paper 26587) found no detectable price effects attributable to OZ designation. The study rules out price impacts larger than 0.5 percentage points at 95% confidence — a precise null, not just an absence of evidence.

On employment, Arefeva, Davis, Ghent, and Park's 2020 Brookings working paper examined job postings in OZ tracts and found limited average effects. Freedman, Khanna, and Neumark (2021) examined effects on resident employment. Sage, Langen, and Van de Minne (2019) looked at early commercial property price dynamics. Wheeler (2022) raised methodological concerns about the Chen-Glaeser-Wessel identification strategy. Taken together, the quasi-experimental literature does not support strong positive effects claimed by program advocates, though it does not demonstrate uniform harm.

The honest read of this literature is that average effects were small or undetectable at the tract level — consistent with significant investment concentration in a subset of OZs (where individual deal economics favored investment regardless of designation) and limited activity in the majority. Coyne and Johnson find that OZ tracts receiving investment had meaningfully higher pre-designation growth in income (+12.6% vs +9.1%), college attainment (+2.3pp vs +1.4pp), and house values (+9.6% vs +3.7%) compared to OZ tracts receiving no investment — consistent with investors selecting already-improving tracts, not creating the improvement.

The community development critique

Community development and housing organizations raised concerns about OZ 1.0 throughout its operation, many of which were borne out by the investment data. NCRC's October 2025 assessment characterized OZ 1.0 as a taxpayer-funded program that primarily benefited wealthy investors rather than distressed communities, pointing to the concentration of investment in already-appreciating tracts and the lack of evidence for resident economic improvement. NLIHC's 2021 critical explanation documented the structural reasons why OZ investment tends toward commercial and luxury development rather than affordable housing and services for existing residents.

The most vivid evidence of the program's misuse came from media and congressional scrutiny: self-storage facilities, sports stadiums, luxury apartment towers, and private aviation hangars were among the eligible uses that drew OZ capital. Senator Ron Wyden introduced legislation (S. 2787, November 2019) that would have prohibited OZ tax benefits for self-storage, sports stadiums, luxury rentals, and private planes.

None of these critiques are arguments against place-based investment incentives in principle — they are arguments about program design. OZ 2.0's changes are a direct response to these documented failures.

What OZ 2.0 changed in response

The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) made three categories of design changes that speak directly to the OZ 1.0 record.

Mandatory reporting. OZ 1.0's only investor-level disclosure was Form 8996, an annual self-certification with no meaningful penalty for non-compliance. OZ 2.0 added IRC § 6039K, which requires QOFs to file detailed annual information returns covering total assets, QOZ property held, employment metrics, NAICS codes for underlying businesses, and housing units created or preserved. QOZBs must file corresponding returns under § 6039L. Penalties under new § 6726 reach $500 per day for standard failures and $2,500 per day for intentional disregard. Treasury is also required to publish public aggregate reports on QOF activity at years 6 and 11 after enactment.

The rural carve-out. Notice 2025-50 established the qualified rural opportunity fund (QROF) category with enhanced investor tax benefits for funds investing in the 8,334 eligible tracts IRS has flagged as entirely rural. This is a direct response to the geographic investment concentration problem: rural tracts that attracted little OZ 1.0 capital now carry an additional investor benefit to improve their competitive position.

More structured state designation processes. OZ 2.0 gave governors 90 days (July 1– September 29, 2026) to select tracts from the IRS eligible list. A significant number of states have published scoring criteria, formal nomination portals, and comment periods — not a statutory requirement, but a response to cumulative pressure from researchers, community organizations, and federal guidance.

Implications for OZ 2.0 advocates

The OZ 1.0 evidence base supports two conclusions that should shape how local planners approach OZ 2.0. First, designation is a necessary but not sufficient condition for attracting investment. A tract's position on the IRS eligible list does not generate capital — it reduces the cost of capital for investors who already see a viable deal. Community readiness, deal pipeline, and local government engagement matter more than eligibility status alone.

Second, the communities most likely to benefit from OZ 2.0 are those that can demonstrate both genuine need and genuine investment opportunity. The OZ 1.0 critique — that designation primarily benefited investors in already-appreciating tracts — is strongest in places where investment would have happened regardless. Rural and high-distress tracts where capital markets genuinely fail are precisely the places where the incentive can make a marginal difference. That's the argument to make in any state nomination process.