Does Your Project Qualify as an Opportunity Zone Business? Check Each Test

Most Qualified Opportunity Funds do not own property directly. They invest in a qualified opportunity zone business (QOZB) that owns or leases the property and runs the project. That business has its own set of numeric tests.

The free QOZB test checker for qualified opportunity zone business requirements checks a business against each numeric test in the regulations, and the fund that owns it against the 90% investment standard.

The tests it checks

70% tangible property

At least 70% of the business's owned and leased tangible property must be QOZ business property.

50% gross income

At least half of gross income must come from active conduct of business in the zone.

40% intangibles

At least 40% of intangible property must be used in active conduct in the zone.

5% nonqualified financial property

Nonqualified financial property, excluding reasonable working capital, must be under 5% of average aggregate unadjusted bases.

Working capital safe harbor

Enter the months to spend working capital under a written schedule. The tool supports one application (31 months), two (62 months), a written designation and plan, and an extra 24 months for a zone in a federally declared disaster.

The fund's 90% test

It also takes the fund's QOZ property and total assets on both test dates.

The result

You get a pass or fail for each test with the actual percentage and the threshold, and a count of tests passed.

Fund vs business: why there are two layers

A QOF can hold qualified opportunity zone property directly, but many invest through a qualified opportunity zone business, often a separate entity that owns the building. The fund must meet the 90% test; the business must meet its own tests. The checker runs both at once.

Step by step: running the checker

1. Open the QOZB requirements checker.
2. Enter the business's tangible property (owned plus leased) and how much of it is QOZ business property.
3. Enter gross income and how much comes from active conduct in the zone.
4. Enter intangible property and how much is used in the zone.
5. Enter average aggregate unadjusted bases and nonqualified financial property, excluding reasonable working capital.
6. Set up the working capital safe harbor: months to spend, number of applications, written plan, disaster zone.
7. Enter the fund's figures for both test dates.
8. Read the pass or fail line for each test.

Hypothetical example: a boutique hotel build

Hypothetical example, for illustration only. A developer is building a boutique hotel through a QOZB. During construction, the business holds a lot of cash. Under a written plan and schedule, the working capital safe harbor can treat that cash as reasonable working capital for up to 31 months per application. The checker lets the developer enter the schedule and see whether the 5% nonqualified financial property test still passes.

Who uses it

Developers, fund managers, their accountants and attorneys, and agents representing sites to Opportunity Zone buyers.

Common mistakes

• Leaving out leased property from the tangible property test.
• Having no written plan for working capital.
• Assuming a passing result settles qualification. The checker covers the numeric tests only; other rules apply.
• Forgetting the fund-level 90% test.

Questions to bring to your CPA or adviser

The tool gives you a starting point. Before you act, these are worth asking:

• Is the business set up as a separate entity owned by the fund, and is that the right structure?
• Do we have a written designation, plan and schedule for working capital?
• Does any leased property need to be counted, and on what terms?
• How much income will come from active conduct in the zone during the first years?
• Is the site in a federally declared disaster zone?
• Who will monitor the tests each year?
• What other qualification rules apply beyond these numeric tests?

Where this fits for luxury sellers and buyers

Luxury-adjacent development in Opportunity Zones, like boutique hotels, condo conversions and mixed-use projects, usually runs through a QOZB. Developers and their agents can use the checker during planning, and investors can use it to ask better questions of a sponsor.

More free Opportunity Zone tools

This is one of several free planning tools in the Opportunity Zone tools library on Opportunity Zone Invest. Buying an existing building? Run the substantial improvement test calculator.

FAQ

Not tax advice. Tool outputs are estimates based on the figures you enter and current published rules. Investors get Opportunity Zone tax benefits only by investing through a Qualified Opportunity Fund. Talk to a CPA or tax attorney before you act.