The first round of opportunity zone deferrals comes due Dec. 31, 2026, and a new, permanent version starts in 2027. Here is how it works and where Kern County stands in the state’s nomination process.
Opportunity zones in Kern County are 35 low-income census tracts, 15 of them in Bakersfield, where investors who put capital gains into a qualified opportunity fund receive federal tax benefits. The 2017 tax law created the program, and Public Law 119-21 made it permanent on July 4, 2025, with new zones taking effect Jan. 1, 2027. Original deferrals end Dec. 31, 2026. California does not conform to the federal benefits.
Opportunity zones in Kern County at a glance
| Item | Detail |
|---|---|
| Law | IRC sections 1400Z-1 and 1400Z-2 (2017), made permanent and revised by section 70421 of Public Law 119-21 (July 4, 2025) |
| Administered by | IRS and Treasury; governors nominate zones (in California, through the Governor’s Office of Business and Economic Development, GO-Biz) |
| Kern County today | 35 designated tracts, 15 in Bakersfield (County of Kern); original maps remain valid through Dec. 31, 2028 |
| Original program deadline | Gains deferred through 2018 to 2026 investments are taxed on Dec. 31, 2026 unless the investment is sold sooner |
| OZ 2.0 benefits | 5-year rolling deferral; 10% basis step-up after 5 years (30% in rural funds); tax-free appreciation after 10 years |
| New zone designations | Nomination window opened July 1, 2026; new zones effective Jan. 1, 2027 and redrawn every 10 years |
| Kern’s role | Board of Supervisors recommended 27 preliminary tracts to GO-Biz on July 14, 2026 |
| California tax | No state deferral or exclusion; the state has not discussed conforming incentives (GO-Biz) |
| Status | California’s final nominations not yet published; OpportunityZones.com’s tracker lists the deadline as extended to Oct. 28, 2026 |
Key takeaways
- Kern County has 35 federally designated opportunity zone tracts, 15 of them in Bakersfield, and those original maps remain valid through Dec. 31, 2028.
- Capital gains deferred into qualified opportunity funds under the original 2017 program are included in federal income on Dec. 31, 2026, unless the investment was sold earlier.
- Public Law 119-21 made opportunity zones permanent. Gains invested after Dec. 31, 2026 are deferred for 5 years and get a 10% basis step-up, or 30% in a qualified rural opportunity fund.
- On July 14, 2026, the Kern County Board of Supervisors recommended 27 preliminary census tracts to GO-Biz for the new zones, which take effect Jan. 1, 2027.
- California offers no state deferral or exclusion for opportunity zone investments, so Kern investors still owe California tax on the gain.
What are opportunity zones in Kern County, and where are they?
Opportunity zones are low-income census tracts that governors nominate and Treasury certifies under the 2017 tax law. An investor who sells any asset at a gain can reinvest that gain within 180 days in a qualified opportunity fund. The fund is a partnership or corporation that holds at least 90% of its assets in opportunity zone property (IRC 1400Z-2). It then builds, buys and substantially improves, or operates businesses in the zones.
The County of Kern’s economic development page says Kern “has 35 Federal Opportunity Zones, with 15 located in Bakersfield”. The other 20 sit in outlying communities. GO-Biz says the original maps “remain valid” through Dec. 31, 2028, so they overlap with the new zones for two years.
What happens to the original opportunity zone program on Dec. 31, 2026?
Deferred gains from the original program become taxable on Dec. 31, 2026, unless the investor sold the fund interest earlier. Under the original rules, gain invested in a fund was deferred until the earlier of a sale or that date. For most investors still holding, the deferred gain lands in 2026 income, with the tax due on 2026 returns filed in 2027, even though the fund has paid out no cash.
The longer-term benefit survives. An investor who holds a fund interest for at least 10 years can elect to step the basis up to fair market value on sale, so appreciation inside the fund escapes federal tax (IRC 1400Z-2). Original-program investors still owe the 2026 tax bill on the deferred gain, and the 10-year benefit remains available to those who hold on.
How does OZ 2.0 work under the 2025 tax law?
OZ 2.0 is a permanent program for investments made on or after Jan. 1, 2027, with new zones selected every 10 years. Section 70421 of Public Law 119-21 created it, according to KPMG’s July 2025 analysis. The main changes:
Original opportunity zones versus OZ 2.0
| Feature | Original program (2018 to 2026) | OZ 2.0 (investments from 2027) |
|---|---|---|
| Zone maps | Designated 2018; valid through Dec. 31, 2028 | New maps effective Jan. 1, 2027, redrawn every 10 years |
| Eligible tracts | Low-income tracts plus some contiguous tracts | Median family income at or below 70% of the area median, or 20%+ poverty with income at or below 125%; contiguous tracts no longer eligible |
| How many per state | Up to 25% of eligible tracts | Up to 25% of eligible tracts (California: up to 618 of 2,469) |
| Deferral | Until the earlier of a sale or Dec. 31, 2026 | Until the earlier of a sale or 5 years after the investment |
| Basis step-up | Effectively expired for new investments | 10% after 5 years; 30% for qualified rural opportunity funds |
| Substantial improvement of existing buildings | Improvements exceeding 100% of the building’s basis within 30 months | Same, except 50% for rural property |
| Appreciation after 10 years | Excluded federally | Excluded federally |
Sources: IRC 1400Z-2, GO-Biz FAQ, KPMG. Treasury’s IR-2026-45 and Rev. Proc. 2026-14 identified 25,332 eligible tracts nationwide, 8,334 of them entirely rural.
How is California choosing new opportunity zones, and where does Kern County stand?
California has not yet published its final nominations. Federal guidance opened a 90-day nomination window on July 1, 2026, with a possible 30-day extension (IRS IR-2026-45). GO-Biz set a July 20 deadline for local recommendations and a Sept. 28, 2026 target for the Governor’s submission. It ranks tracts on poverty, median family income, rent burden, crowding, unemployment, geographic equity and economic development goals (GO-Biz FAQ). A public comment portal on the draft list ran from Aug. 3 to Aug. 28, 2026, according to Urban Catalyst.
On July 14, 2026, the Kern County Board of Supervisors “approved the proposed recommendation of 27 preliminary census tracts as Countywide Opportunity Zones” for GO-Biz. The Bakersfield Californian has reported that the state rejected most of Kern’s recommendations and that Bakersfield asked the state to reconsider its local nominations. California’s final list has not been published.
OpportunityZones.com reported that the 90-day window closed Sept. 28 with an automatic extension to Oct. 28, and its state tracker lists California’s deadline as extended. Treasury designates the zones, which take effect Jan. 1, 2027.
What do rural opportunity zones mean for Kern County?
Rural zones get richer benefits, and much of Kern County outside metropolitan Bakersfield could qualify. A qualified rural opportunity fund must hold at least 90% of its assets in rural zone property, and “rural area” generally excludes cities and towns of more than 50,000 people (IRC 1400Z-2). Bakersfield tracts are not rural. Tracts in smaller Kern communities may be.
Rural funds get a 30% basis step-up after 5 years instead of 10%. An existing rural building needs improvements equal to only 50% of its basis, not 100%. For an old packing shed, shop building or vacant commercial property in a small Kern town, that lower threshold can make a renovation pencil. Whether a given tract is rural and designated will be clear only on the final 2027 map.
Does California follow the federal opportunity zone rules?
No. GO-Biz says “the state has not had formal discussions about state-level conforming incentives for Opportunity Zones 2.0”, and the Franchise Tax Board says California generally does not conform to the 2025 federal law. A California resident who invests a gain in a fund still owes California tax on that gain in the year of sale. Later appreciation is taxable in California when realized.
That makes the state comparison with a 1031 exchange important for Kern owners selling real estate, because California does follow federal like-kind exchange rules (IRC 1031).
Opportunity zone investment versus 1031 exchange
| Feature | 1031 exchange | OZ 2.0 fund investment |
|---|---|---|
| What you reinvest | All net proceeds from real property | Only the capital gain, from any asset |
| Replacement | Like-kind U.S. real property | Interest in a qualified opportunity fund |
| Deadlines | Identify in 45 days, close in 180 days | Invest within 180 days |
| Federal deferral | Until a taxable sale | Up to 5 years |
| Reduction in deferred gain | None | 10% after 5 years; 30% in rural funds |
| Appreciation | Deferred again | Excluded federally after 10 years |
| California | Follows federal deferral | No deferral or exclusion |
Sources: IRC 1031, IRC 1400Z-2.
What could OZ 2.0 mean for Kern industrial and mixed-use development?
Opportunity zone money is patient equity that wants new construction or heavy renovation and a 10-year hold. That suits build-to-suit and spec industrial projects, small-bay flex buildings and mixed-use infill in designated tracts. Manufacturers building in a zone may also qualify for the separate 100% write-off for qualified production property if they own and operate the plant.
Fund money does not change market fundamentals. A regional brokerage report put Bakersfield industrial vacancy at 9.55% in Q2 2026, so projects still need tenants and rents that support construction costs. The tax benefit improves after-tax returns. It does not create demand.
For landowners in a tract that makes the 2027 map, designation can widen the buyer pool. Owners whose tracts drop off after 2028 should close sales to funds investing under the original program while the old designation is still valid.
Checklist for Kern investors and property owners
- If you hold an original fund interest, plan for tax on the deferred gain on your 2026 return.
- Track the 180-day window from any 2027 sale if you want to use OZ 2.0.
- A property’s tract is eligible for OZ 2.0 only if it appears on California’s final 2027 nominations once published.
- For rural tracts, the 30% step-up applies only if the fund qualifies as a qualified rural opportunity fund.
- Model California tax separately; the state offers no deferral.
- Compare a 1031 exchange if you are selling real estate.
Worked example: what does a $1 million gain in a Kern rural fund look like in 2027?
This example is hypothetical. In March 2027 a Bakersfield investor sells stock with a $1,000,000 capital gain. In May 2027, within 180 days, she invests $1,000,000 in a qualified rural opportunity fund building a small industrial project in a rural Kern tract on the 2027 map.
Federally, the gain is deferred until May 2032, five years after the investment. Because the fund is rural, her basis rises by 30% of the deferred gain, so she reports $700,000 in 2032 instead of $1,000,000. In a non-rural fund she would report $900,000. If she holds until at least May 2037 and the investment has grown to $1,600,000, she can elect a fair market value basis and owe no federal tax on the $600,000 of appreciation.
California taxes the full $1,000,000 gain in 2027 and the $600,000 of appreciation when she sells.
Illustrative federal and California outcomes
| Item | Rural fund | Non-rural fund | California |
|---|---|---|---|
| Gain taxed at sale in 2027 | $0 | $0 | $1,000,000 |
| Deferred gain taxed in 2032 | $700,000 | $900,000 | Already taxed |
| Appreciation after a 10+ year hold | $0 | $0 | $600,000 |
Frequently asked questions
How many opportunity zones are in Kern County?
Kern County has 35 federal opportunity zones, 15 of them in Bakersfield, according to the County of Kern. Treasury designated them in 2018 under the 2017 tax law, and GO-Biz says the maps stay valid through Dec. 31, 2028. In July 2026 the County recommended 27 preliminary tracts for the new zones that start Jan. 1, 2027.
What happens to opportunity zone deferrals on Dec. 31, 2026?
Gains deferred under the original program become part of federal income on that date unless the fund interest was sold earlier. Investors report them on 2026 returns filed in 2027, even with no distributions from the fund. The 10-year benefit, which excludes appreciation on long-held investments, still applies.
What is OZ 2.0?
OZ 2.0 is the permanent opportunity zone program that Public Law 119-21 created on July 4, 2025. For gains invested after Dec. 31, 2026, tax is deferred for five years. The deferred gain then drops by 10%, or 30% for rural funds, and appreciation is excluded after a 10-year hold. New maps take effect Jan. 1, 2027 and get redrawn every 10 years.
Has California chosen its new opportunity zones?
Not publicly. GO-Biz targeted Sept. 28 for the Governor’s submission, and the federal rules allow an automatic extension to Oct. 28. California may nominate up to 618 of its 2,469 eligible tracts. Treasury then designates the zones, so no tract’s status is final until the map is published.
Does California give a tax break for opportunity zone investments?
No. California does not follow the federal deferral or exclusion, and GO-Biz says the state has not discussed conforming incentives for OZ 2.0. A California taxpayer still pays state tax on the gain in the year of sale and on later appreciation when realized.
What is a rural opportunity zone fund?
A qualified rural opportunity fund keeps at least 90% of its assets in property in entirely rural zones, which generally excludes cities and towns above 50,000 people. Investors get a 30% basis step-up after five years instead of 10%. Existing rural buildings need improvements equal to just 50% of basis to count as substantially improved.
Is an opportunity zone investment better than a 1031 exchange?
It depends on your goal. A 1031 exchange defers all gain on real property indefinitely, and California follows it, but you must reinvest all proceeds in like-kind real estate. An opportunity zone investment needs only the gain, from any asset, and can eliminate federal tax on appreciation after 10 years. It defers the original gain just five years and earns no California benefit.
If you own land or buildings in a Kern County tract that may be on the 2027 map, or you are looking for opportunity zone sites, we can help you check the location and weigh development and sale options. Call Kern CRE at 661-885-6949 or contact us. Get Kern County CRE news monthly: subscribe to the Kern CRE report.
Sources
- Opportunity Zones, County of Kern, Economic Development.
- Board of Supervisors Meeting Recap for July 14, 2026, County of Kern, July 14, 2026.
- Opportunity Zones 2.0 in California: Frequently Asked Questions, California Governor’s Office of Business and Economic Development (GO-Biz), updated July 8, 2026.
- IR-2026-45: Treasury, IRS provide guidance to states for nominating census tracts as qualified opportunity zones, Internal Revenue Service, April 6, 2026.
- Rev. Proc. 2026-14, Internal Revenue Service, April 2026.
- 26 U.S. Code 1400Z-2, Special rules for capital gains invested in opportunity zones, Cornell Law School Legal Information Institute.
- 26 U.S. Code 1031, Cornell Law School Legal Information Institute.
- One, Big, Beautiful Bill and the Real Estate Industry, KPMG LLP, July 10, 2025.
- Tax News, March 2026 (2025 Tax Law Changes), California Franchise Tax Board, March 2026.
- California OZ 2.0 Public Comment and Map Selection, Urban Catalyst, Aug. 4, 2026.
- OZ 2.0 Nominations: Where Things Stand After the 90-Day Deadline, OpportunityZones.com, Sept. 29, 2026.
- OZ 2.0 State Tracker, OpportunityZones.com, updated Sept. 28, 2026.
- “State rejects majority of Kern’s Opportunity Zone 2.0 recommendations,” The Bakersfield Californian, 2026.
- “Bakersfield asks state to reconsider local Opportunity Zone nominations,” The Bakersfield Californian, 2026.
- Q2 2026 Bakersfield, CA Industrial Market Report, Lee & Associates, July 2026.
About this article
Kern CRE prepared this article with help from AI research and writing tools. An editor reviewed the draft, checked its facts against the sources linked above and edited it for accuracy and clarity. It is general information, not legal, tax, investment or financial advice; talk with a qualified professional about your situation.