“This new rural-focused guidance is a significant development for investors and communities alike. By cutting the substantial improvement requirement in half and providing an official list of qualifying tracts, Treasury and the IRS have made rural buy-and-rehab strategies far more feasible. It also signals the federal government’s clear intent in OZ 2.0 to drive capital into smaller, underserved markets by tightening eligibility and enhancing long-term tax benefits for rural funds. Investors who start positioning now, particularly in light of the new ordinary income investment allowance, will be best placed to capitalize on the next generation of Opportunity Zone incentives.”
–George Finn, Rose Law Group senior real estate attorney who works on O- Zones
By BisNow
While the second iteration of the opportunity zone program is still more than a year away from launching, the federal government released new guidance for a rural benefit that investors can take advantage of today.
The Department of the Treasury and the IRS issued new guidance that defines which tracts now qualify as rural opportunity zones, totaling 3,309 tracts and roughly 38% of the OZ map.
The IRS said a rural area is defined as any census tract that isn’t in a city or town with a population greater than 50,000 or isn’t an urbanized area adjacent to a city or town of that size.
As part of the One Big Beautiful Bill Act, the Treasury and IRS made changes to the rural substantial improvement provision of the opportunity zone program. The program previously required investors renovating a property to invest 100% of the asset’s basis to receive the OZ tax benefits, but as of the law that became effective July 4, they are now only required to invest 50% of the basis.
