Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act as a way to defer and potentially eliminate capital gains taxes by reinvesting in designated low-income communities.
On September 30, 2025, the IRS released Notice 2025-50, introducing new incentives for investments in Opportunity Zone properties located in areas newly defined as 'rural.' This affects more than 3,300 census tracts.
A New Rural Designation
Under the new rule, a 'rural area' is any census tract not part of a city or town with a population greater than 50,000, and not an urbanized area adjacent to such a city.
Easing the Capital Burden
The 'substantial improvement' threshold has been cut in half — to just 50% — for properties located entirely within newly designated rural zones. This applies retroactively to property acquired after July 4, 2025.
Enhanced Basis Step-Up for QROFs
QROF investors receive a 30% step-up in basis after a 5-year holding period (versus the historical 10% for standard QOFs). This is generally effective for investments beginning in 2027.
