Rural data centers and Opportunity Zones

A rural Opportunity Zone, for the enhanced benefits, is a designated zone made up entirely of rural area. The statute defines a rural area as any area other than a city or town with a population greater than 50,000 and any urbanized area contiguous and adjacent to such a city or town.¹ Notice 2025-50 applies the same definition to current zones and identifies the tracts treated as entirely rural.^2,3

Newly designated zones take effect January 1, 2027 and run through December 31, 2036. The final law dropped a proposed rural nomination quota, so the rural push works through tax incentives rather than a set-aside.⁶ How rural tracts are identified is in Rural Opportunity Zones, explained.

Two: a larger basis step-up for investors in a rural fund, and a lower substantial improvement threshold for existing buildings. A Qualified Rural Opportunity Fund (QROF) is a QOF that holds at least 90% of its assets in Opportunity Zone property located in zones made up entirely of rural area. Its investors receive a 30% basis step-up on deferred gain held five years, compared with 10% for a standard fund, for investments made after December 31, 2026.^1,4

The 50% substantial improvement rule took effect July 4, 2025 for property in any zone made up entirely of rural area.² Husch Blackwell flags adaptive reuse and new data center construction in rural zones as uses that benefit.¹⁸ Pillsbury argues the rural enhancements could make hyperscale campuses in rural zones more attractive.⁷ For details see What is a Qualified Rural Opportunity Fund (QROF)?.

On a $10 million gain, about $476,000 of federal tax at year five compared with a standard fund, under the assumptions below.

Harness gives a similar example: a $500,000 deferred gain in a rural fund held five years gets a $150,000 basis increase, so tax applies to $350,000.¹² The full tax walk-through is in The Opportunity Zone basis step-up: 10% and 30%.

Land, transmission and power availability. JLL reports that 77% of North American data center development is in frontier markets such as West Texas, Ohio, Louisiana, Indiana and the Carolinas, with Texas leading at 26 GW.¹⁰ EPRI projects that data centers could exceed 20% of state electricity use in seven states, Arizona, Indiana, Iowa, Nebraska, Nevada, Oregon and Wyoming, by 2030.¹¹

Rural sites near large transmission lines, retired power plants and new generation are a recurring pattern. Meta's Hyperion campus in Richland Parish, Louisiana is served by new Entergy gas plants approved in 2025, along with a 500 kV transmission line.¹⁶ Forvis Mazars sees a trend toward rural, tertiary-market data center and clean energy sites that may qualify as rural Opportunity Zones.⁸ WIRED, citing Searchlight Institute research, reported in October 2026 that more than 100 planned or developing rural data center projects could qualify for the enhanced rural benefits from 2027.⁹

It is measured across the whole fund, so one non-rural asset can cost every investor the 30% step-up. The QROF test requires at least 90% of the fund's assets to be Opportunity Zone property in zones made up entirely of rural area.¹ A zone that is partly urban does not count toward that 90%, even if the data center parcel itself is in open country.

• A single-asset fund that owns one rural campus is the simplest way to meet the test.
• A multi-asset fund that adds an urban edge site or colocation building can fall below 90% rural and lose QROF status.
• Tract status should be checked against the new designations once Treasury certifies them, because many current zones will not be redesignated.
• The rural fund's status and the 50% improvement rule are separate: a standard fund can still use the 50% rule for a building in a wholly rural zone.

Rural fund mechanics, including how and when the 90% rural test is measured, may be refined in future Treasury guidance. Confirm the fund's design with your tax adviser.

Fiber, water, workforce, utility terms and local support. The tax benefits do not fix a site that lacks infrastructure.

The FCC National Broadband Map helps check local fiber availability.¹⁴ State incentives differ: Iowa, for example, limited the electricity exemption for new or expanded data centers to 10 years in cities over 30,000 people and 15 years in smaller cities.¹⁷ Local response matters: Data Center Watch counted opposition groups growing from 396 at the end of 2025 to 833 by the end of the first quarter of 2026.¹⁹ Brookings found that counties getting their first large data center saw private employment rise 4% to 5% over five to six years, with construction employment up 11%.¹⁵ Fiber planning is covered in Fiber connectivity for rural Opportunity Zone data centers.

Critics argue the rural incentives will mostly subsidize large data centers. Microsoft, Meta and Amazon told WIRED they do not use the program for their data center investments.⁹ On September 16, 2026, Sen. Josh Hawley introduced the No Tax Breaks for Data Centers Act to exclude data centers from Opportunity Zone benefits; House members and Sen. Ron Wyden put forward related proposals.¹³ None had been enacted as of October 20, 2026. Investors should model current law and disclose the proposals. The community side is covered in The economic impact of data centers in Opportunity Zones.