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Zone maps & designation

Rural Opportunity Zones, explained

A rural Opportunity Zone is a zone made up entirely of rural area, meaning outside any city or town of more than 50,000 people and the urbanized area next to it. Investments made after December 31, 2026 through a Qualified Rural Opportunity Fund, which holds at least 90% of its assets in such zones, get a 30% basis step-up after five years instead of 10%. Property in rural zones also needs only 50% substantial improvement instead of 100%, a rule in effect since July 4, 2025.

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Key takeaways

  • "Rural area" in §1400Z-2(b)(2)(C)(ii) means any area other than a city or town with more than 50,000 people and any urbanized area contiguous and adjacent to such a city or town.
  • A Qualified Rural Opportunity Fund (QROF) must hold at least 90% of its assets in QOZ property located in zones composed entirely of rural area.
  • QROF investors get a 30% basis step-up after five years, so 70% of the deferred gain is taxed; a standard QOF gives 10%, so 90% is taxed.
  • In a wholly rural zone, property is substantially improved if additions to basis exceed 50% of its adjusted basis within 30 months, instead of 100%.
  • Treasury's eligible list for zones effective January 1, 2027 includes 8,334 wholly rural tracts out of 25,332; of the 8,764 zones in effect in 2026, the IRS identified 3,309 as wholly rural.

What is a rural Opportunity Zone?

A designated zone that consists entirely of rural area, as the statute now defines it.

Public Law 119-21 added a statutory definition of "rural area" to §1400Z-2(b)(2)(C)(ii): any area other than (I) a city or town with a population of more than 50,000 and (II) any urbanized area contiguous and adjacent to such a city or town.1,2 The definition mirrors §343(a)(13)(A) of the Consolidated Farm and Rural Development Act, and Notice 2025-50 adopts it for zones in effect today.3,4

The benefits attach only to zones "composed entirely of a rural area." A tract that is partly inside an urbanized area next to a city of more than 50,000 does not qualify. Treasury's eligible-tract list identifies which candidate tracts are wholly rural, and the IRS identified the wholly rural zones among those already in effect.5,6

Fig. 1Rural tracts by the numbers

Wholly rural zones among the 8,764 in effect in 2026
3,309
Wholly rural tracts eligible for the 2027 map
8,334
All eligible tracts for the 2027 map
25,332
Population above which a city or town is not rural
50,000
IRS counts for zones in effect in 20266 and for tracts eligible for the 2027 map under Rev. Proc. 2026-14.5

What extra tax benefits do rural Opportunity Zones get?

Two: a 30% basis step-up for investments through a Qualified Rural Opportunity Fund, and a 50% substantial improvement threshold for rural property.

Rural versus standard Opportunity Zone rules
RuleStandard QOF and zoneRural (QROF or wholly rural zone)Applies from
Basis step-up after 5 years10% of deferred gain30% of deferred gain (QROF)Investments after December 31, 2026
Share of deferred gain taxed at year 590%70%Investments after December 31, 2026
Substantial improvement thresholdMore than 100% of adjusted basis in 30 monthsMore than 50% of adjusted basis in 30 monthsSince July 4, 2025
Fund asset test90% in QOZ property90% in QOZ property in wholly rural zonesInvestments after December 31, 2026
10-year exclusion and 30-year limitSameSameInvestments after December 31, 2026

Practitioner summaries of the law describe the same package.7,8,9 For the general step-up and deferral rules, see the basis step-up: 10% and 30% and the five-year deferral.

What is a Qualified Rural Opportunity Fund?

A QOF that holds at least 90% of its assets in qualified opportunity zone property located in zones made up entirely of rural area.

The QROF test applies at the fund level, on top of the ordinary 90% asset test.10,7 A fund that holds one urban project alongside rural ones can fall below the 90% rural threshold and lose the 30% step-up, even though it remains a QOF. Sponsors who want the rural benefit usually keep rural funds separate. Annual reporting under §6039K applies to QROFs as well as QOFs.11 The full definition is in what a Qualified Rural Opportunity Fund is.

Fig. 2Year-5 tax on $1,000,000 of deferred gain in a QROF

Illustrative
  • Tax on $1,000,000 at 23.8% with no step-up$238,000
  • Saved by the first 10% of step-up (standard QOF)−$23,800
  • Saved by the extra 20% for a QROF−$47,600
  • QROF tax due at year 5: $166,600 on $700,000$166,600
Illustrative only. Assumes a $1,000,000 gain invested in a QROF in 2027, held five years, value at least equal to the deferred gain, a 23.8% federal rate (20% plus 3.8% net investment income tax) and no state tax.

In the same facts, a standard QOF would tax $900,000, for $214,200 of tax. The QROF saves $47,600 on the deferred gain, before any growth. Gains on the QOF investment itself can still be excluded after a 10-year hold in either case.

Some mechanics are still open. Treasury has not issued regulations on how a fund demonstrates QROF status on each testing date or what happens if a QROF dips below the rural 90% threshold in one year. Notice 2026-55 asks for comments on a range of §1400Z-2 issues, with comments due November 23, 2026, and further guidance may follow.16 Until then, sponsors should test the rural share on the same semiannual dates as the ordinary 90% test and keep a margin above 90%.

How does the 50% substantial improvement rule work in rural zones?

Within any 30-month period after purchase, the business must add to the property's basis more than 50% of its adjusted basis at the start of that period, instead of more than 100%.

The rule took effect on enactment, July 4, 2025, and Notice 2025-50 applies it to zones in effect today that are made up entirely of rural area.3,12 Land is excluded from the calculation, as it is in all zones. Commentators note the change roughly halves the capital needed to redevelop an existing rural building.13

Fig. 3Improvement spending needed for a $2 million building

Illustrative
  • Standard zone: more than 100% of building basisOver $2.0M
  • Wholly rural zone: more than 50% of building basisOver $1.0M
Illustrative only. A $3 million purchase with $1 million allocated to land and $2 million to the building; the threshold is measured on the building's basis.

The test and its aggregation rules are in the substantial improvement test.

How do I know if a zone is wholly rural?

Check Treasury's eligible list, which flags wholly rural tracts, and confirm the tract is designated once Treasury certifies the new map.

  1. 1.Find the property's 11-digit census tract.
  2. 2.Check the Rev. Proc. 2026-14 list, which identifies the 8,334 eligible tracts made up entirely of rural area.5
  3. 3.Confirm that the tract is on Treasury's certified list of zones effective January 1, 2027.
  4. 4.For a zone in effect today, check the IRS list of wholly rural zones issued with Notice 2025-50.6
  5. 5.Document the determination for the fund's QROF and substantial improvement files.

There is no rural nomination quota in the statute; how many rural zones each state has depends on the governor's choices.14 Status of the new map is in the new Opportunity Zone maps taking effect in 2027.

Are rural Opportunity Zones good for data centers?

Often, yes: rural tracts offer land and access to transmission, and the 30% step-up and 50% improvement rule improve the economics, but fiber, water and workforce need early diligence.

Data center demand is driving large new loads. U.S. data centers used about 176 TWh in 2023, about 4.4% of U.S. electricity, and LBNL projected 325 to 580 TWh by 2028.15 Campuses of that scale need hundreds of acres near high-voltage lines, which points to rural tracts. A QROF that develops a new campus in a wholly rural zone can offer investors the 30% step-up, and a QOZB that acquires an existing rural industrial building for conversion needs to add only more than 50% of the building's basis.

Fig. 4Rural data center site screen

  • PassTract wholly rural and certified for 2027Required for QROF and 50% rule
  • WatchTransmission capacity and interconnection pathOften the longest lead item
  • WatchLong-haul fiber within reachLateral builds add cost and time
  • WatchWater or dry-cooling planLocal supply and permits
  • PassFund keeps 90% of assets in rural zonesDo not mix urban projects into a QROF
  • PassHold period of 10 years or moreMatches long-lived shell and power infrastructure
Rural tax benefits are real, but the site must still work as a data center. Items marked watch need early diligence.5,9

See rural data centers and Opportunity Zones, fiber for rural data centers and power interconnection.

Common questions

What counts as rural for Opportunity Zones?

Any area other than a city or town with more than 50,000 people and any urbanized area contiguous and adjacent to such a city or town. The zone must be made up entirely of rural area for the rural benefits to apply.

What is the rural Opportunity Zone step-up?

Investments made after December 31, 2026 through a Qualified Rural Opportunity Fund get a 30% basis step-up after five years, so only 70% of the deferred gain is taxed. A standard QOF gets 10%.

Does the 50% substantial improvement rule apply now?

Yes. It has applied since July 4, 2025 to property in zones made up entirely of rural area, including zones in effect today under Notice 2025-50.

Can a fund invest in both rural and urban zones and still be a QROF?

Only if at least 90% of its assets are QOZ property in wholly rural zones. Below that, it may still be a QOF but loses the 30% step-up.

How many rural Opportunity Zones will there be in 2027?

Not known until Treasury certifies the new map. The eligible list includes 8,334 wholly rural tracts out of 25,332, and governors choose which to nominate.

Is there a rural quota for Opportunity Zone nominations?

No. The statute does not require a share of rural nominations. The rural incentive works through the 30% step-up and the 50% improvement threshold.

Sources

Every numbered note in this guide links to the source below.

  1. 1.U.S. Government Publishing Office (GovInfo), “26 U.S.C. 1400Z-2: Special rules for capital gains invested in opportunity zones,” 2026. govinfo.gov
  2. 2.IPA, “IRS Clarifies Rural Areas Definition for Opportunity Zones,” 2025. ipa.com
  3. 3.Internal Revenue Service, “Notice 2025-50,” 2025. eitc.irs.gov
  4. 4.EY Tax News, “IRS clarifies rural areas and substantial improvement for purposes of current Opportunity Zones,” 2025. taxnews.ey.com
  5. 5.Internal Revenue Service, “Treasury, IRS provide guidance to States for nominating census tracts as qualified opportunity zones under the One, Big, Beautiful Bill,” 2026. irs.gov
  6. 6.Internal Revenue Service, “Enhanced tax incentives for Qualified Opportunity Zone investments in rural areas,” 2025. irs.gov
  7. 7.RSM US, “The OBBBA rekindles opportunity zones: What it means for real estate,” 2025. rsmus.com
  8. 8.Novogradac, “OBBBA Makes OZ Incentive Permanent, With Some Significant Changes,” 2025. novoco.com
  9. 9.Venable, “The One Big Beautiful Bill Act: Impact on the Opportunity Zone Program,” 2025. venable.com
  10. 10.Willkie Farr & Gallagher, “One Big Beautiful Bill Act Extends Tax Incentives for Qualified Opportunity Zones,” 2025. willkie.com
  11. 11.Current Federal Tax Developments, “Treasury Proposes Comprehensive QOZ Information Reporting and QOF Certification Regulations,” 2026. currentfederaltaxdevelopments.com
  12. 12.Internal Revenue Service, “Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill,” 2025. irs.gov
  13. 13.Aldrich Advisors, “IRS Guidance Lowers Investment Threshold for Rural Opportunity Zones,” 2025. aldrichadvisors.com
  14. 14.Economic Innovation Group, “Where Things Stand After the One Big Beautiful Bill Act,” 2025. eig.org
  15. 15.Lawrence Berkeley National Laboratory, “2024 United States Data Center Energy Usage Report,” 2024. eta-publications.lbl.gov
  16. 16.Internal Revenue Service, “Notice 2026-55, Request for Additional Comments on Issues under Section 1400Z-2,” 2026. irs.gov

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This website is for general information only. It is not an offer to sell, or a solicitation of an offer to buy, any security. Any offering will be made only through confidential offering documents, to eligible investors, where permitted by law. Opportunity Zone tax benefits depend on each investor's circumstances and on rules that can change; consult your own tax and legal advisers.

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Up next · Zone maps & designationWhat is a Qualified Rural Opportunity Fund (QROF)? →A QROF is a QOF holding 90% of its assets in wholly rural Opportunity Zones. Investors get a 30% basis step-up after five years instead of 10%.9 min read
Data centers in Opportunity ZonesRural data centers and Opportunity ZonesTax benefits & the mathThe Opportunity Zone basis step-up: 10% and 30%Fund & business rulesThe Opportunity Zone substantial improvement test

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