Tax insight

IRS clarifies rural area designation for existing Opportunity Zone tracts

Insight
5 minute read
October 09, 2025

What happened?

The IRS on September 30, 2025 released Notice 2025-50, providing guidance on the new “rural area” designation for opportunity zones (OZs), initially introduced as part of the One Big Beautiful Bill Act (the Act). The notice clarifies the definition of “rural area” for OZ purposes and provides a full listing of existing OZs that meet the “rural area” definition and are thus eligible for a reduced substantial improvement threshold.

Why is it important?

While many of the changes to the OZ program introduced by the Act do not come into effect until January 1, 2027, a number of provisions (including the reduced threshold for substantial improvement of property in an OZ comprised entirely of a rural area) took effect on July 4, 2025, the date the Act was signed into law. Since the concept of rural areas was not part of the original OZ designations, it was unclear which existing OZs satisfied the definition and how it would be applied.

Actions to consider

Qualified opportunity funds (QOFs) and qualified opportunity zone businesses (QOZBs) should compare the listing of OZ tracts provided in the appendix to Notice 2025-50 to the location of any current and proposed investments to see where they may be able to qualify for the reduced substantial improvement threshold. Reducing the investment needed to satisfy the substantial improvement requirement may result in deals that once would not have met the OZ requirements becoming more feasible.