IRS Clarifies “Rural Areas” Definition for Opportunity Zones
As agencies continue implementing provisions of the One Big, Beautiful Bill Act (OBBBA), the IRS has released guidance increasingly relevant to Opportunity Zone stakeholders.
IRS Notice 2025-50
On September 30, the IRS issued Notice 2025-50, clarifying the definition of “rural areas” for designated Opportunity Zone (OZ) census tracts and outlining how the amended substantial improvement rules apply under the OBBBA.
Definition of “Rural Area”
Section 70421(c)(2) of the OBBBA codifies a definition of “rural area” in §1400Z2(b)(2)(C)(ii), applicable to Qualified Opportunity Fund (QOF) investments made after December 31, 2026. A rural area is:
“Any area other than—
(I) a city or town with more than 50,000 inhabitants; and
(II) any urbanized area contiguous and adjacent to such a city or town.”
This standard mirrors the definition used in the Consolidated Farm and Rural Development Act and by the U.S. Department of Agriculture.
Substantial Improvement
The substantial improvement threshold remains 100 percent for properties in urban areas. For rural properties, the OBBBA reduces the requirement to 50 percent of the eligible entity’s adjusted basis in tangible property.
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