Recent guidance from the Treasury Department and IRS is reshaping how investors approach rural opportunity zone projects, easing long-standing requirements that many saw as obstacles to development.

Originally established through the 2017 Tax Cuts and Jobs Act, the opportunity zone program was made permanent earlier this year. The program offers investors tax incentives, including a potential 10% step-up in basis for holding an investment for at least five years—and up to 30% for qualifying rural opportunity zone properties, according to Neology Group CFO Rick Porras.

Under the updated rules, 3,309 opportunity zones identified in the 2020 Census are now classified as fully rural. These zones are defined as areas that are neither cities or towns with populations of 50,000 or more nor urbanized areas adjacent to them.

The program has already had a measurable impact on housing development. A CoStar analysis shows that multifamily units reserved for low-income households in opportunity zones are being completed at double the rate seen nationally before the program existed. Around 68,000 additional apartments have been built in these zones, representing roughly $18 billion in value based on CoStar’s average price per unit.

One of the biggest changes in the new guidance involves the “substantial improvement” requirement for qualified businesses. Previously, properties had to double their adjusted basis after purchase. The new rules lower that threshold for rural opportunity zones from 100% to 50%, making it easier for investors to meet program requirements.

Carey Heyman, CPA and managing principal for real estate at CLA, called the update a “major shift” and a “pivotal move to support rural development.” He noted that rural zones often face limited access to capital and higher infrastructure costs, making the previous standard particularly challenging. The lowered threshold, he said, provides much-needed relief and signals a broader commitment to inclusive economic growth.

Source: GlobeSt.