Property in a rural opportunity zone now has to be improved by only half as much, 50% of its basis rather than 100%, for an investment in it to earn the opportunity zone tax break, the IRS says, under Trump’s tax law.
Half of the basis instead of all of it
The IRS provisions page, last reviewed Sept. 25, states the rule in one sentence: beginning July 4, 2025, the substantial improvement threshold was reduced from 100 percent to 50 percent for required additions to the basis of property located entirely in rural qualified opportunity zones. The page files the change under section 70421 of the 2025 law.
As arithmetic, the change means that for a building with $1,000 of basis, the required additions fall from $1,000 to $500. The IRS materials do not attach a dollar figure to any property, so that is an illustration of the percentage, not a reported case.
Because the stated start date is July 4, 2025, the lower threshold reaches rural zone property from the day the law took effect, according to the IRS, rather than from a later regulatory date. That timing means projects already under way when the law passed can be measured against the 50% figure, as the notice’s wording about property that has been or is being substantially improved indicates.
Why improvement is the price of the break
Opportunity zone investing rewards capital put into struggling areas, and the improvement test is what separates buying an existing building from building value in it. Section 1400Z-2 of the tax code, available in the Cornell Legal Information Institute’s copy of the statute, holds the opportunity zone rules. The IRS pages read for this article describe the improvement threshold and do not lay out the deferral and exclusion benefits themselves, so those details remain with the statute and the agency’s opportunity zone materials.
What the pages do establish is the direction of the change: a rural project that adds half as much as the old rule demanded can now satisfy the test. That lowers the capital an investor has to commit to rehabilitation before the property counts.
3,309 zones out of 8,764
The lower threshold does not reach every zone. In release IR-2025-96, issued Sept. 30, 2025 with Notice 2025-50, the IRS said that of the 8,764 qualified opportunity zones in the United States, 3,309 are comprised entirely of rural areas. Those 3,309 are the zones where the 50% rule applies.
By that count, about 38% of the country’s zones are entirely rural. The share matters for an investor because the lower threshold is confined to that group, and a fund searching for rural projects has a defined pool of 3,309 zones to look through rather than an open-ended category.
The notice covers all tangible property located in a zone that is comprised entirely of a rural area on or after July 4, 2025, that has been or is being substantially improved. A property in a zone that is only partly rural is outside that description, and the provisions page uses the same phrase, property located entirely in rural zones.
How the IRS defines rural
The IRS definition draws the line by population. A rural area, in the agency’s words, is 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. Places outside those two categories, including towns smaller than 50,000 people, are within the rural definition.
The agency repeated that definition in a Jan. 21, 2026 article headlined as making investments in rural areas more attractive for real estate investors. The article describes the threshold as reduced from 100% to 50% for required basis additions to rural opportunity zone property.
New zones and the nomination guidance
The 50% rule applies to zones already designated, but the same law also touches which areas can become zones. The IRS separately issued guidance to states for nominating census tracts as qualified opportunity zones under the law, which the provisions page lists as related guidance for the rural changes. That guidance concerns how states pick tracts, not the improvement test, so it does not alter the 50% threshold described above.
What older investors can and cannot draw from the IRS pages
Retirees sitting on gains from stock, a business or a sold home are the investors most often pitched on opportunity zone funds. The IRS pages give them one confirmed fact: the improvement test is lower in rural zones. The pages do not say what any fund returns, how long an investor must hold, or which specific rural projects qualify, and they do not evaluate whether an opportunity zone investment suits a particular portfolio.
The IRS also maintains a general opportunity zones page where the underlying forms and rules are collected. The agency’s Sept. 30, 2025 release, which reported the 3,309 rural zones, remains the clearest statement of which properties the lower threshold reaches.
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This article was produced with AI assistance and checked against the primary sources linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
