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The IRS released Notice 2025-50 on Sept. 30, providing the first round of guidance related to the changes to Section 1400Z-2 coming out of the One Big Beautiful Bill Act (OBBBA).
The OBBBA amended section 1400Z-2 to provide new rules for certain improvements to property located in a qualified opportunity zone (QOZ) that are comprised entirely of a “rural area.”
Specifically, the 2025 notice provides guidance as to what constitutes a “rural area.” The OBBBA amended the requirement that taxpayers must substantially improve property used in a QOZ by 100% of the initial basis in the property. Now, property used in a “rural area” requires only substantial improvement by up to 50% of the initial basis in the property. Under the new guidance, a rural area means any area other than a city or town with a population greater than 50,000, and any urbanized area contiguous and adjacent to a city or town with a population greater than 50,000. This definition applies to U.S. states, the District of Columbia and U.S. territories.
The Treasury Department views these changes as intending to offer enhanced QOZ tax incentives for investing in underserved rural areas and to address the unique challenges of rural development. There are currently 8,764 QOZs in the U.S., many of which have experienced a lack of investment for decades. The notice identifies 3,309 of those qualified opportunity zones as comprised entirely of a “rural area.”
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