As Congress hashes out details in a push to legislate the “One Big Beautiful Bill” amid theatrics, antics, and gambits on various domestic and global stages, modifications to opportunity zones created after the 2017 Tax Cuts and Jobs Act have managed to avoid the fray.

A consequential rewrite of OZ rules is slipping under the radar and poised to reshape where billions in investment dollars flow.

While the original OZs channeled capital into urban tracts — often fueling luxury rentals over affordable housing — the latest overhaul aims to fix those flaws but risks triggering a new wave of suburban sprawl by steering incentives and investment toward rural areas.

The risk, however, is that rural OZs fail to lure major investment unless projects can achieve the same density and scale as those in urban areas that investors and developers favor.

The devil will be in the details.

There were a lot of things that were unintended consequences the first time around,” says Tyler Davis, president of Saunders Real Estate, a Florida land brokerage firm. “The general consensus is that it was a great idea, but the rollout didn't quite happen to the level that people wanted.”

Where The Original OZ Cohort Strayed

Governors across the country drew the boundaries for many of the original OZs in urban areas. The zones tend to be set up as contiguous urban tracts, and they were designed and intended mostly to impact low-income communities.

A big criticism of the model in reality has been that the OZs essentially attracted more luxury rental apartment development than they did attainable and affordable housing production.

Washington, D.C., think tank Urban Institute, which has called for reforming opportunity zone policy, estimates that investors committed to more than $100 billion in capital infusions into OZs since their inception. There is a notable tilt in where investment is going—toward places that already have more investments.

Rather than merely opening the spigot further with added incentives in the hope that these funds will spill into the communities that need them most, the investments need retooling,” write Urban Institute senior fellow Brett Theodos and research analyst Brady Meixell.

While the intent was to spark jobs, small business formation, venture capital investment in start-ups, etc., driving localized holistic economic activity gains, most of those outcomes never materialized.

It seems Opportunity Zones have become largely a market-rate rental housing and other real estate program—not a resource to create jobs or develop economies,” Theodos and Meixell write. 

Governors created zones in areas local officials wanted to redevelop and got them qualified by scooping in a nearby low-income area.

Experts also point to another conspicuous failing in the original OZ model: None of it encourages for-sale housing.

There’s a lot of tax policy that discourages homebuilding for sale, and that’s not been helpful,” says Aaron Lubeck, a general contractor and urban designer in Durham, NC. “Specifically, tax on for-sale products is at earned income rates, while long-term capital gains are often less than half that. If the goal is to encourage the for-sale of housing, policy should shift tax on sales to long-term capital gains rates.”

Key Changes

The newly drafted OZ rules would accelerate sunsetting the current law to the end of 2026, rather than its current expiration date of 2028. It could create a dead period for investment until new zones are designated.

Investors in existing zones will still be eligible for tax deferral, but no new investment will be allowed in them.

Proposed changes define "low-income community" more stringently. Eligible tracts would have to have a median family income below 70% of the area or state median, down from 80%. Tracts with a median income above 125% of the state or metro median are now excluded.

Contiguous tracts that are not themselves low-income are no longer eligible, closing a loophole that allowed more prosperous areas to benefit.

Establishing opportunity zones would require that at least 33% of new ones would specifically target rural areas. The investment threshold for existing structures would drop from 100% to 50%, making it easier to revitalize and build affordable homes in these communities.

In addition, the 10% exclusion of deferred capital gains tax on investments that are held for a minimum of five years would escalate to 30% in rural OZs.

Who Will Invest in Rural OZs?

It’s a big question with no easy answer. With the first round, investors flocked to big apartment projects.

The challenge is, you have to use a capital gain on the front end to get in,” Davis says. “It's a great idea, and I think the proof will be in the pudding of kind of what comes out. In 2017, guidance took time to come out, and it was just such a new concept that it took a while for investors to get their arms around everything.”

With rural OZs, however, communities would have to increase housing density somehow to reach the scale investors can get in urban areas.

It could come down to how rural is defined. Build-to-rent developers have been expanding far into metro exurbs. Still, they continue to stay within commuting distances to job centers. Hybrid work has helped spur housing development in rural areas outside large metro areas.

In Georgia, for example, Watkinsville, 70 miles east of Atlanta, is designated a “rural zone” by the state now. Different housing types have been springing up in the city of about 3,000 people over the past several years through controlled planning.

Suburbanization has been eating up agricultural land for years across the country.

That's a huge issue in every growing town here in Florida, and the tone has changed in the last five or six years on how you continue to sustain growth, but not overbuild, and how to build in a thoughtful way,” Davis says.