Rural Opportunity Zone Strategy and Incentive Stacking

Rural Opportunity Zones could play a much bigger role in the next phase of the program than they did the first time around.

With enhanced rural incentives built into OZ 2.0 — including a 30% basis step-up and more flexible development rules — the groundwork is being laid for a different kind of capital allocation when the new designation round takes effect in 2027. Coni Rathbone of VF Law joins the show to discuss how rural OZ strategy works in practice, how incentive stacking can transform project economics, and how developers can prepare now for the upcoming tract nomination process.

Guest: Coni Rathbone

About The Opportunity Zones Podcast

Hosted by OpportunityZones.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Episode Summary

Opportunity Zones 2.0 is here, and the industry is already shifting.

In this episode of The Opportunity Zones Podcast, Jimmy Atkinson is joined by Coni Rathbone of VF Law, an experienced Opportunity Zone attorney based in Boise, Idaho and a valued member of OZ Insiders. Coni shares what she’s seeing on the ground as OZ 1.0 activity begins to taper and attention turns toward OZ 2.0, rural incentives, state-level tract nominations, and how developers can stack multiple layers of incentives to create what she calls “crazy good returns.”

From OZ 1.0 to OZ 2.0: A Whole New Ballgame

Coni says she’s still forming Opportunity Funds under “Opportunity Zone 1.0,” but activity is starting to tail off as investors realize that waiting until 2027 may provide “better terms” under the new program.

The industry’s current focus, she explains, is helping governors and economic development departments prepare for the next designation round. The selection of new zones will begin in mid-2026 and run through September, with the new map taking effect January 1, 2027.

Unlike the first round of designations, when “the governors and their economic development departments were kind of guessing,” this time there is more education, more data, and more industry engagement. Coni is working with real estate groups and commercial brokerages to:

Study which census tracts are likely to qualify
Identify which areas could “make a big difference”
Lobby governors’ offices and economic development departments to select the strongest candidates

As she puts it, “It’s a whole new ballgame.”

Las Vegas Takeaways: Permanence and Rural Incentives

Jimmy and Coni recently attended the Novogradac Opportunity Zones Summit in Las Vegas, along with the OZ Insiders dinner the night before. Coni notes that attendance was roughly three times larger than prior years, signaling renewed momentum across the industry.

The big difference this time? Permanence.

Under OZ 2.0, the program is now permanent. Coni explains that in the early years, conservative CPAs often told clients not to invest because “this is a temporary project or program.” With permanency secured, she believes those objections may fade.

Coni also spoke on a panel about new rural benefits. Two major rural provisions were discussed:

The substantial improvement threshold for rural projects has been reduced from 100% to 50%, effective July 4, 2025.
Beginning in 2027, rural Opportunity Zone investments can receive a 30% basis step-up after five years, compared to 10% for non-rural investments.

Coni believes the 30% basis step-up is “really the most meaningful” rural benefit. While the 50% substantial improvement test is helpful, she notes that many rural projects involve ground-up development on bare land, where substantial improvement rules don’t apply.

Will the 30% Basis Step-Up Move the Needle?

Jimmy cites data showing that only about 9% of OZ 1.0 investment went into rural areas, even though rural tracts made up a much larger share of designations. Congress responded by enhancing rural incentives.

Coni believes the additional 20-point basis step-up “is quite meaningful” and will force investors and sponsors to pay more attention to rural development.

She also addresses a common investor concern from OZ 1.0: how to pay the deferred tax bill. Her response was straightforward: “You know it’s coming, so you can plan for it.” In many cases, refinancing a completed project can generate liquidity to pay taxes when due.

Case Study: A 1,200-Acre Rural OZ Project in Burns, Oregon

Coni is deeply involved in a 1,200-acre Opportunity Zone development in Burns, Oregon, a rural community she describes as having “died 35 years ago.”

Burns had companies calling weekly about relocating, but “when they did their due diligence, there was nowhere to live and nothing to do.” The project aims to “build a city within a city” and spark workforce housing and economic revitalization.

After years of planning, the project is now moving forward. Phase one infrastructure is in place, and four homes are wrapped and under construction.

What makes this project especially notable is how incentives have been stacked:

$10 million of phase one infrastructure paid entirely through incentives and grants
Formation of a rural urban renewal agency
7% cashback on each new home
State loan guarantees of up to 90%
Additional state grants and incentives
Exploration of tribal partnerships and related federal funding

Coni emphasizes that “every county and city and state will have different combinations of things,” but developers must ask: “How can I stack a group of incentives to make my project more successful?”

Manufacturing, Bonus Depreciation, and OZ

The Burns project is also exploring bringing a mass timber manufacturing facility on-site. Coni highlights a provision in the “big beautiful bill” that allows 100% depreciation of manufacturing facilities, fixtures, and equipment in year one.

In a traditional deal, that accelerated depreciation would later be recaptured upon sale. But inside a Qualified Opportunity Fund held for 10+ years, investors benefit from the 100% step-up in basis — eliminating depreciation recapture.

Coni calls the result “free money to the investors.” When combined with other OZ tax benefits and stacked incentives, she says it can dramatically increase investor returns — what she jokingly refers to as “crazy good returns.”

Don’t Leave Free Money on the Table

One of Coni’s clearest messages to developers: call your state and local economic development offices.

She recommends starting at the state level — economic development department or commerce department — and asking for the “buffet of incentives” that might apply. These can include:

Waivers of system development charges (SDCs)
Urban renewal funding
Housing-related incentives
Grants for disadvantaged or women-owned businesses
State loan guarantees
Federal and tribal partnership funding

She recalls working years ago with the Oregon Economic Development Department to place Japanese manufacturing facilities in Hillsboro, noting how proactive and effective that state-level support can be.

Her bottom line: if you’re not asking, you may be leaving significant capital on the table.

How to Advocate for OZ 2.0 Designations

As states prepare for OZ 2.0 tract nominations, Coni is working with the Idaho Economic Development Association and other groups to educate stakeholders and generate informed advocacy.

Her advice for developers and community leaders:

Study the likely eligible tracts using available maps.
Identify areas with real development potential.
Coordinate with commercial brokers and economic development groups.
Prepare a “pitch deck” for the governor’s office.

That pitch should demonstrate:

Expected new tax base
Job creation
Property value increases
Clear, tangible economic benefits

“Just like when you’re doing a pitch deck for a real estate development,” she says, “that’s the same kind of product you should put together” to justify why a specific tract should be selected.