If you are sitting on a large capital gain and you farm outside a town of 50,000 people, pay attention to Jan. 1, 2027.
The One Big Beautiful Bill Act (OBBBA) made Opportunity Zones permanent and added a rural version with much better numbers. Governors began nominating census tracts on July 1, and that window closes Sept. 29. Treasury then certifies the map and the new zones take effect Jan. 1, 2027.
Here is the Deal
When you sell an asset at a capital gain, you have 180 days to roll the gain, not the whole sales price, into a Qualified Opportunity Fund.
That is the key difference from a 1031 exchange, where the full proceeds have to be reinvested. You keep your basis in cash and move only the gain.
The deferred gain then comes due five years after you invest. A regular fund gets a 10% step-up in basis at that point. A Qualified Rural Opportunity Fund, which holds 90% of its assets in rural zones, gets 30%. Hold 10 years and all of the appreciation inside the fund comes out tax free. A rural fund that buys a used building also only has to spend 50% of the building’s basis improving it, not 100%.
Farmland qualifies as long as the fund makes improvements to the ground. The regulations do not tell us how much improvement is enough, but land bought and left alone is specifically excluded. Buying dirt and putting up buildings, tile or irrigation is the play.
Now the Part Most Farmers Miss
The fund can take bonus depreciation on what it builds. Say you sell ground in 2027 and report a $2 million gain.
You roll the $2 million into your own rural fund, which buys a farm site and builds a $2 million hog barn.
The barn is a single-purpose agricultural structure eligible for a 100% bonus depreciation.
Your basis in that fund interest starts at zero, because that is what rolling a deferred gain does. So, the $2 million deduction is suspended in year one. Then in 2032 you get the 30% step-up and you report the deferred gain, and only 70% of it, or $1.4 million, is taxable.
Together those give you $2 million of basis, which releases the full $2 million of bonus depreciation.
It wipes out the $1.4 million inclusion and leaves deduction left over.
Sell the fund interest in 2038 and every dollar of appreciation is tax free (including the bonus depreciation you took in 2027).
A Caution
This is complicated. Machinery gain is depreciation recapture, taxed as ordinary income, and ordinary income cannot be rolled. Related party rules limit buying from yourself. Treasury has not written the new regulations yet, and how much improvement farmland needs is an open question. Watch for the final map late this year, and if your county is on it, sit down with your tax advisor well before you sign a sales contract.
