§1397D — Title 26 Internal Revenue Code | U.S. Code

§1397D Qualified zone property defined

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter U— - Designation and Treatment of Empowerment Zones, Enterprise Communities, and Rural Development Investment Areas › Part PART III— - ADDITIONAL INCENTIVES FOR EMPOWERMENT ZONES › Subpart Subpart D— - General Provisions › § 1397D

Last updated Apr 6, 2026|Official source

Summary

Defines when property counts as "qualified zone property" for special tax rules. To qualify, the taxpayer must have bought the property after the empowerment zone was designated, be the first person to use the property in that zone, and use almost all of it inside the zone while running a qualifying business there. Property that is substantially renovated by the taxpayer also qualifies even if it wasn’t newly bought or first used by them. A renovation counts as substantial if, during any 24-month period after the zone began, the owner’s increases to the property’s tax basis are more than either the property’s adjusted basis at the start of that 24 months or $5,000. If the owner sells the property and then leases it back within 3 months after it was first placed in service, the property's start date is treated as no earlier than the date it is used under the leaseback.

Title 26, §1397D

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this part—

(1)The term “qualified zone property” means any property to which section 168 applies (or would apply but for section 179) if—

(A)such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after the date on which the designation of the empowerment zone took effect,

(B)the original use of which in an empowerment zone commences with the taxpayer, and

(C)substantially all of the use of which is in an empowerment zone and is in the active conduct of a qualified business by the taxpayer in such zone.

(2)In the case of any property which is substantially renovated by the taxpayer, the requirements of subparagraphs (A) and (B) of paragraph (1) shall be treated as satisfied. For purposes of the preceding sentence, property shall be treated as substantially renovated by the taxpayer if, during any 24-month period beginning after the date on which the designation of the empowerment zone took effect, additions to basis with respect to such property in the hands of the taxpayer exceed the greater of (i) an amount equal to the adjusted basis at the beginning of such 24-month period in the hands of the taxpayer, or (ii) $5,000.

(b)For purposes of subsection (a)(1)(B), if property is sold and leased back by the taxpayer within 3 months after the date such property was originally placed in service, such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback.

Editorial Notes

Prior Provisions

A prior section 1397D was renumbered section 1397F of this title.

Amendments

2000—Pub. L. 106–554 renumbered section 1397C of this title as this section.