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Title 26 — Internal Revenue CodeRelease 119-73not60

§1397B Nonrecognition of Gain on Rollover of Empowerment Zone Investments

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter U— Designation and Treatment of Empowerment Zones, Enterprise Communities, and Rural Development Investment Areas › Part III— ADDITIONAL INCENTIVES FOR EMPOWERMENT ZONES › Subpart C— Nonrecognition of Gain on Rollover of Empowerment Zone Investments › § 1397B

Last updated Apr 5, 2026|Official source

Summary

You can delay paying tax on gain when you sell a qualified empowerment zone asset you owned for more than one year if you buy another qualified empowerment zone asset in the same zone within 60 days starting on the day you sell. You only have to report gain to the extent your sale money is more than the cost of the replacement asset, after subtracting any part of that cost you already used to defer gain. A "qualified empowerment zone asset" is property that meets the special community-asset rules for empowerment zones (the law lists the exact technical details). The rule does not cover gains treated as ordinary income or gains from real property or intangible assets that are not part of an enterprise zone business. If you defer gain, that deferred amount lowers the tax basis of the new asset(s) you buy during the 60-day period, in the order bought. For how long you are treated as holding the sold and replacement assets, the law uses a special timing rule instead of the usual one. This deferral does not apply to sales in tax years that begin after December 31, 2020.

Full Legal Text

Title 26, §1397B

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of any sale of a qualified empowerment zone asset held by the taxpayer for more than 1 year and with respect to which such taxpayer elects the application of this section, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds—
(1)the cost of any qualified empowerment zone asset (with respect to the same zone as the asset sold) purchased by the taxpayer during the 60-day period beginning on the date of such sale, reduced by
(2)any portion of such cost previously taken into account under this section.
(b)For purposes of this section—
(1)(A)The term “qualified empowerment zone asset” means any property which would be a qualified community asset (as defined in section 1400F) 11 See References in Text note below. if in section 1400F 1—
(i)references to empowerment zones were substituted for references to renewal communities,
(ii)references to enterprise zone businesses (as defined in section 1397C) were substituted for references to renewal community businesses,
(iii)the date of the enactment of this paragraph were substituted for “December 31, 2001” each place it appears, and
(iv)the day after the date set forth in section 1391(d)(1)(A)(i) were substituted for “January 1, 2010” each place it appears.
(B)Any reference in this paragraph to section 1400F shall be treated as reference to such section before its repeal.
(2)This section shall not apply to—
(A)any gain which is treated as ordinary income for purposes of this subtitle, and
(B)any gain which is attributable to real property, or an intangible asset, which is not an integral part of an enterprise zone business.
(3)A taxpayer shall be treated as having purchased any property if, but for paragraph (4), the unadjusted basis of such property in the hands of the taxpayer would be its cost (within the meaning of section 1012).
(4)If gain from any sale is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any qualified empowerment zone asset which is purchased by the taxpayer during the 60-day period described in subsection (a). This paragraph shall not apply for purposes of section 1202.
(5)For purposes of determining whether the nonrecognition of gain under subsection (a) applies to any qualified empowerment zone asset which is sold, the taxpayer’s holding period for such asset and the asset referred to in subsection (a)(1) shall be determined without regard to section 1223.
(c)This section shall not apply to sales in taxable years beginning after December 31, 2020.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

References in Text

The date of the enactment of this paragraph, referred to in subsec. (b)(1)(A)(iii), is the date of enactment of Pub. L. 106–554, which was approved Dec. 21, 2000. section 1400F, referred to in subsec. (b)(1), was repealed by Pub. L. 115–141, div. U, title IV, § 401(d)(5)(A), Mar. 23, 2018, 132 Stat. 1210.

Prior Provisions

A prior section 1397B was renumbered section 1397C of this title.

Amendments

2020—Subsec. (c). Pub. L. 116–260 added subsec. (c). 2018—Subsec. (b)(1)(B). Pub. L. 115–141, § 401(d)(5)(B)(iv), added subpar. (B). Pub. L. 115–141, § 401(d)(4)(B)(vii), struck out subpar. (B). Text read as follows: “The District of Columbia Enterprise Zone shall not be treated as an empowerment zone for purposes of this section.” Subsec. (b)(5). Pub. L. 115–141, § 401(d)(5)(B)(v), substituted “which is sold, the taxpayer’s holding period for such asset and the asset referred to in subsection (a)(1) shall be determined without regard to section 1223.” for “which is sold— “(A) the taxpayer’s holding period for such asset and the asset referred to in subsection (a)(1) shall be determined without regard to section 1223, and “(B) only the first year of the taxpayer’s holding period for the asset referred to in subsection (a)(1) shall be taken into account for purposes of paragraphs (2)(A)(iii), (3)(C), and (4)(A)(iii) of section 1400F(b).” 2014—Subsec. (b)(1)(A)(iv). Pub. L. 113–295 added cl. (iv).

Statutory Notes and Related Subsidiaries

Effective Date

of 2020 AmendmentAmendment by Pub. L. 116–260 applicable to taxable years beginning after Dec. 31, 2020, see section 118(e) of div. EE of Pub. L. 116–260, set out as a note under section 1391 of this title.

Effective Date

of 2014 AmendmentAmendment by Pub. L. 113–295 effective as if included in the provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. 111–312, to which such amendment relates, see section 206(d) of Pub. L. 113–295, set out as a note under section 32 of this title.

Effective Date

Section applicable to qualified empowerment zone assets acquired after Dec. 21, 2000, see section 1(a)(7) [title I, § 116(c)] of Pub. L. 106–554, set out as an

Effective Date

of 2000 Amendment note under section 1016 of this title.

Savings Provision

Amendment by section 401(d)(4)(B)(vii) of Pub. L. 115–141 not applicable to certain obligations issued, DC Zone assets acquired, or principal residences acquired before Jan. 1, 2012, see section 401(d)(4)(C) of Pub. L. 115–141, set out as a note under former section 1400 of this title. Amendment by section 401(d)(5)(B)(iv), (v) of Pub. L. 115–141 not applicable to certain qualified community assets acquired, wages paid or incurred, qualified revitalization buildings placed in service, or property acquired before Jan. 1, 2010, see section 401(d)(5)(C) of Pub. L. 115–141, set out as a note under former section 1400E of this title. For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 1397B

Title 26 — Internal Revenue Code

Last Updated

Apr 5, 2026

Release point: 119-73not60