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Title 26, Internal Revenue CodeRelease 119-110

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

Title 26 › 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 Sep 23, 2026|Official source

Summary

You can postpone paying tax on the profit when you sell a qualified empowerment zone asset you owned for more than 1 year, if you buy another qualified empowerment zone asset in the same zone within 60 days of the sale. You only pay tax on the part of the sale proceeds that is more than the cost of the replacement asset, after subtracting any part of that cost you already used to defer gain before. You cannot defer gains that are treated as ordinary income or gains from real property or intangible assets that are not an essential part of an enterprise zone business. Quick notes: "Qualified empowerment zone asset" — property that meets special community-asset rules for empowerment zones. "Purchase" — treated as a purchase when your unadjusted basis would equal cost. Deferred gain reduces the basis of replacement assets in the order bought. Holding periods are figured without using section 1223. The rule ends for sales in taxable years beginning after December 31, 2020.

Full Legal Text

Title 26, §1397B

Internal Revenue Code, Source: USLM XML via OLRC

(a)Nonrecognition of gain (b) Definitions and special rules
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.
(c)Termination
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

Sep 23, 2026

Release point: 119-110