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

§1397D Qualified Zone Property Defined

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 D— General Provisions › § 1397D

Last updated Apr 5, 2026|Official source

Summary

Defines what property counts as "qualified zone property" for tax purposes. To qualify, the asset must meet the tax rules of section 168, have been bought by the taxpayer after the area became an empowerment zone, be first used in the zone by that taxpayer, and be used almost entirely in the zone while the taxpayer runs a qualified business there. If the taxpayer makes big renovations, the buy and first-use tests are treated as met. A renovation is "big" if, during any 24-month period after the zone was designated, the taxpayer adds to the property's tax basis more than either the property's adjusted basis at the start of that period or $5,000 (whichever is greater). If the taxpayer sells the property and then leases it back within 3 months of first putting it in service, the property is treated as first used on the date the leaseback begins.

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.