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§1397D Qualified Zone Property Defined

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 D — General Provisions › § 1397D

Last updated Sep 22, 2026|Official source

Summary

Defines when property counts as "qualified zone property" for special tax depreciation. Property counts if it was bought after the empowerment zone was officially designated, the taxpayer is the first to start using it in that zone, and most of its use is in the zone and used by the taxpayer for running a qualifying business there. If the taxpayer makes big renovations, the "bought" and "first used" rules are treated as met. A renovation is "big" if, in 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 larger. If the taxpayer sells the property and leases it back within 3 months after it was first placed in service, the start date for first use is the date the leaseback use begins.

Title 26, §1397D

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

For purposes of this part—

(1)In general

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)Special rule for substantial renovations

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)Special rules for sale-leasebacks

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.