§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 6, 2026|Official source

Summary

Property counts as qualified zone property for empowerment zone purposes if you bought it after the zone's designation took effect, you are the first to use it in the zone, and substantially all of its use is in the zone in the active conduct of a qualified business there. Substantially renovated property can qualify even if it wasn't newly purchased: renovation counts if, over a 24-month period beginning after the zone designation, you add more to the property's basis than the greater of its basis at the start of that period or $5,000. If you sell property and lease it back within 3 months of placing it in service, it is treated as placed in service no earlier than the date you use it 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.