Servers, equipment and the Opportunity Zone rules

In most leased data centers the tenant owns the servers, and in operator models the QOZB does. The answer matters because a Qualified Opportunity Zone Business (QOZB) is tested only on the tangible property it owns or leases.² Equipment owned by someone else, such as a hyperscale tenant or a colocation customer, is outside the QOZB's tests entirely.

The IT layer is also the most expensive. JLL forecasts an average shell-and-core cost of $11.3 million per MW in 2026 and says tenant AI fit-out can cost up to about $25 million per MW.¹¹ Rack power is climbing: a general-purpose CPU rack supports up to about 12 kW, an air-cooled H100 rack about 40 kW, and an NVIDIA GB200 NVL72 rack about 120 kW with liquid cooling.¹² When a QOZB owns that equipment, it can dominate the balance sheet.

If the QOZB owns them, servers count by value on both sides of the ratio, so qualifying servers raise it and non-qualifying servers lower it. At least 70% of the tangible property a QOZB owns or leases must be Qualified Opportunity Zone business property under §1400Z-2(d)(3).¹ Owned equipment qualifies if it was acquired by purchase from an unrelated party, its original use in the zone begins with the QOZB, and it is used in the zone during substantially all of the QOZB's holding period.²

Original use for equipment turns on when it is first placed in service in the zone. Practitioner summaries of the final regulations describe used property as able to meet original use if it has not previously been used or placed in service in the zone in a depreciable way, so refurbished equipment brought in from outside the zone may qualify; confirm the exact conditions in the regulation text with counsel.¹⁴ Related parties are tested at more than 20% common ownership rather than more than 50% (§1400Z-2(e)(2)), so servers bought from an affiliate of an investor or tenant often fail the purchase requirement.¹

The regulations are generally read to allow value to be measured either from an applicable financial statement or by an alternative method based on unadjusted cost (with a present-value approach for leased property). The choice matters for fast-depreciating equipment: under a financial statement method, server book values fall quickly, which shifts weight toward the building over time, while a cost-based method does not reflect that depreciation. Confirm the method and its consistency requirements with your adviser.² The test itself is explained in The QOZB 70% tangible property test.

Change one fact and the result flips: if the affiliate's servers were worth $400 million instead, qualifying property would be $800 million of $1.2 billion, or 66.7%, and the QOZB would fail.

About half as long. The tax-free appreciation election requires holding the fund interest for at least 10 years, while large cloud companies depreciate servers over 5 to 6 years in their financial statements.^1,3,4

Amazon shortened a subset of its servers from 6 to 5 years effective January 1, 2025, citing the pace of AI and machine learning change, and Meta moved to 5.5 years the same day.^3,4 For tax purposes, computers and peripheral equipment are generally 5-year property under MACRS.⁵ Electrical and mechanical plant such as switchgear and chillers usually lasts longer than servers, though reliable public benchmarks for each component are scarce.

Each replacement is a new purchase that must qualify on its own, and the old equipment's sale is a taxable event at the business level.

• New purchases. Generation 2 servers qualify if bought from an unrelated party and first used in the zone by the QOZB.²
• Disposal gain. If generation 1 equipment was fully expensed, its basis may be zero, so sale proceeds are generally depreciation recapture taxed as ordinary income. Gain on equipment sold before year 10 is not covered by the 10-year election.⁶
• Cash between sale and purchase. Sale proceeds held by the QOZB are financial property. A written working capital plan for the replacement purchase helps keep the cash inside the safe harbor, and nonqualified financial property must stay under 5%.
• Fund-level reinvestment. A QOF has 12 months to reinvest proceeds from selling qualified property before they count against its 90% test, held meanwhile in cash, cash equivalents or short-term debt. That relief is for the asset test only and does not defer the gain.⁹

Selling a QOZB's equipment does not by itself accelerate an investor's deferred gain, because inclusion events are tied to the investor's fund interest; see Opportunity Zone inclusion events. The gain on the equipment itself still flows through to investors in a partnership fund.

They stack. Public Law 119-21 made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025, including MACRS property with a recovery period of 20 years or less.⁶ A cost segregation study can move servers, electrical and mechanical components into short-life classes, while the building shell (39-year property) does not qualify.⁷

In a partnership fund, those deductions flow to investors, subject to the usual basis, at-risk and passive activity limits. An investor's Opportunity Zone basis in a deferred-gain investment starts at zero, but the regulations are generally read to let a partner's basis in the fund interest include its share of partnership liabilities under §752, so whether losses are usable often depends on how fund debt is allocated. Confirm the investor-level effect with your tax adviser.

The 10-year election helps on the back end. For partnership and S corporation funds, investors can elect to exclude gain from the fund's or a lower-tier QOZB's sale of assets after the 10-year mark, including depreciation recapture, with inventory the main exception.⁸ Equipment sold before year 10 gets no such relief. The qualified production property expensing rule in §168(n) generally does not cover data centers. More detail is in Depreciation, bonus depreciation and Opportunity Zones.

Then the servers are invisible to the landlord's Opportunity Zone tests, and the landlord's business has to stand on its operations. Improvements and equipment a tenant pays for are treated as the tenant's own purchased property.¹⁰ The landlord QOZB's 70% test then covers the shell, land rights, substation, cooling and any systems it owns.

That makes the fund's asset base longer-lived and simpler to test, but it moves the focus to the active trade or business requirement. A landlord that merely signs a triple-net lease is not actively conducting a business under the regulations, a problem covered in Powered shell and triple-net data centers in Opportunity Zones. A tenant could, in principle, be its own QOZB funded by a separate QOF, in which case its leased space and its servers would be tested in its own 70% calculation.

When the business sells compute or managed services, not space. An AI cloud or GPU services company that owns its hardware has a clear active business and income tied to equipment in the zone. The regulations test servers under the same owned and leased tangible property rules as the shell, power, cooling and backup generation, and contain no rules written for data center equipment.¹⁴

The trade-off is obsolescence. Investors bear the risk that hardware loses value faster than planned, and the business must fund refresh purchases from cash flow or new capital. Mobile or containerized units also need tracking: the IRS treats property used in a zone on at least 70% of days as used substantially in the zone.¹³ For GPU-heavy projects, see AI data centers and Opportunity Zones.