The Opportunity Zone original use requirement

Original use is one of two ways owned tangible property becomes Qualified Opportunity Zone business property (QOZBP). Under §1400Z-2(d)(2)(D)(i)(II), the original use of the property in the zone must commence with the Qualified Opportunity Fund (QOF) or Qualified Opportunity Zone Business (QOZB), unless the fund or business substantially improves it.¹ The final regulations define the moment: original use begins on the date the property is first placed in service in the zone for purposes of depreciation or amortization, or first used in the zone in a manner that would allow depreciation or amortization if the user were the owner.^2,3

The test is about the property's history in the zone, not its history everywhere. A machine that ran for years in another state can be original use in the zone, and a building that was occupied last year cannot, however new it looks.^10,11 The other requirements of QOZBP still apply: the property must be purchased from an unrelated party after the statutory cutoff date and used in the zone; see the QOZB 70% tangible property test. Original use is tested asset by asset at acquisition, so the purchase file for each significant asset should record where, and by whom, it was previously placed in service.

Most new property qualifies, and some used property does. The table summarizes the final regulations.^3,8,11

A building or other structure that has been vacant for an uninterrupted period of at least three years before the QOZB acquires it is treated as original use. A shorter one-year rule applies if the property was vacant for at least one year before the zone was designated and remained vacant through the date of purchase.^4,7

Real property is vacant if more than 80% of the building or land, measured by square footage of usable space, is not currently being used.^5,6 A building with a single small tenant in a corner can therefore still be vacant. The vacancy periods are three years, or one year in the pre-designation case.^7,4

Yes, if it has never been placed in service in the zone. Used equipment bought from an unrelated seller outside the zone and moved into the zone is original use for the QOZB.^10,11 The seller must not be related, because QOZBP must be acquired by purchase from an unrelated person, using a 20% relatedness threshold.²

Used equipment bought from a seller inside the zone, or equipment the business already used there, is not original use and would have to be substantially improved, which is rarely practical for equipment. For data centers, that means refurbished gear sourced from another facility in the same zone is a problem, while new gear or gear from out of the zone is not. See servers, equipment and the Opportunity Zone rules.

• Land cannot have original use. It qualifies if it is used in the QOZB's trade or business, without a separate improvement requirement, subject to an anti-abuse rule for land held mainly for speculation.^8,3
• Leased property does not need to be original use. It qualifies if the lease is on market terms and was entered into after the statutory cutoff date, with extra limits for leases from related parties.^9,8 See leased property rules.
• Improvements a QOZB makes to property it leases are treated as purchased property and are original use, so a tenant's fit-out of a leased building can count as QOZBP.^9,3
• Under the final regulations, real property on a brownfield site, including land and structures, is treated as original use if the QOF or QOZB makes investments to bring the site up to basic safety standards.^3,15

Leasing is sometimes chosen precisely because it avoids the original use and substantial improvement questions, but a lease from a related party for previously used property brings its own requirements. See related-party rules.

A greenfield data center is original use from the ground up: the QOZB buys land, builds the shell and installs new equipment, all first placed in service in the zone by the QOZB. Conversions of existing buildings depend on vacancy. A closed factory or warehouse that has been more than 80% empty for three years is original use; an occupied one must be substantially improved, which a data center fit-out usually achieves.^4,14

Document vacancy carefully: utility bills, occupancy records, tax filings and photographs that show usable square footage was more than 80% unused for the full period. See converting industrial buildings into data centers and the substantial improvement test.