The second set of proposed regulations provides that the "original use" of tangible property acquired by purchase by any person commences on the date when that person or a prior person first places the property in service in the QOZ for purposes of depreciation or amortization (or first uses the property in the QOZ in a manner that would allow depreciation or amortization if that person were the property's owner). Thus, tangible property located in the QOZ that is depreciated or amortized by a taxpayer other than the QOF or QOZB would not satisfy the original use requirement of Sec. 1400Z-2(d)(2)(D)(i)(II) under the second set of proposed regulations. Conversely, tangible property (other than land) located in a QOZ that has not yet been depreciated or amortized by a taxpayer other than the QOF or QOZB would indeed satisfy the original use requirement under Sec. 1400Z-2(d)(2)(D)(i)(II). However, the proposed regulations do clarify that used tangible property will satisfy the original use requirement with respect to a Qualified Opportunity Zone so long as the property has not previously been used within that qualified opportunity zone in a manner that would have allowed it to be depreciated or amortized) by any taxpayer. That said, the Treasury and IRS are proposing that where a building or other structure has been vacant for at least five years prior to being purchased by a QOF or a QOZB, the purchased building or structure will satisfy the original use requirement. In addition, improvements made by a lessee to leased property satisfy the original use requirement and are considered purchased property. Since land is not depreciable, it is not subject to the "original use" test, but rather, it can be treated as QOZBP only if used in a trade or business of a QOF or QOZB. The mere holding of land for investment does not give rise to a trade or business within the meaning of Sec. 162 and such land would not be regarded as QOZBP. Finally, in the case real property other than land that fails to meet the "original use" test, the taxpayer must make substantial improvements to be considered QOZBP.
