DESCRIPTION OF PRESENT LAW REGARDING

TAX INCENTIVES FOR RENEWAL COMMUNITIES

AND OTHER ECONOMICALLY DISTRESSED AREAS

Scheduled for a Hearing

before the

SUBCOMMITTEE ON OVERSIGHT

of the

HOUSE COMMITTEE ON WAYS AND MEANS

Prepared by

the Staff of the

JOINT COMMITTEE ON TAXATION

May 20, 2002

JCX-40-02
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

I. PRESENT LAW TAX INCENTIVES FOR ECONOMICALLY DISTRESSED AREAS ....... 2

A. Renewal Communities........................................................................................................ 2

B. Empowerment Zone Tax Incentives................................................................................... 8

C. Tax Incentives for Economic Development on Indian Reservations.................................. 9

D. District of Columbia Enterprise Zone ............................................................................... 12
1

INTRODUCTION

The Subcommittee on Oversight of the House Committee on Ways and Means has 

scheduled a public hearing on May 21, 2002, regarding the available tax incentives for renewal 

communities. This document, 1 prepared by the staff of the Joint Committee on Taxation, 

describes present law regarding the tax incentives for renewal communities and other 

economically distressed areas.

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of 

Present Law Regarding Tax Incentives for Renewal Communities and Other Economically 

Distressed Areas (JCX-40-02), May 20, 2002.
2

I. PRESENT LAW TAX INCENTIVES FOR

ECONOMICALLY DISTRESSED AREAS

A. Renewal Communities

In recent years, provisions have been added to the Internal Revenue Code that target 

specific geographic areas for special Federal income tax treatment. The special tax incentives 

afforded these areas are designed to attract business and investment to distressed urban and rural 

areas. The renewal community incentives, enacted in December 2000 as part of the Community 

Renewal Tax Relief Act of 2000 (the “2000 Community Renewal Act”),2 represent the latest 

legislative effort of using tax incentives to attract business and investment to distressed urban 

and rural areas.3

The renewal community legislation authorized the designation of 40 "renewal 

communities" within which special tax incentives are available.4 The following is a description 

of the designation process and the tax incentives that are available within the designated renewal 

communities.

Designation process

Designation of 40 renewal communities.–On January 24, 2002, the Department of 

Housing and Urban Development (“HUD”) announced the 40 communities that were designated 

as renewal communities from areas nominated by States and local governments. Twenty-eight 

of the areas are located in urban areas; twelve of the areas are located in rural areas.5

 

2

 For legislative background of these provisions, see H. Rep. 106-1033 (Dec. 15, 2000), 

at 977-1000, and H. Rep. 106-1004 (Oct. 26, 2000) that accompanied H.R. 2614, at 330-353. 

The conference report to H.R. 2614 was passed by the House of Representatives on October 26, 

2000, but was not brought to a vote in the Senate.

 The GAO will audit and report to Congress on January 31, 2004, and again in 2007 and 

2010, on the renewal community program and its effect on poverty, unemployment, and 

economic growth within the renewal communities.

3

 Recent legislation in 2002 created special tax incentives for lower Manhattan in 

response to the destruction from the September 11, 2001, terrorist attacks; however, the renewal 

community incentives apply throughout the United States on the basis of general economic 

distress.

4

 The renewal community provisions are found in sections 1400E-1400J of the Code.

5

 The twenty-eight urban renewal communities are: Mobile, Alabama; Los Angeles, San 

Diego, and San Francisco, California; Atlanta, Georgia; Chicago, Illinois; New Orleans and 

Ouachita Parish, Louisiana; Lawrence and Lowell, Massachusetts; Detroit and Flint, Michigan; 

Camden and Newark, New Jersey; Buffalo-Lackawanna, Niagara Falls, Rochester, and 

Schenectady, New York; Hamilton and Youngstown, Ohio; Philadelphia, Pennsylvania; 
3

The designation of an area as a renewal community generally became effective on 

January 1, 2002, and will terminate after December 31, 2009.6

Eligibility criteria.–To be designated as a renewal community, a nominated area must 

have satisfied the following criteria: (1) each census tract must have a poverty rate of at least 20 

percent;7 (2) in the case of an urban area, at least 70 percent of the households have incomes 

below 80 percent of the median income of households within the local government jurisdiction; 

(3) the unemployment rate is at least 1.5 times the national unemployment rate; and (4) the area 

is one of pervasive poverty, unemployment, and general distress. The designations were based 

on a ranking of eligibility factors (1), (2), and (3) above. The Secretary of HUD was to take into 

account in selecting areas for designation the extent to which such areas have a high incidence of 

crime, as well as whether the area has census tracts identified in the May 12, 1998, report of the 

General Accounting Office (“GAO”) regarding the identification of economically distressed 

areas. In lieu of the poverty, income, and unemployment criteria, out-migration may be taken 

into account in the designation of one rural renewal community.

There are no geographic size limitations placed on renewal communities. Instead, the 

boundary of a renewal community must be continuous. In addition, the renewal community 

must have a minimum population of 4,000 if the community is located within a metropolitan 

statistical area (at least 1,000 in all other cases), and a maximum population of not more than 

200,000. The population limitations do not apply to any renewal community that is entirely 

within an Indian reservation.

Required State and local commitments.–In order for an area to have been designated as a 

renewal community, State and local governments were required to submit a written course of 

action in which the State and local governments promised to take at least four of the following 

governmental actions within the nominated area: (1) a reduction of tax rates or fees; (2) an 

increase in the level of efficiency of local services; (3) crime reduction strategies; (4) actions to 

remove or streamline governmental requirements; (5) involvement by private entities and 

community groups, such as providing jobs and job training and financial assistance; and (6) the

gift (or sale at below fair market value) of surplus real estate by the State or local government to 

community organizations or private companies.

 

Charleston, South Carolina; Chattanooga and Memphis, Tennessee; Corpus Christi, Texas; 

Tacoma and Yakima, Washington; and Milwaukee, Wisconsin.

The twelve rural renewal communities are: Greene-Sumter, Alabama; Southern 

Alabama; Orange Cove and Parlier, California; Eastern Kentucky; Central and Northern 

Louisiana; West-Central Mississippi; Turtle Mountain Band of Chippewa, North Dakota; 

Jamestown, New York; El Paso County, Texas; and Burlington, Vermont.

6

 The designation would terminate earlier than December 31, 2009, if (1) an earlier 

termination date is so designated by the State or local government, or (2) the Secretary of HUD 

revokes the designation as of an earlier date.

7

 Determined using 1990 census data.
4

In addition, the nominating State and local governments must have promised to promote 

economic growth in the nominated area by repealing or not enforcing four of the following: (1) 

licensing requirements for occupations that do not ordinarily require a professional degree; (2) 

zoning restrictions on home-based businesses that do not create a public nuisance; (3) permit 

requirements for street vendors who do not create a public nuisance; (4) zoning or other 

restrictions that impede the formation of schools or child care centers; and (5) franchises or other 

restrictions on competition for businesses providing public services, including but not limited to 

taxicabs, jitneys, cable television, or trash hauling, unless such regulations are necessary for and 

well-tailored to the protection of health and safety.

Empowerment zones and enterprise communities seeking designation as renewal 

communities.–With respect to the first 20 designations of nominated areas as renewal 

communities, preference was given to nominated areas that were enterprise communities and 

empowerment zones that otherwise met the requirements for designation as a renewal 

community. If a renewal community designation is granted, then an area's designation as an 

empowerment zone or enterprise community ceased as of the date the area’s designation as a 

renewal community took effect. 

Tax incentives for renewal communities

The following tax incentives generally are available during the period beginning January 

1, 2002, and ending December 31, 2009.8

Zero-percent capital gain rate.–A zero-percent capital gains rate applies with respect to 

gain from the sale of a qualified community asset acquired after December 31, 2001, and before 

January 1, 2010, and held for more than five years. A "qualified community asset" includes: (1) 

qualified community stock (meaning original-issue stock purchased for cash in a renewal 

community business); (2) a qualified community partnership interest (meaning a partnership 

interest acquired for cash in a renewal community business); and (3) qualified community 

business property (meaning tangible property originally used in a renewal community business 

by the taxpayer) that is purchased or substantially improved after December 31, 2001.

A "renewal community business" is defined as a corporation or partnership (or 

proprietorship) if for the taxable year (1) the sole trade or business of the corporation or 

partnership is the active conduct of a “qualified business”9 within a renewal community; (2) at 

 

8

 If a renewal community designation is terminated prior to December 31, 2009, the tax 

incentives would cease to be available as of the termination date.

9

 A “qualified business” is defined as any trade or business other than a trade or business 

that consists predominantly of the development or holding of intangibles for sale or license. In 

addition, the leasing of real property that is located within the renewal community is treated as a 

qualified business only if (1) the leased property is not residential property, and (2) at least 50 

percent of the gross rental income from the real property is from renewal community businesses. 

The rental of tangible personal property is not a qualified business unless at least 50 percent of 

the rental of such property is by enterprise zone businesses or by residents of a renewal 

community.
5

least 50 percent of the total gross income is derived from the active conduct of a “qualified 

business” within a renewal community, (3) a substantial portion of the business's tangible 

property is used within a renewal community, (4) a substantial portion of the business's 

intangible property is used in the active conduct of such business, (5) a substantial portion of the 

services performed by employees are performed within a renewal community, (6) at least 35 

percent of the employees are residents of the renewal community, and (7) less than five percent 

of the average of the aggregate unadjusted bases of the property owned by the business is 

attributable to (a) certain financial property, or (b) collectibles not held primarily for sale to 

customers in the ordinary course of an active trade or business. Property will continue to be a 

qualified community asset if sold (or otherwise transferred) to a subsequent purchaser, provided 

that the property continues to represent an interest in (or tangible property used in) a renewal 

community business. 

The termination of an area's status as a renewal community will not affect whether 

property is a qualified community asset, but any gain attributable to the period before January 1, 

2002, or after December 31, 2014, is not eligible for the zero-percent rate.

Renewal community employment credit.–A 15-percent wage credit is available to 

employers for the first $10,000 of qualified wages paid to each employee (i.e., a maximum credit 

of $1,500 with respect to each qualified employee) who (1) is a resident of the renewal 

community, and (2) performs substantially all employment services within the renewal 

community in a trade or business of the employer. 

The wage credit rate applies to qualifying wages paid after December 31, 2001, and 

before January 1, 2010. Wages paid to a qualified employee who earns more than $10,000 are 

eligible for the wage credit (although only the first $10,000 of wages is eligible for the credit). 

The wage credit is available with respect to a qualified full-time or part-time employee 

(employed for at least 90 days), regardless of the number of other employees who work for the 

employer. In general, any taxable business carrying out activities in the renewal community may 

claim the wage credit, regardless of whether the employer meets the definition of a “renewal 

community business.”10

An employer's deduction otherwise allowed for wages paid is reduced by the amount of 

wage credit claimed for that taxable year.11 Wages are not to be taken into account for purposes 

of the wage credit if taken into account in determining the employer's work opportunity tax 

credit under section 51 or the welfare-to-work credit under section 51A.12 In addition, the 

 

10 However, the wage credit is not available for wages paid in connection with certain 

business activities described in section 144(c)(6)(B) or certain farming activities. In addition, 

wages are not eligible for the wage credit if paid to (1) a person who owns more than five 

percent of the stock (or capital or profits interests) of the employer, (2) certain relatives of the 

employer or, (3) if the employer is a corporation or partnership, certain relatives of a person who 

owns more than 50 percent of the business.

11 Sec. 280C(a). 

12 Secs. 1400H(a), 1396(c)(3)(A) and 51A(d)(2). 
6

$10,000 cap is reduced by any wages taken into account in computing the work opportunity tax 

credit or the welfare-to-work credit.13 The wage credit may be used to offset up to 25 percent of 

alternative minimum tax liability. 14

Commercial revitalization deduction.–Each State is permitted to allocate up to $12 

million of "commercial revitalization expenditures" to each renewal community located within 

the State for each calendar year after 2001 and before 2010. The appropriate State agency will 

make the allocations pursuant to a qualified allocation plan.

A "commercial revitalization expenditure" means the cost of a new building or the cost of 

substantially rehabilitating an existing building. The building must be used for commercial 

purposes and be located in a renewal community. In the case of the rehabilitation of an existing 

building, the cost of acquiring the building will be treated as qualifying expenditures only to the 

extent that such costs do not exceed 30 percent of the other rehabilitation expenditures. The 

qualifying expenditures for any building cannot exceed $10 million.

A taxpayer can elect either to (a) deduct one-half of the commercial revitalization 

expenditures for the taxable year the building is placed in service or (b) amortize all the 

expenditures ratably over the 120-month period beginning with the month the building is placed 

in service. No depreciation is allowed for amounts deducted under this provision. The adjusted 

basis is reduced by the amount of the commercial revitalization deduction, and the deduction is 

treated as a depreciation deduction in applying the depreciation recapture rules (e.g., sec. 1250).

The commercial revitalization deduction is treated in the same manner as the low-income 

housing credit in applying the passive loss rules (sec. 469). Thus, up to $25,000 of deductions 

(together with the other deductions and credits not subject to the passive loss limitation by reason 

of section 469(i)) are allowed to an individual taxpayer regardless of the taxpayer's adjusted 

gross income. The commercial revitalization deduction is allowed in computing a taxpayer's 

alternative minimum taxable income.

Additional section 179 expensing.–A renewal community business (as previously defined 

in connection with the zero-percent capital gains rate) is allowed an additional $35,000 of section 

179 expensing for qualified renewal property placed in service after December 31, 2001, and 

before January 1, 2010. The section 179 expensing allowed to a taxpayer is phased out by the 

amount by which 50 percent of the cost of qualified renewal property placed in service during 

the year by the taxpayer exceeds $200,000. The term "qualified renewal property" is defined as 

depreciable tangible property (including buildings), provided that (1) the property is acquired by 

the taxpayer (from an unrelated party) after the designation took effect, (2) the original use of the 

property in the renewal community commences with the taxpayer, and (3) substantially all of the 

use of the property is in the renewal community in the active conduct of a trade or business by 

the taxpayer. Special rules are provided in the case of property that is substantially renovated by 

the taxpayer.

 

13 Secs. 1400H(a), 1396(c)(3)(B) and 51A(d)(2).

14 Sec. 38(c)(2).
7

Extension of work opportunity tax credit ("WOTC”).–The renewal community incentives 

expand the high-risk youth and qualified summer youth categories in the WOTC to include 

qualified individuals who live in a renewal community.
8

B. Empowerment Zone Tax Incentives

The Omnibus Budget Reconciliation Act of 1993 authorized the designation of nine 

empowerment zones ("Round I empowerment zones") and 95 enterprise communities to provide 

tax incentives for businesses to locate within targeted areas designated by the Secretaries of 

HUD and Agriculture.15 The Taxpayer Relief Act of 1997 ("1997 Act") authorized the 

designation of two additional Round I urban empowerment zones, and 20 additional 

empowerment zones ("Round II empowerment zones"). The 2000 Community Renewal Act 

authorized a total of nine new empowerment zones (“Round III empowerment zones”), bringing 

the total number of authorized empowerment zones to 40. In addition, the 2000 Community 

Renewal Act conformed the tax incentives that are available to businesses in the Round I, Round 

II, and Round III empowerment zones, and extended all the empowerment zone incentives (other 

than the D.C. Enterprise Zone, described below) through December 31, 2009.16 

Empowerment zones and enterprise communities generally provide tax incentives for 

businesses that locate within certain geographic areas designated by the Secretaries of HUD and 

Agriculture. The targeted areas are those that have a condition of pervasive poverty, high 

unemployment, and general economic distress, and that satisfy certain eligibility criteria, 

including specified poverty rates and population and geographic size limitations. 

Beginning in 2002, the incentives for businesses located in empowerment zones include: 

(1) a 20-percent wage credit for the first $15,000 of wages paid to a zone resident who works in 

the empowerment zone; (2) an additional $35,000 of section 179 expensing for qualifying 

property placed in service by an enterprise zone business; (3) expanded tax-exempt financing for 

certain zone facilities; (4) elective roll over of capital gain from the sale or exchange of any 

qualified empowerment zone asset purchased after December 21, 2000; and (5) a 60 percent 

exclusion of gain from the sale of corporate stock (purchased after December 21, 2000) held for 

more than five years in a qualifying business under the empowerment zone rules. Enterprise 

communities are eligible only for the expanded tax-exempt financing benefits.17 

 

15 The empowerment zone and enterprise community rules are found in sections 1391-

1397 of the Code.

16 The GAO will audit and report to Congress on January 31, 2004, and again in 2007 

and 2010, on the empowerment zone and enterprise community program and its effect on 

poverty, unemployment, and economic growth within the designated areas.

17 Other tax benefits that are available (but not limited) in connection with empowerment 

zones and enterprise communities include (1) the expensing of certain environmental 

remediation costs, (2) tax credits for qualified zone academy bonds, and (3) the Work
9

C. Tax Incentives for Economic Development on Indian Reservations

The following special tax incentives are provided for businesses that are located on 

Indian reservations: (1) an employment wage credit, and (2) accelerated depreciation for 

property located on an Indian reservation.

Indian employment wage credit

Employers may claim a nonrefundable tax credit for certain compensation costs incurred 

with respect to qualifying full-time or part-time employees. The credit amount equals 20 percent 

of the excess of eligible qualified wages and health insurance costs that an employer paid or 

incurred during the tax year over the amount of such costs that an employer paid or incurred 

during 1993.18 An employer's deduction otherwise allowed for wages is reduced by the amount 

of the credit claimed for the taxable year. The credit is available only for the first $20,000 of 

aggregate qualified wages and health insurance costs paid for each qualified employee in a 

taxable year. The credit is not available for taxable years beginning after December 31, 2004.

In general, an individual is a qualified employee of an employer for any period if (1) the 

individual is an enrolled member of an Indian tribe or the spouse of an enrolled member, (2) 

substantially all of the services performed by the employee for such employer are performed 

within an Indian reservation, and (3) the principal place of abode of the employee while 

performing such services is on or near the Indian reservation within which the services are 

performed. An employee will be treated as a qualified employee for a taxable year of the 

employer only if more than 50 percent of the wages paid or incurred by the employer to such 

employee during such taxable year are for services performed in a trade or business of the 

employer. An employee will not be treated as a qualified employee for any taxable year of the 

employer if the total amount of compensation with respect to such employee during such taxable 

year (whether or not for services rendered within the Indian reservation) exceeds an amount 

determined at an annual rate of $35,000 (as adjusted for inflation).19

 

18 Qualified wages are wages paid or incurred by an employer for services performed by 

a qualified employee. Qualified health insurance costs are costs paid or incurred by the 

employer for health insurance coverage (other than health insurance provided pursuant to a 

salary reduction arrangement) provided to a qualified employee.

19 The original amount was $30,000. This amount was adjusted to the current level 

effective in 2001. See IRS Notice 2000-66, 2000-52 I.R.B. 600.

Qualified employees also do not include certain relatives or dependents of the employer, 

or, if the employer is a corporation, certain relatives of a person who owns more than 50 percent 

of the corporation. In addition, any person who owns more than five percent of the stock of the 

employer (or more than five percent of the capital or profits interests in the employer) cannot be 

a qualified employee. Finally, a qualified employee does not include any individual who 

performs services in certain gaming activities or whose services are performed in a building 

housing such gaming activities.
10

An Indian tribe means any Indian tribe, band, nation, pueblo, or other organized group or 

community, including any Alaska Native village, or regional or village corporation, as defined in 

or established under, the Alaska Native Claims Settlement Act20 that is recognized as eligible for 

the special programs and services provided by the United States to Indians because of their status 

as Indians. An Indian reservation is defined to mean a reservation that is defined in either (1) 

section 3(d) of the Indian Financing Act of 1974,21 or (2) section 4(10) of the Indian Child 

Welfare Act of 1978.22

If an employee is terminated less than one year after the date of initial employment, the 

amount of credits previously claimed by the employer with respect to that employee generally is 

recaptured (unless the employee voluntarily leaves, becomes disabled, or is fired due to 

misconduct). Furthermore, no wages or health insurance costs for that employee may be 

considered by the employer for the tax year in which such employment is terminated. Any credit 

carryback or carryover also is adjusted. The wage credit is one of the components of the general 

business credit. The credit is subject to the general business credit limitations and carryover 

rules, and it cannot be used to reduce tentative alternative minimum tax.

Accelerated depreciation of Indian reservation property

The depreciation deduction for certain property used in connection with the conduct of a 

trade or business within an Indian reservation is calculated using the following recovery periods:

3-year property 2 years

5-year property 3 years

7-year property 4 years

10-year property 6 years

15-year property 9 years

20-year property 12 years

Nonresidential real property 22 years

"Qualified Indian reservation property" eligible for these shorter recovery periods 

includes property that is (1) used by the taxpayer predominantly in the active conduct of a trade 

or business within an Indian reservation, (2) not used or located outside the reservation on a 

regular basis, (3) not acquired (directly or indirectly) by the taxpayer from a person who is 

 

20 43 U.S.C. sec. 1601 et seq.

21 25 U.S.C. sec.1452(d). Section 168(j)(6) applies section 3(d) of the Indian Financing 

Act of 1974 by treating the term “former Indian reservations in Oklahoma” as including only 

lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the 

Secretary of Interior) and are recognized as eligible for trust land status under 25 CFR Part 151.

22 25 U.S.C. sec. 1903(10).
11

related to the taxpayer (within the meaning of section 465(b)(3)(C)), and (4) not placed in service 

for purposes of conducting or housing certain gaming activities.23

A special rule applies to "qualified infrastructure property," which may be eligible for the 

accelerated depreciation even if located outside an Indian reservation, provided that the purpose 

of such property is to connect with qualified infrastructure property located within the 

reservation (e.g., roads, power lines, water systems, railroad spurs, and communications 

facilities). For this purpose, "qualified infrastructure property" must be property that (1) benefits 

the tribal infrastructure, (2) is available to the general public, and (3) is placed in service in 

connection with the taxpayer's active conduct of a trade or business within an Indian 

reservation.24

The depreciation deduction allowed for regular tax purposes also is allowed for purposes 

of the alternative minimum tax. The incentive is not available for property placed in service 

after December 31, 2004.

 

23 For this purpose, gaming activities include class I, II, or III gaming, as defined in 

section 4 of the Indian Regulatory Act (25 U.S.C. sec. 2703).

24 The rental to others of real property located within an Indian reservation is treated as 

the active conduct of a trade or business within an Indian reservation.
12

D. District of Columbia Enterprise Zone

The 1997 Act also designated certain economically depressed census tracts within the 

District of Columbia as the “D.C. Enterprise Zone,” within which businesses and individual 

residents are eligible for special tax incentives.25 The census tracts that compose the D.C. 

Enterprise Zone are (1) all census tracts that presently are part of the D.C. enterprise community 

designated under section 1391 (i.e., portions of Anacostia, Mt. Pleasant, Chinatown, and the 

easternmost part of the District), and (2) all additional census tracts within the District of 

Columbia where the poverty rate is not less than 20 percent. The D.C. Enterprise Zone 

designation remains in effect for the period from January 1, 1998, through December 31, 2003.

The tax incentives previously described in connection with empowerment zones are 

available in the D.C. Enterprise Zone (i.e., a 20-percent wage credit; an additional $35,000 of 

section 179 expensing for qualified zone property, and expanded tax-exempt financing for 

certain zone facilities26). In addition, there are two tax incentives summarized below that are 

unique to the D.C. Enterprise Zone: (1) a zero-percent capital gains rate from the sale of certain 

qualified D.C. zone assets; and (2) a $5,000 homebuyer tax credit for first-time homebuyers 

within the District of Columbia.

Zero-percent capital gains

A zero-percent capital gains rate applies to capital gains from the sale of certain qualified 

D.C. Zone assets held for more than five years. 27 In general, a qualified “D.C. Zone asset” 

means stock or partnership interests held in, or tangible property held by, a D.C. Zone business. 

For purposes of the zero-percent capital gains rate, the D.C. Enterprise Zone is defined to include 

all census tracts within the District of Columbia where the poverty rate is not less than 10 

percent.

In general, gain eligible for the zero-percent tax rate means gain from the sale or 

exchange of a qualified D.C. Zone asset that is (1) a capital asset or (2) property used in the trade 

or business as defined in section 1231(b). Gain that is attributable to real property, or to 

intangible assets, qualifies for the zero-percent rate, provided that such real property or 

intangible asset is an integral part of a qualified D.C. Zone business.28 However, no gain 

 

25 Sec. 1400.

26 A qualified D.C. Zone business is permitted to borrow proceeds from the issuance of 

qualified enterprise zone facility bonds by the District of Columbia. The issuance of such bonds 

is subject to the District's annual private activity bond volume limitation, however, the aggregate 

face amount of all outstanding qualified enterprise zone facility bonds per qualified D.C. Zone 

business may not exceed $15 million. These bonds may only be issued while the D.C. Enterprise 

Zone designation is in effect.

27 Sec. 1400B.

28 However, sole proprietorships and other taxpayers selling assets directly cannot claim 

the zero-percent rate on capital gain from the sale of any intangible property (i.e., the integrally 

related test does not apply).
13

attributable to periods before January 1, 1998, and after December 31, 2007, is qualified capital

gain.

First-time homebuyer tax credit

First-time homebuyers of a principal residence in the District of Columbia29 qualify for a 

tax credit of up to $5,000. 30 The $5,000 maximum credit amount applies both to individuals and 

married couples. The credit phases out for individual taxpayers with adjusted gross income 

between $70,000 and $90,000 ($110,000-$130,000 for joint filers). The credit is available with 

respect to purchases of existing property as well as new construction.

A “first-time homebuyer” means any individual if such individual (and, if married, such 

individual's spouse) did not have a present ownership interest in a principal residence in the 

District of Columbia during the one-year period ending on the date of the purchase of the 

principal residence to which the credit applies. A taxpayer will be treated as a first-time 

homebuyer with respect to only one residence--i.e., a taxpayer may claim the credit only once. A 

taxpayer's basis in a property is reduced by the amount of any homebuyer tax credit claimed with 

respect to such property.

The first-time homebuyer credit is a nonrefundable personal credit and may offset the 

regular tax and the alternative minimum tax. Any credit in excess of tax liability may be carried 

forward indefinitely. The homebuyer credit is available for property purchased after August 4, 

1997, and before January 1, 2004. 

 

29 The homebuyer credit applies to the purchase of a principal residence anywhere in the 

District of Columbia. It is not limited to the D.C. Enterprise Zone area.

30 Sec. 1400C.