The second round of proposed regulations exempted leased property from the original use requirement. For your situation, however, you will need to comply with the related party lease rules.
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How can a lessee be deemed the “original user” of a property?
One of my buildings has been vacant for four years. How can I fulfill the requirement of “original user” as a lessee?
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For property that has been vacant for at least five years, original use can commence on the date after that five-year period to qualify. I'm assuming also that in this question, you are leasing your own building? If that is the case, a related party lease has additional requirements that any prepayment must not exceed 12 months and the leased property must be used for the first time inside the QOZ by the entity.
Not necessary.
If you own the property through a non-QOF entity for four years, you can't be the original user. If you construct improvements, you can be the original user of the improvements through a master lease structure.
There are special rules for leases of property, especially if it is between related parties. Usually, the original use requirement will not apply to leases. Your case needs special attention, specially due to the requirement of property acquired after Dec. 31, 2017.
The second round of proposed regulations allow for a lease of property to satisfy the original use test. They also allow for related party leases so long as the lease meets the various requirements, including that the lease be structured as arm's length and includes not prepayments. Noteworthy is that using a lease structure will reduce the amount of gain upon exit that will benefit from the 10-plus year step-up in basis benefit.
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