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No Depreciation Recapture With Opportunity Zones
Dated: October 1 2019
Views: 275
Recently issued guidance on Opportunity Zones seems to have clearly answered one of the largest outstanding questions from potential investors: When I sell the asset in 10+ years, will I have to pay taxes on recaptured depreciation? The answer is "NO." The IRS has structured the program so that the investor gets a 100% market value basis step-up in the asset when it is sold after 10 years. This basis step-up eliminates a depreciation recapture situation. This is a HUGE WIN for investors as it allows one to depreciate the asset against ordinary income and not have to pay those ordinary income tax dollars at the time of the asset sale. Example below:
Normal Real Estate Investment (Not Opportunity Zone)
Building Value - $1,000,000 (IRS allows one to depreciate real estate on a straight line basis of 27.5 years)
Depreciation Over 10 Years - $363,636
Ordinary Income Taxes Avoided (@ 30% Rate) - $109,090
Sell the Building - The $363,636 is counted as ordinary income in the year of the asset sale and the investor pays taxes of $109,090
Real Estate Investment in an Opportunity Zone
Same scenario from above, but when the asset is sold, the depreciation is not counted as ordinary income and the investor never pays the taxes of $109,090
Please contact Lance Niel if you are looking to achieve any of the following tasks:
Sell or buy land in an Opportunity Zone
Raise equity from an Opportunity Zone investor for a development project
Learn more about the Opportunity Zone program
Lance Niel
(251) 979-9198
Lance@thenielgroup.com
Lance Niel
As an Orange Beach homeowner and resident, Lance enjoys living the Gulf Coast lifestyle and is passionate about sharing it with others. He helps his valued clients achieve wealth creation and personal....
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