No Depreciation Recapture With Opportunity Zones

Dated: October 1 2019

Views: 190

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

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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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