Updated about 7 years ago on . Most recent reply
Depreciation Recapture - Qualified Opportunity Zone question.
I'm unclear about the depreciation recapture if I were to sell a property and invest the capital gains into a QOZF.
Example: Let's assume I bought a SFR for $375k 10 years ago, of which $275k is depreciable. So in 10 years, I would have $100k in accumulated depreciation ($275k/27.5 * 10). Let's say I sell this year and nets $750k after fees and expenses and I never had to do any capital improvements. Capital gains: $475k and Adjusted basis: $275k
Investing in a QOZF would help me defer taxes on the $475k capital gain until December 31, 2026, but what about the $100k in depreciation? Does it get deferred the same way as the gains or treated as ordinary income on the sale year?
If you have owned a property for many years, have a low adjusted basis, and high accumulated depreciation, would you be better off going with a 1031 exchange when selling the property and reinvesting the proceeds?