Only capital gain can be rolled over.
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Do I take the recapture of the depreciation into account when calculating the capital gain to defer into a QOF?
When trying to defer tax and invest in an OZ fund, do I take the recapture of the depreciation into account or do I still owe the tax on the recapture of depreciation at the time of sale of the property? Example: Sale Price $525,000 - $348,500 cost = $177,000 gain plus recapture of deprecation = $147,000, total gain = $324,000 but only $177,000 can be deferred into the QOF for OZ benefits, correct?
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Under the provisions for opportunity zones, only the amount of taxable capital gain will qualify for the benefits.
Section 1250 "recapture" (a misnomer because it does not REALLY recapture) is capital gain taxed at a higher 25% rate, and it can be deferred. Ordinary income recapture, like Section 1245 recapture and the Section 1250 recapture on land improvements, is not eligible for QOZ deferral. You'll need to ask your accountant how all that breaks down.
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