Bonus depreciation & opportunity zone

[John Vietmeyer]

I have a duplex held in an opportunity zone partnership established by my wife and I. While there is potential to add an ADU, we already hit the improvement thresholds and was going to ride out the 10 year period then decide what is next.

Questions:

1) should I be leaning forward and using bonus depreciation knowing the gain will be cleared at the end of 10 years?   can the loss on this opportunity zone partnership help my wife and I with other tax burdens? We do qualify for active/ real-estate professional.  

2) we own the property in cash now.  Would we jeopardize anything getting a mortgage and extracting capital to invest elsewhere?  

Appreciate your help, I don’t have confidence my CPA can operate at this level.  Perhaps my biggest issue :)

[Chris Montgomery]

I'm a fund manager not an accountant, so don't take this as professional advice but I'm happy to tell you our thoughts.  Also happy to pass along the contact info for the accounting firm that we use who know oz's inside and out.

1)  We take bonus depreciation anytime we can.  Taking bonus depreciation now and not having it be recaptured at disposition after 10 year hold is a huge benefit of an oz fund.  We do cost segs on all of our multifamily projects.  I haven't done a cost benefit analysis of paying for a study on a duplex, but the general rule is to accelerate as much depreciation as you reasonably can.

2)  We've leveraged all of our assets so are not in your exact situation, but we've been advised that you need to make sure to not pull out fund from a refi before 2 years have passed so it doesn't look like a disguised sale to the IRS.  The specifics of your situation matter, so I'd suggest talking to an accountant or a tax lawyer before making the decision on how much to pull out so you avoid an inclusion event.