I found out my parents accidently invested in an opportunity zone....$$$ HELP

[Joe Applegate]

This one is a doozy, but anyone who gives the best advice regarding this opportunity zone question will receive a gift from the universe….

I just took over a project from my elderly parents where they own a single-family rental that needs substantial improvements. As part of my diligence, I found out it is in an opportunity zone. Unfortunately, they bought the place back in 2014 and not through a QOF or with capital gains. Since then, the place has appreciated ~800k.

From my research, you cannot retrospectively put the investment in a QOF and reap the tax benefits (can someone confirm?!), but I see SO much potential here. Are there any strategies that can be deployed to still get the tax benefits? One thing I was considering was to sell the house below FMV to a QOF which I will create and fund though capital gains, and take the capital gains from the house and invest in the QOF, then I can perform the substantial improvements and let it cash flow for 10 years.

I can bring in 120k a year of rental income as I will put in a pre manufactured ADU in the back, and it is in a college town with high rent prices.

The house is in pretty bad shape due to weather this winter, and we have kicked all tenants out to rebuild.