When David Moore, host of the Equity Advantage 1031 Exchange channel, sat down with Jonathan McGuire of Aldrich Advisors, the conversation turned to what McGuire called the “holy grail” of tax planning. It wasn’t hype. For manufacturers and industrial developers, the strategy they outlined could reshape investment decisions for years to come.
A Rare Three-Part Advantage
According to McGuire, if you start a new manufacturing or production business in a rural Opportunity Zone and bring in investors through a Qualified Opportunity Fund (QOF), you can unlock three layers of tax savings:
- 30% basis step-up on deferred capital gains
- 100% bonus depreciation on the production building
- Elimination of depreciation recapture after a 10-year hold
“If you start a manufacturing business in a Rural Opportunity Zone, you’re going to get a 30% basis step up on their deferred gain, you’re going to get 100% bonus depreciation on their building because it’s used in the production activity… and after 10 years or more, when you’re done with this thing and you go to sell, you get 100% basis step up in your investment, which includes eliminating the depreciation recapture on the building,” McGuire explained.
He quickly added one caveat: “The only thing that you don’t get a benefit from is the land, because you’re never going to get benefit from the land.”
Why Each Piece Matters
Basis step-up: Raising the basis by 30% reduces the eventual taxable gain, making the deferral much more powerful.
Bonus depreciation: Buildings used in production qualify for accelerated deductions. Deducting costs upfront improves cash flow and boosts returns.
No depreciation recapture: Usually, depreciation is taxed back at sale. Here, a 10+ year hold wipes out that recapture, allowing investors to keep the earlier tax benefits without a penalty.
Moore summed it up neatly: “Stacked together, these three rules can change the economics of a project in ways people don’t always realize.”
Why Timing Is Critical
McGuire emphasized the importance of the 2026–2029 window. “This is going to be really big 26 through 29,” he said. The reasons are twofold:
- Deadlines for deferred gains: Investors have a limited time to move gains into a QOF.
- The 10-year clock: To eliminate recapture, you need a decade-long hold. Projects that begin soon can capture bonus depreciation now and still hit the 10-year threshold before incentives shift.
Who Should Be Watching Closely
- Industrial developers & brokers: Facilities tied to manufacturing or distribution can qualify.
- Business owners: Entrepreneurs planning to launch or relocate operations.
- Tax-motivated investors: Those with capital gains looking for a compliant, high-impact vehicle.
- Communities: Rural Opportunity Zones benefit from jobs, infrastructure, and long-term capital.
Putting the Strategy Into Practice
- Confirming the property lies within a rural Opportunity Zone.
- Structuring or partnering with a Qualified Opportunity Fund.
- Documenting production use for depreciation eligibility.
- Considering cost segregation for maximum deductions.
- Planning for a 10-year minimum hold.
- Engaging a CPA, legal advisors, and Exchange facilitators like Equity Advantage 1031 Exchange.
“These are incentives written into the code, not loopholes,” Moore cautioned. “You’ve got to do the work to qualify.”
The Takeaway
For manufacturers, brokers, and investors, rural Opportunity Zones present a rare alignment of tax benefits: a 30% basis step-up, immediate bonus depreciation, and no recapture after 10 years.
As McGuire put it: “If you want the holy grail of tax planning, this is where you should be looking.”
Next Steps
If this strategy caught your attention, don’t wait until the window closes. David Moore and the team at Equity Advantage can walk you through the exchange side, while Jonathan McGuire at Aldrich Advisors can help you sort out the tax details and compliance guidance. Both bring years of hands-on experience, and together they’ve helped countless investors and business owners put these tools to work. A quick conversation with either of them could be the start of your next big move.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
