Yes I did read 1.904(g)-1 before I asked for ChatGPT's opinion.
ODL creation is mentioned in1.904(g)-1(d)(3) , and references 1.904(b)-1(h)(1)(iii).
ODL recapture is mentioned in 1.904(g)-2(b) and references 1.904(b)-1(h)(1)(i).
The text in the regulation is ambiguous.
The text about ODL says "shall make adjustments", but then references 1.904(b)-1(e) which contains an option in (e)(2) to elect not to adjust Q-DIV, but doesn't specifically reference 1.904(b)-1(b)(3) which contains the option to elect not to adjust LTCG.
The only certainty is that calculating the ODL creation and recapture would both use the same logic, whatever that may be. And that Example 3(iv) in 1.904(b)-1(h)(1)(iii) shows Y electing not to adjust Y's capital gains for calculating ODL creation, when Y elected not to adjust it for calculating Y's FTC limitation.
Since both Q-DIV and LTCG share the same rate differentials and it doesn't make sense to adjust one but not the other, my best guess is that you follow the same election not to adjust both Q-DIV and LTCG when calculating ODL as you do when calculating FTC limitation.
