Opportunity Zones have been the topic of much discussion since the passage of the Tax Cuts and Jobs Act in December 2017. A provision of that law created new tax benefits for investors making certain investments in specially designated areas throughout the country, typically located in areas in need of improvement.
As the federal law continues to develop, certain States have also been responding by enacting their own laws to provide similar tax benefits. Ohio recently passed its Biennial Budget Bill for the two years beginning July 1, 2019, thereby creating a new Ohio tax credit related to Opportunity Zones.
The benefit in Ohio is a tax credit equal to 10% of the investor’s investment in the Ohio Qualified Opportunity Fund. Whereas the federal rules require that investors must reinvest capital gains to obtain the federal tax benefits, Ohio opens its tax credit to anyone making an investment in a Qualified Opportunity Fund that holds 100% of its property in an Ohio qualified opportunity zone. Therefore, the Ohio program enables more investors to participate but requires a higher percentage of asset deployment in Ohio.
The Ohio credit is capped at $1 million per investor and the maximum credit allowed to all Ohio taxpayers is $50 million during the biennium budget. While the credit is not refundable, it may be carried forward up to five years. This means that investors seeking to capitalize on Ohio’s credit must act fast. Applications will be processed by the State on a first come, first served basis. Those investors planning to utilize this Ohio tax credit should start talking to their advisors now! There is no related limitation at the federal level.
To obtain the federal tax benefits, the Qualified Opportunity Fund must invest at least 90% of its assets in qualified opportunity zone property. As noted above, to obtain the Ohio tax credit, the Qualified Opportunity Fund must hold 100% of its assets in qualified opportunity zone property. This is an important distinction for funds placed in Ohio when investors want to capture both the federal and state tax benefits.
The law governing Opportunity Zones continues to develop and can be challenging. Our tax attorneys have experience working with Opportunity Zone Funds and can help investors navigate the complexity while capturing the benefits. We are happy to discuss your federal and Ohio investment plans further.
