Ohio Income Tax Credit for Opportunity Zone Investments

The Ohio Senate unanimously recently passed Senate Bill 8.   If enacted, this Bill would create a 10% Ohio income tax credit for Opportunity Fund investments. The maximum amount of such credits permitted under this Bill in the initial two-year period would be $50 Million, with a per applicant max of $1 million.  Taxpayers would apply for the credits in January each year.  The credits would be non-refundable but could be carried forward for 5 years.  

The US Congress created the Opportunity Zone Program in 2017 to encourage investment in low-income areas. The IRS and Treasury Department issued proposed regulations to provide guidance to investors regarding the federal credit.    The Ohio legislation is trying to encourage more of this type of investment in Ohio.

The federal Opportunity Zone Program is quite complex, the qualification requirements are not entirely clear.   Taxpayers must sell property and realize eligible capital gain income (“Initial Sale”).  Taxpayers must then elect to defer and reinvest the capital gain from the Initial Sale in an “Opportunity Zone Fund” within 180 days. Taxpayers must be sure the Opportunity Zone Fund invests more than 90% of its assets in certain qualified property within an Opportunity Zone, either by operating a qualified Opportunity Zone business themselves, or by investing in a subsidiary that operates a qualified business. If Taxpayers follow these steps, the capital gain on the Initial Sale is deferred until the earlier of the date the Taxpayer’s investment in the Opportunity Zone Fund is sold or December 31, 2026. The Taxpayer’s investment in the Opportunity Zone Fund will initially have a zero-tax basis, but if the investment is held for 5 years, there is a 10% step-up in basis, and if the investment is held for 7 years there is a 15% step-up.  If the Taxpayer’s investment is held in the Opportunity Zone Fund for at least 10 years, then capital gains on the Opportunity Zone Fund investment would be permanently exempt from taxes.

For more information about the federal or state Opportunity Zone tax credits, please contact one of our tax or business attorneys at 937-223-1130 or Jsenney@pselaw.com.

AUTHOR: Jeff Senney