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Ohio Proposes Tax Credit for Investments in Opportunity Zones

Background

In December 2017, Congress's passage of the Tax Cuts and Jobs Act created Qualified Opportunity Zones ("Opportunity Zones"). In general, a taxpayer who invests in an Opportunity Zone can defer capital gain taxes and potentially reduce his capital gain by receiving a 10% to 15% increase in basis, in addition to paying no tax on any appreciation of the investment in the Opportunity Zone. Click here to find a more detailed discussion of Opportunity Zones.

Ohio's House Bill 727

On August 29th, the Ohio General Assembly introduced House Bill 727 ("HB 727"), which seeks to further incentivize investments in Opportunity Zones by adding a state tax incentive. If passed, HB 727 will create a nonrefundable income tax credit up to 10%. Eligibility for this credit requires a taxpayer to invest at least $250,000 in a taxable year into a qualified fund that holds property in an Opportunity Zone. Additionally, the qualified fund must hold 100% of its assets in an Opportunity Zone located within Ohio. This Ohio-specific standard is more stringent than the federal tax standard, which only requires a qualified fund to hold 90% of its assets in an Opportunity Zone. Moreover, a qualified fund may invest in Opportunity Zones across the country to qualify for the federal tax incentive, but a qualified fund must invest exclusively in Opportunity Zones located within Ohio to receive the state tax credit.

While HB 727 is currently in its infancy, and changes will surely come, the bill nonetheless indicates that the state of Ohio is interested in fostering Opportunity Zone development. Whether local governments will likewise adjust their incentive policies in response to a program sure to alter the development landscape in the near future remains uncertain.

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