Be Sure To Consider State Taxes
The Opportunity Zone program provides significant federal tax benefits. However, it is important to note that not all states have conformed to the Internal Revenue Code (IRC). This non conformity may have a material impact on returns and should be considered when deciding where to invest, especially in a state with high tax rates.
States May Be Non-Conforming For A Host Of Reasons:
- Slow to legislate.
- Declining to offer any state tax benefits from Opportunity Zone Investments.
- Offering different benefits such as relaxed environmental regulations.
- Offering a different tax credit than their state rate.
Be sure to consider State conformity issue for a host of reasons:
- After-tax returns, especially when comparing investment opportunities in different states.
- The extra administrative burden of tracking differing Federal and State tax benefits.
- Cash management as investors in may not be able to defer capital gains on state taxes.
Below is a link to each state and their status in conformity with the IRC. This list will be a work in progress as state legislatures may still evaluating conformity, especially if they see opportunity zone investments flow to other states.
Disclaimer: Investors are encouraged to consult their own advisors, including tax and legal, to fully understand the benefits and risks of Opportunity Zone investing.