By Edmund G. Kauntz, Esq.
The just-passed Ohio Budget Bill for the two years beginning July 1, 2019 includes a very favorable provision for Ohio investors – an Ohio opportunity zone tax credit. This new tax credit has the following features:
- It applies to federally-designated opportunity zones located in Ohio.
- It allows any investor in a qualified opportunity fund (not just those who qualify to defer capital gains) to take an Ohio income tax credit equal to 10% of the amount invested in the qualified opportunity fund.
- The qualified opportunity fund must hold 100% (not 90% as required for the federal opportunity zone program) of its invested assets in qualified opportunity zone property.
- The investor claims the credit in the year of the investment or in the succeeding tax year.
- The credit is not refundable, but unused credits may be carried over for up to 5 years.
- The maximum credit allowed to one investor is $1,000,000, and the maximum credits allowed to all Ohio taxpayers is $50,000,000 during every 2 year budget period.
- Investors must apply to the Ohio Development Services Agency (ODSA) during the month of January in the year after the investment is made. ODSA must process the applications in the order received, and will issue a tax credit certificate which must be attached to a tax return to claim the credit.
- The credit is claimed by the ultimate Ohio taxpayer (individuals, estates and trusts) in a tiered ownership structure.
- The credit is transferable one time but must be claimed within 5 years after issuance.
The benefit of this new tax credit is that all investors in the qualified opportunity funds, not just those who are deferring capital gains, are eligible for the new tax credit, including project sponsors. However, there likely will be a race to file applications next January, and the applications will be processed in the order received up to the first $50,000,000 of tax credits (representing $500,000,000 of equity investment in Ohio qualified opportunity funds). It is possible that equity investments in applicable projects during 2019 could use up the entire $50,000,000 cap on these tax credits for 2019 and 2020. Each investor must file its own application, which must include a certification from the opportunity fund. We expect that application and certification forms will be published by ODSA later this year.
If you would like to discuss the new Ohio opportunity zone tax credit or have further questions, please contact Edmund G. Kauntz at 216-292-5807.