On July 18, 2019, Ohio’s biennial operating budget, Am. Sub. H.B. 166, was enacted and included a new 10 percent nonrefundable Ohio personal income tax credit to those that qualify and that invest in any of Ohio’s Opportunity Zones. To qualify for the credit, a taxpayer must invest in an opportunity fund that in turn holds 100% of its invested assets in Ohio. Unlike the federal tax incentives for Opportunity Zones, the Ohio credit is available even for investors that do not have capital gains to reinvest. The 100% investment test, however, is stricter than the test for the federal law, which requires only 90% of the fund’s investments to be in an opportunity zone.
If approved, each investor is permitted to claim a 10 percent Ohio personal income tax credit (up to $1 million credit per investor) for investments into a Qualified Opportunity Fund operating within Ohio. The credit can be carried forward for up to five (5) years and the legislation allows the Ohio credit to be transferred, but the transferee of the credit must claim it within the initial five-year carryforward period. The maximum amount of credits to be allowed by the Ohio Director of Development Services (DSA) is $50 million per Ohio biennium.
The taxpayer must apply to the DSA between January 1 and February 1 following the year in which the taxpayer makes the investment. The taxpayer must include in the application (1) the total investment the taxpayer made in Ohio qualified opportunity funds and (2) a statement from an employee or officer of each fund certifying the amount the taxpayer invested in that fund, the amount of that investment that the fund directed to opportunity zone projects, and a description of each project funded by the investment. DSA must consider applications in the order in which they are received. If the taxpayer qualifies for the credit, DSA must issue the taxpayer a credit certificate that lists the amount of the credit. The taxpayer must file a copy of the certificate with the taxpayer’s return.
The Ohio credit is in addition to the federal Qualified Opportunity Zone benefits. Opportunity Zones are federally designated areas that are experiencing economic challenges. The federal program provides a substantial federal tax benefit to individuals making long-term investments of qualifying funds into eligible Opportunity Zone businesses. The federal tax incentive is deferred (after the investment has been held for a required minimum number of years), but the Ohio credit is available immediately and is expected to provide incentive for investments in Ohio opportunity zones that may have otherwise gone to Opportunity Zones in other states.
If you would like to discuss personal income tax issues, please contact Steve Hall or any other ZHF professional.