On June 20, 2019, the Ohio Senate unanimously approved a state budget bill, House Bill 166, which includes a new tax credit for investments made into Ohio’s opportunity zones. Originally passed unanimously by the Ohio Senate as Senate Bill 8, the bill was later included in the state operating budget that was signed into effect by Governor DeWine on July 18, 2019.
In addition to the tax deferrals created by the federal program that qualified opportunity funds get to take advantage of, Ohio qualified opportunity funds that invest in Ohio’s opportunity zones will receive an additional tax credit equal to 10 percent of the taxpayer’s investment into the fund that was invested during the preceding calendar year. The beauty of the Ohio credit is that the investor will receive immediate benefits for the year of the investment, which when added to the long-term benefits under the federal program, makes this a very attractive credit for Ohio investors.
To be eligible for this tax credit, the Ohio qualified opportunity fund must hold 100 percent of its invested assets in a qualified opportunity zone property located in Ohio. This will likely encourage Ohio taxpayers to create Ohio-only funds to make their investments within the state receive the advantage of the additional tax benefit. In analyzing the new tax credit, we have spotted a few issues that all clients should be aware of before deciding to invest in Ohio’s opportunity zones:
The tax credit limits the total credit allowed to any applicant to $1 million per fiscal biennium ($10 million investment).
The tax credit also limits the total credit allowed to all taxpayers in Ohio to $50 million per fiscal biennium. Once the Director of the Ohio Development Services Agency (ODSA) has issued certificates totaling $50 million within a two-year period, taxpayers will have to wait until the next biennium. This could mean that only 50 projects across the state can take advantage of this credit.
Applications are due between January 1 and February 1 of the year following the investment. This means that taxpayers will not know if they will be awarded the tax credit certificate until the spring following any investment. The credit is awarded on a first come, first served basis. For example, if a fund was formed in June 2019 and the investment into an opportunity zone property happened before the end of 2019, the application would be made in January and the director would have 60 days to determine the award. Get ready for a lineup of applications on January 1 at ODSA’s offices.
A credit certificate may only be transferred to another person once, and the nonrefundable credit must be claimed within the initial five-year carryforward period.
Ulmer’s experienced Real Estate and Tax Practice Groups can assist clients with their decisions to invest in Ohio’s opportunity zones. Contact one of our real estate or tax attorneys if you have any questions, as we can help you explore a number of options.