Ohio investors will soon have another opportunity to apply for Ohio Opportunity Zone Tax Credits. The program has $23 million available in tax credit allocation for its 2021 application round and opens January 8, 2021, at 10 a.m. through January 31, 2021, until 11:59 p.m.
Similar to the federal program, the Ohio specific tax credit provides an incentive for taxpayers to invest in projects in economically distressed areas in Ohio, or “Ohio Opportunity Zones.” Credits will be awarded in the order they are received over the fiscal biennium.
It’s important to note that the application and required forms are currently available for review on the Ohio Development Services Agency website. The Department also provides guidance on what to do and what not to do when completing the application, based on errors that occurred during the 2020 application process.
Read more on the federal program in “10 Key Questions — Answered — About Qualified Opportunity Zones”
What is the Ohio Opportunity Zone Tax Credit?
On June 20, 2019, the Ohio Senate passed the Ohio Amended Substitute House Bill No. 166, which established the Ohio Opportunity Zone Tax Credit. The credit offers tax incentives for eligible investments in qualified projects located in zones in Ohio designated by Federal Statute 26 U.S.C. 1400Z-1.
A taxpayer invests cash in the Ohio Qualified Opportunity (QO) Fund, which in turn must invest that money in a QO Zone property in Ohio. Once the money is invested, the taxpayer is eligible for a non-refundable tax credit equal to 10% of the amount of its funds invested by the Ohio QO Fund in the QO Zone property. The taxpayer may invest in multiple Ohio QO Funds and may receive tax credits totaling up to $1 million dollars during the 2020-2021 period.
The Ohio Opportunity Zone Tax Credit may be claimed for the taxpayer’s qualifying taxable year or the next consecutive taxable year. For the 2020-2021 periods, a total of $50 million in tax credit allocation from the program is available.
Who is Eligible for the Ohio Opportunity Zone Tax Credit?
To qualify for the credit, a taxpayer must meet the following requirements:
- A taxpayer must be an individual, trust, estate or pass-through entity that elects to file a return on behalf of its investors. Note, a nonresident taxpayer could participate if they otherwise meet the requirements of a qualified investment.
- A taxpayer must make or have made an investment in an Ohio QO Fund.
- The Ohio QO Fund must invest all or a part the taxpayer’s fund contribution in a QO Zone property in Ohio. Note, this program is separate from the federal program and a taxpayer need not invest capital gain dollars in the Ohio QO Fund to be eligible for a tax credit in Ohio.
- A taxpayer must have made an investment during the taxable year that includes January 1, 2020, and is subsequently invested in QO Zone property situated in an Ohio Opportunity Zone by the Ohio QO Fund during calendar year 2020.
- Note: If a taxpayer made an investment during the taxable year that includes January 1, 2019, and is subsequently invested in QO Zone property situated in an Ohio Opportunity Zone by the Ohio QO Fund during calendar year 2020, the investment is not a qualified investment. However, there may be a way to restructure a 2019 investment to qualify for the 2020 application.
Which Ohio Qualified Opportunity Funds are Eligible?
The Ohio QO Fund must:
- Meet the definition of a QO Fund as defined in 26 U.S.C. 1400Z-2; and
- Hold 100% of its invested assets in a QO Zone property located in an Ohio Opportunity Zone.
What are the Benefits of the Ohio Opportunity Zone Tax Credit?
- The credit amount is a 10%, based on the dollar amount invested in QO Zone property situated in an Ohio opportunity zone.
- It is a nonrefundable tax credit, which means the tax credit received can only be used to reduce tax credit liability.
- Any unused tax credit amount may be carried forward and used by the taxpayer for the following five taxable years.
- Notably, the Ohio Opportunity Zone Tax Credit is transferrable. A taxpayer that holds an unclaimed certificate may transfer the right to claim the certificate one time.
How Can You Apply for the Ohio Opportunity Zone Tax Credit?
- Taxpayers that have invested in an Ohio QO Fund must apply directly to the Ohio Development Services Agency for the tax credit.
- Applications can be submitted between January 8, 2021, and January 31, 2021, for investments made by an Ohio QO Fund in Qualified Opportunity Zone property in Ohio during the 2020 calendar year.
- The Ohio Development Services Agency will review the applications in the order they are received, issuing tax credit certificate allocations until all eligible applications are funded OR the $23 million in tax credits is fully used, whichever comes first.
- Applicants need to make sure their structure and documents are in order. The Ohio Development Services Agency stated in their FAQs that if an application is determined to be ineligible, it will be removed from consideration and the subsequently filed application will be considered in the order it is received. The revised application would not replace the ineligible application’s spot in the queue.
If you have invested, or are considering investing, in Ohio Opportunity Zones, apply as early as possible to take advantage of this additional tax savings opportunity.
Contact Dave Sobochan at email@example.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.