Earlier this year, Ohio passed its 2022-2023 operating budget. The legislation not only renewed the Ohio Opportunity Zone (OZ) Tax Credit, retaining the previous fiscal biennium limit of $50 million in tax credits to be issued, but it also doubled the amount a single application can claim — now up to $2 million.
The renewal of the Ohio OZ tax credit will follow the same program guidelines as in previous years. Below is a refresher on those guidelines.
What is the Ohio Opportunity Zone Tax Credit?
The credit offers tax incentives for eligible investments in qualified projects located in Ohio OZs as designated by Federal Statute 26 U.S.C. 1400Z-1.
A taxpayer invests cash in an Ohio Qualified Opportunity Fund (QOF), which in turn must invest that money in Qualified Opportunity Zone (QOZ) property located in an Ohio OZ. 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 QOF in the QOZ property.
The Ohio OZ Tax Credit may be claimed for the taxpayer’s qualifying taxable year or the next consecutive taxable year.
Who is Eligible for the Ohio Opportunity Zone Tax Credit?
To qualify for the credit, the following requirements must be met:
- 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 QOF.
- The Ohio QOF invests all or a part of a taxpayer’s fund contribution in QOZ property located in an Ohio OZ. Note, this program is separate from the federal program and a taxpayer need not invest capital gain dollars in the Ohio QOF to be eligible for a tax credit in Ohio.
- A taxpayer made an investment during the taxable year that includes January 1, 2021, and is subsequently invested in QOZ property through the Ohio QOF during calendar year 2021.
Which Ohio Qualified Opportunity Funds are Eligible?
The Ohio QOF must:
- Meet the definition of a QOF as defined in 26 U.S.C. 1400Z-2; and
- Hold 100% of its invested assets in a QOZ property located in an Ohio OZ.
What are the Benefits of the Ohio Opportunity Zone Tax Credit?
- The credit amount is 10%, based on the dollar amount invested in QOZ property situated in an Ohio OZ.
- It is a nonrefundable tax credit, which means the tax credit received can only be used to reduce income tax liability.
- Any unused tax credit amount may be carried forward and used by the taxpayer for the following five taxable years.
- Notably, the Ohio OZ 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?
If you are invested in an Ohio QOF and that fund invested in Ohio QOZ property during the 2021 calendar year, you must do the following two things to qualify for the 2022 round of tax credits:
- Electronically file an application directly with the Ohio Development Services Agency through its application portal.
- Submit your application between January 7, 2022, and January 31, 2022.
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 $50 million in tax credits is fully used — whichever comes first.
If you have invested, or are considering investing in Ohio OZs, apply as early as possible to take advantage of this additional tax savings opportunity.
Contact Angel Rice 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.