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Do residents of non-conforming states receive the OZ benefits if they invest in an Opportunity Zone project in a state that conforms with the federal OZ regulations?

I live in California but have invested in an Opportunity Zone project in Utah. Do I get to defer my CA tax liability for up to 7 years?

  • Guy Nicio
    July 10, 2019

    No, as a California resident, you pay tax on your worldwide income and you would get either a credit or deduction for taxes paid in other states. So in this case, you would get the OZ benefits for federal taxes only and you would have to pay the California tax liability as if there were no investment in the OZ. The Utah project would be of no benefit to you at the state level unless you were trying to defer Utah capital gains from a prior sale.

  • Erik Kodesch
    July 10, 2019

    I am not sure because I do not practice in California. However, I would think that,if California does not follow the OZ regime, then California residents would not be able to benefit, regardless of whether the investment is in California or in another state. However, I believe California partially conforms to the OZ regime in that certain types of OZ investments get the full benefit.

  • Brad Cohen
    July 10, 2019

    Each state may be different.

  • Pat Cardwell
    July 10, 2019

    It’s a federal law. Therefore the tax benefit relates to the federal taxes. You should consult your accountant, as I am not an accountant nor qualified to comment on California tax law.

  • Jonathan McGuire
    July 09, 2019

    Ultimately, you are limited to the rules of your resident state. Because your gain in this instance that you are deferring is California sourced as you are a resident, then the non-conforming rules would disallow gain deferral for state purposes. This is a general rule for conforming vs. non-conforming, but it would be best to check each situation with your tax advisor to determine state tax consequences.