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How will it impact me if I invest the same amount in an OZ-conforming state compared to a non-conforming state?

Also, which states haven’t passed legislation to conform to the OZ federal tax incentive?


Answers
  • Matthew Rappaport
    July 15, 2019

    Novogradac & Co. has an interactive map that can tell you which states are conforming and which states aren't. I don't believe you can get state benefits if you live in a non-conforming state, even if you invest in a conforming state, because your state of residence will still have the ability to tax you on your total income.

  • Donny Lucaj
    July 10, 2019

    Some states conform while others do not conform. There are a handful of states that are working on legislation to conform. In states that do not conform, a taxpayer will not be eligible to defer the capital gain for state purposes.

  • Paul Wassgren
    July 10, 2019

    For residents in non-conforming states, a qualifying investment in a QOF will provide tax benefits only at the federal level. Accordingly, such investors will need to pay the state-level capital gains tax on the prior investment in the current year (i.e., no deferral until Dec. 31, 2026). Similarly, when exiting the QOF after 10 years, investors in non-conforming states will find any resulting gains taxable at the state level. There are several online resources to identify the conforming and non-conforming states. However, prospective investors should consult an attorney or CPA to confirm whether their state conforms.

  • Maria De Los Angeles Rivera
    July 09, 2019

    If your state of residence is not conforming, you will probably not obtain the same benefits as if it were.

  • Blake Christian
    July 09, 2019

    Non-conforming states include: CA, HI, NC, MA, MS, PA. There are also a number of states with no income tax or no tax imposed on capital gains. If you live in a conforming state but invest in a non-conforming state, you will not pay tax up front. But then you will likely have tax implications when the QOF or underling assets are sold. If you live in a non-conforming state you will have less to invest in a QOF since the state will require an up-front payment for the state tax on the initial sale and your new investment will not get basis step-ups in years 5,7 and 10. Also, check your state on whether you need to reinvest within your state vs. being able to invest in other states.