With the exception of Ohio, which we will talk about later, it does not matter what state the Opportunity Zone is in. It only matters what state the investor is a resident of. Being the resident of a non-conforming state, you will need to make the following adjustments at the state level: no deferral of capital gains invested into an Opportunity Zone fund; you will have a different federal and state tax basis that will need to be tracked yearly; because the federal basis will be lower, a federal loss will more likely be limited by the at-risk rules; come 2027 the taxable deferred gain will not be taxable to the state; upon death the state basis will be increased to market value while the federal basis will not; the 10% basis increase after five years and 5% additional basis increase after seven years will not be recognized by the state; the tax-free gain after 10 years will be taxable to the state. The same adjustments will need to be made on the non-resident returns for a non-conforming state. On an additional note, Ohio conforms to the federal, if the Opportunity Zone is inside Ohio. There is no conformity if the Opportunity Zone investment is outside of Ohio.
