Each state may be different.
Ask A Question
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?
Answers
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.
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.
Generally, the tax benefit is only going to apply to your state taxes if your state allows it.
No, the laws of your state of residence rather than where you are re-investing will determine whether you can defer those gains on your state return.
Unfortunately, no. Not only has CA not conformed, but the limited conformity that was proposed required taxpayers to invest in projects within California. I suggest you write your state legislators and the governor, but they do not seem inclined to allow conformity.
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.
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.
I would say that being a resident of California, if California has to conform, you will not be able to defer the gain or obtain the step-up.
DISCLAIMER:the information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal and financial experts prior to participating in any aspect relating to Opportunity Zones. Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.