In states like California, you will have to pay the tax when you sell a capital asset in 2019 and when you sell your interest in the Opportunity Zone fund in 10 years or more.
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What happens with my capital gains if I invest in an Opportunity Zone in a state that hasn’t conformed to the federal rules?
How should investors evaluate the program from both a federal and state perspective?
Answers
Opportunity Zone rules apply to all 50 states and U.S. territories. Therefore, regardless of the state, you are covered for the treatment of your capital gains on the federal level. Each state may have a variation of conformity. To help you more, we need to know which state you are referring do, and look up the particular situation of that state.
If an investor resides in a non-conforming state, she may not be able to defer the initial capital gain investment or benefit from the 10-plus-year hold exclusion. Some non-conforming states are looking to create additional incentives to encourage Opportunity Zone investment.
The treatment of state taxes depends on which state the gain was realized in, not which state the QOZ is investing in. For instance, an investor from New York can roll over gains into a Qualified Opportunity Fund that invests in another state, such as California, or spread its investments out nationally. The investor's capital gains would be subject to New York state tax laws for state tax, and all gains are treated to the same federal tax laws. Some states have not conformed to federal rules, so in those states the state tax may not be able to be deferred, even though the federal tax on the same gain is deferred. In any situation it is best to consult with your tax advisor prior to making an investment.
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