How does the state tax credit system work in the context of credits between conforming states and non-conforming states? How do I avoid getting taxed twice on the same dollars?
Investors who invest in property or a business out of state generally have to file taxes in the state where the property or business is located. In addition, they typically have to include the income in their state of residence. As a result, you may have a situation where the state where the project is located recognizes the Opportunity Zone rules but the state you live in does not or vice versa. You typically get a credit in the state you live for taxes paid in other states.
There should not be any federal tax on the Opportunity Zone investment gains. You should not lose any state credits and may be able to get state OZ benefits, depending on the state.
The simplest answer is to live in and invest in conforming states. Otherwise you could, at least theoretically, end up paying state taxes twice on the same dollars. Most states are now conforming. For specifics, you'll want to consult a tax attorney.
I apologize, but I am not a tax attorney. I would recommend you addressing that issue with your accountant.
I strongly recommend you to consult your tax advisor. She or he understands your particular situation and is best fit to answer your questions.
If you make an Opportunity Zone investment in conforming state, you will also get state tax benefits in addition to federal tax benefits. Some states don't conform, so someone might get a deferral and other benefits for federal purposes but not for state purposes. If you make an investment in a conforming state, there would be no related tax payment credit applicable in the other jurisdiction. The income should be apportioned on where earned, however, to prevent double tax.
State tax credits ought to apply as normal. I don't see any reason why the state tax credits would apply any differently when it comes to QOZs. If you pay taxes in a non-conforming state but you live in a conforming state, you'll still get the tax credits. I don't see any reason why it would work differently.
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