The federal Tax Cuts and Jobs Act (TCJA) created a new economic development program designed to spur investment in certain low-income communities designated as “Opportunity Zones.” The new federal tax provisions offer significant opportunities to defer, and in some instances permanently reduce, gains that are invested in Opportunity Zones, as well as to abate gains earned post-investment. This legal alert discusses the state and local tax considerations for taxpayers taking advantage of the federal Opportunity Zone provisions.
· Conformity to the federal Opportunity Zone provisions varies among the states.
· The favorable tax treatment of gains invested in Opportunity Zones or gains earned post-investment will not apply in states that do not conform to the IRC post-TCJA and do not otherwise adopt the federal Opportunity Zone provisions, or that have specifically decoupled from those provisions.
· Disparate federal and state tax treatment of investments in Opportunity Zones will require taxpayers to examine their income and apportionment calculations and keep detailed schedules to separately track the federal and state tax treatment of these investments.
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