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What States Do Not Conform With QOZ Tax Benefits?

The 2017 federal Tax Cuts and Job Acts (TCJA) granted taxpayers new tax benefits for investing in Qualified Opportunity Zones (QOZs). However, not all states are on board with the changes. Before you make an investment, consider whether your state conforms to the TCJA.

What Is a QOZ?

A QOZ is an area designated by the IRS as economically disadvantaged or distressed. Taxpayers can defer capital gains tax on the sale of a property by reinvesting the gains in a property located in a QOZ.

Depending on the length of time the QOZ investment is held, the investor may be able to defer or eliminate capital gains tax until as late as Dec. 31, 2026. Taxpayers are also entitled to a capital gain exclusion of:

  • 10% if the QOZ investment is held for at least five years.
  • 15% if the QOZ investment is held for at least seven years.
  • 100% if the QOZ investment is held for at least 10 years.

Since the capital gains tax will be deferred no later than Dec. 31, 2026, that means the investor must have rolled over gains into a Qualified Investment Fund (QOF) by 2021 to realize the 10% benefit and by 2019 to take advantage of the 15% benefit.

reinvesting gains in a property located in a QOZ

Importance of a State's Conforming Status

States can choose whether to conform with QOZ tax benefit changes outlined in the TCJA. By conforming with these changes, a state grants taxpayers full tax benefits for investing in QOZs. Most states conform, but some do not.

If you live in a nonconforming state or invest in a QOF with QOZs located in a nonconforming state, you may not receive state tax benefits. In some cases, you may even be required to recognize gains for state tax purposes. Investors must review specific state regulations before setting up an investment vehicle.

Nonconforming States for QOZ

Some states don't conform with QOZ tax benefits. These states include:

Partially Conforming States for QOZ

Some states partially conform with QOZ tax benefits, including:

  • Arkansas: Arkansas conforms to QOZ tax benefits for QOZs located in Arkansas.
  • Hawaii: Hawaii conforms with QOZ tax benefits for QOZs located in Hawaii.
  • Massachusetts: Massachusetts conforms with QOZ tax benefits for corporate income taxes but not individual income taxes.

Invest in QOZs With 1031 Crowdfunding

reinvesting gains in a property located in a QOZ

At 1031 Crowdfunding, our selection of QOFs makes it easy to take advantage of current tax benefits. Create a free account with us to access our marketplace of properties.

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements are speculative in nature and involve a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC, member FINRA, SIPC.