Ohio Opportunity Zones Guide
Created by the Tax Cuts and Jobs Act of 2017, the Opportunity Zones Program is a federal tax incentive program which allows investors to defer their capital gains taxes until December 31st, 2026, provided they invest in 8,700 low-income areas designated as Qualified Opportunity Zones (QOZs). To do this, they need to invest funds within 180 days of the sale of their assets. In addition:
Investors who hold Opportunity Zone (O-Zone) investments for at least 5 years before December 31, 2026 will enjoy a 10% reduction in their capital gains tax basis.
Investors who hold their O-Zone investment for at least 7 years before December 31, 2026 will enjoy an additional 5% reduction in their capital gains tax basis, for an overall 15% reduction.
Investors who hold their Opportunity Zone investment for at least 10 years will not have to pay any capital gains taxes on any additional appreciation generated by the investment.
The Best Opportunity Zones in Ohio
Ohio, as the seventh largest state in the U.S., contains many extremely promising areas for Opportunity Zones investing, and, as there are a substantial 320 Opportunity Zones distributed througout the state, investors have quite a few areas to chose from. Today, Ohio is known for industries including fuel cell and solar energy development, medical research, aerospace and defense, rubber and industrial products, and tech research and development, making it an economic powerhouse and an ideal place for Opportunity Zone investing. In particular, some of the most promising Opportunity Zones in Ohio include:
As the largest city in Ohio and the 14th largest city in the country, Columbus grew more than 10% between 2010 to 2017, making it the fastest growing city in the Northern U.S. With 44 Opportunity Zones across Columbus, investors could gain significantly by creating or investing in Opportunity Funds here. Neighborhoods that are currently designated O-Zones include:
Eastside: parts of Whitehall, Mt. Vernon, King-Lincoln District, , Near East Side, and Franklin Park. Includes parts of Milo-Grogan, Bridgeview, Devon Triangle, Olde Towne East, the Cleveland Avenue Corridor, Framingham, and Cumberland Ridge.
Southside: Route 104 Industrial Corridor, parts of the Rickenbacker area, and the East Parsons Avenue Corridor.
Westside: Franklinton, parts of the Scioto Peninsula, , Valleyview Heights, Consumer Square West, South and Central Hilltop Westland Mall, and Lincoln Village.
Northwest: The Continent, parts of Crosswoods, and West Campus.
The third largest city in Ohio, Cincinnati, was ranked in the top 30 fastest-growing cities in 2018, which could make it a great place for Opportunity Zone investing. Many of the city’s Opportunity Zones are located in areas with lower-cost real estate ripe for redevelopment, such as its historic West End and Over-the-Rhine neighborhoods. The West End may be of particular interest to investors, as the $200 million FC Cincinnati stadium is currently under construction and is expected to bring new jobs and a certain degree of economic revitalization to the area. Other well-known neighborhoods in the city that are fully or partially located inside O-Zones include Camp Washington, Avondale, Evanston, Bond Hill, Corryville, South Cumminsville, and North and South Fairmount.
As the second largest city in Ohio by population, the Cleveland metropolitan area actually has the largest economy of any metropolitan area in the state, at $139 billion. In addition, Cleveland is home to an incredible 64 Qualified Opportunity Zones, which are located in areas including Glenville, Tremont, Cleveland Heights, The Flats, Whiskey Island, and University Circle.
Investing in an Ohio Opportunity Fund
In order to achieve the tax benefits of Opportunity Zones, funds must be placed in an Opportunity Fund, a special investment vehicle designed to take advantage of the O-Zones program. Opportunity Funds must keep at least 90% of their assets in a QOZ, and will be tested twice a year by the Treasury. Opportunity Funds can self-certify; they do not need approval from any government entity. Eligible investments include:
Real estate located inside an Opportunity Zone, which must either lead to new building construction or the substantial rehabilitation of a building within 30 months of purchase.
The purchase of stock in an eligible company. To be eligible, a company must not be in a prohibited industry (i.e. gambling, massage parlors, liquor stores), and must have at least 70% of its tangible assets located inside an Opportunity Zone. It must also conduct at least 50% of its business inside an Opportunity Zone. Businesses must continue to keep pace with these requirements for the duration of the Opportunity Fund investment.
Opportunity Funds and Low Income Housing Tax Credits (LIHTCs)
Investors who are interested in the affordable housing market may be interested in combining their Opportunity Zone investment with another popular tax credit program, the Low Income Housing Tax Credit (LIHTC), which provides investors in eligible affordable properties a dollar-for-dollar credit against their federal income taxes. The LIHTC is claimed over a 10-year period, but buildings must typically remain in compliance for at least 15 years.
There’s a limited amount of funds per state, per year for the LIHTC program, so competition for LIHTCs is fierce, but they can be a very helpful source of investment for affordable housing projects that otherwise might not get off the ground. To qualify for the LIHTC program, developers must designate a certain number of the units as affordable, which must be filled by tenants making no more than a specific percentage of the Area Median Income (AMI).
In addition to the LIHTC, other popular tax credit programs that may be used in combination with Opportunity Fund investments include the New Markets Tax Credit (NMTC), which allows investors to claim a 7-year, 39% tax credit for investing in the construction or rehab of qualified commercial properties in designated low-income areas, most of which already overlap Opportunity Zones. Another popular program is the Historic Tax Credit, or HTC, which allows investors to claim a 20% tax credit for rehabilitating qualified historic structures. Since many of Ohio’s Opportunity Zones, for instance, Cincinnati’s West End neighborhood, are home to a multitude of historic structures, this program may also be of significant interest to Opportunity Fund investors in Ohio.