The federal Opportunity Zone benefits do not automatically carry into state income tax. As of October 2026, primary sources confirm that North Carolina decouples from both the deferral and the 10-year exclusion, California's tax board said in 2019 that it follows neither, and New York adds back the deferred gain; for most other states, treatment was not verified from an official source.
State-by-state status
Each row says how strong the evidence is. "Verified" means we read the state statute or an official agency statement. "Reported" means only a secondary source says it. "Unsettled" means sources conflict or the official text leaves the answer open.
| State | Deferral (1400Z-2(a)) | 10-year exclusion (1400Z-2(c)) | Evidence | Source |
|---|---|---|---|---|
| North Carolina | Not followed: deferred gain added back in the year of deferral | Not followed: excluded gain added back | Verified (statute) | G.S. 105-153.5(c)(5)–(7) |
| California | Not followed | Not followed | Verified (agency statement, 2019; no later change found) | FTB analysis of SB 635 |
| New York | Not followed: federally deferred gain added back | Not confirmed from statute | Verified for the deferral (statute) | N.Y. Tax Law 612(b)(42) |
| Massachusetts | Unsettled | Unsettled | Unsettled: personal income tax follows the Code as amended January 1, 2024; effect on OZ benefits unclear | M.G.L. c. 62, sec. 1(c) |
| Pennsylvania | Reported as conforming for personal income tax (Act 13 of 2019) | Not separately confirmed | Reported by Ballard Spahr; no Department of Revenue confirmation found | Ballard Spahr alert, July 2019 |
| Arkansas | Reported: adopted section 1400Z-2 as in effect January 1, 2018 | Reported: same static adoption | Reported (code text from a FindLaw reproduction); a 2025 bill, HB1216, proposed repeal, outcome unknown | Ark. Code 26-51-460 (FindLaw copy) |
| Hawaii | Reported: conforms only for investments in Hawaii zones (2019, S.B. 1130) | Reported: same limit | Reported by Novogradac, whose personal and corporate tables disagree | Novogradac conformity tables |
| Mississippi | Unsettled | Unsettled | Sources conflict: one guide says it does not conform; Novogradac's corporate table lists rolling conformity. No Department of Revenue source found. | Novogradac corporate table; secondary guide |
| All other states and DC | Not verified | Not verified | Not verified from an official source; check your state | Your state's statute, revenue department and form instructions |
The three verified states
North Carolina
North Carolina's statute requires the taxpayer to "add the amount of gain that would be included for federal income tax purposes without regard to section 1400Z-2(a)" (G.S. 105-153.5(c)(5)). It also adds back gain excluded by the 10-year basis step-up, and provides a later deduction so the same gain is not taxed twice when the federal deferral ends. In effect, North Carolina taxes the gain on its own schedule. See Opportunity Zones in North Carolina.
California
In its March 27, 2019 analysis of SB 635, the Franchise Tax Board wrote that California "does not conform to either the deferral or the exclusion" of capital gains invested in a Qualified Opportunity Fund (FTB, SB 635 analysis). We found no later FTB statement changing that position as of October 2026. See Opportunity Zones in California.
New York
New York adds back "the amount of any gain excluded from federal gross income for the taxable year" by the section 1400Z-2(a)(1)(A) deferral (N.Y. Tax Law 612(b)(42)). Secondary sources report that this applies from 2021 and that New York still follows the 10-year exclusion with a matching later subtraction. We did not confirm the exclusion treatment or the subtraction from the statute, so the table leaves it open. See Opportunity Zones in New York.
Why Massachusetts and Mississippi are marked unsettled
Massachusetts. For personal income tax, Massachusetts defines the Code as the Internal Revenue Code "as amended on January 1, 2024" (M.G.L. c. 62, sec. 1(c)), and section 1400Z is not on the list of sections it follows currently. Section 1400Z-2 existed on that date, but secondary sources describe Massachusetts guidance that departs from some federal basis rules, and that guidance was not retrievable. A proposed budget provision limiting benefits to Massachusetts zones was not confirmed as enacted. The result for OZ 1.0 and OZ 2.0 investments is not settled.
Mississippi. Secondary sources disagree, and no Mississippi Department of Revenue statement was found.
The OZ 2.0 question
The 2025 law (Public Law 119-21, enacted July 4, 2025) changed the federal rules for amounts invested after December 31, 2026: deferred gain comes due at the earlier of a sale or 5 years, a rural fund earns a 30 percent basis increase instead of 10, and the 10-year exclusion is capped at the 30th anniversary.
Many states conform to the Internal Revenue Code as of a fixed date. A state like that would not pick up the 2025 changes until its legislature moves the date forward. That is an inference about how fixed-date conformity works, not a verified finding for any named state. A state that follows the Code on a rolling basis might pick up the changes automatically, unless it has decoupled.
The practical result is that two investors in the same fund, in different states, can owe different state tax in the same year. The federal figures from the OZ tax benefit calculator do not include state tax.
How to check your state
- Find the conformity date. The state income tax statute says whether it follows the Code on a rolling basis or as of a fixed date, and lists any sections it excludes.
- Look for an OZ-specific provision. Some states, like North Carolina and New York, have an add-back aimed at section 1400Z-2.
- Read the current form instructions. State income tax instructions usually name required additions and subtractions.
- Note the year. Treatment can change by legislative session, and the year of the deferral, the inclusion and the sale may each fall under different state law.
- Confirm with someone who files there. A tax adviser in your state can apply the rule to your facts.
State-by-state zone details are on the state index.
Common questions
Do states follow the federal Opportunity Zone tax break?
Some do and some do not, and the answer can differ for the deferral and the 10-year exclusion. Among the states checked against primary sources, North Carolina decouples from both, California's tax board said in 2019 that it conforms to neither, and New York adds back the deferred gain. Most other states were not verified.
Does California allow Opportunity Zone deferral?
California's Franchise Tax Board stated in a 2019 bill analysis that California does not conform to either the deferral or the exclusion of capital gains invested in a Qualified Opportunity Fund. No later FTB statement changing that was found as of October 2026.
Does North Carolina tax Opportunity Zone gains?
Yes. North Carolina's statute requires taxpayers to add back gain deferred federally under section 1400Z-2(a) and to add back gain excluded by the 10-year basis step-up under section 1400Z-2(c), with a later deduction to prevent the same gain from being taxed twice.
Will states follow OZ 2.0?
Largely unknown as of October 2026. States that tie their tax code to the Internal Revenue Code as of a fixed date would not pick up the 2025 changes until their legislatures update that date, but that is a general pattern, not a verified rule for any particular state.
Where can I confirm my state's treatment?
From the state itself: its income tax statute, its revenue department's guidance, or the instructions to its current income tax forms. Secondary charts are a starting point. A tax adviser who files in your state can confirm the treatment for the year of your investment.