The federal Opportunity Zone benefits are deferral, the step-up and the 10-year exclusion. They reduce federal income tax. Whether they also reduce state income tax depends on how each state conforms to the Internal Revenue Code, and the 2025 law reopened that question everywhere. States that "conform" as of a fixed date before July 2025 follow the original rules, not the new ones, until their legislatures act.
Conformity matters to a project because it changes investors' after-tax returns, and with them how much equity a fund can raise for deals in, or marketed to residents of, a given state.
How to read this page
We separate verified positions from leads. A verified position is one confirmed in a state revenue department publication or enacted legislation. A lead comes from a secondary tracker and has not been confirmed with the state. Leads are labeled as such, because trackers disagree with each other in several states.
Verified positions
| State | Position | What it means for investors |
|---|---|---|
| California | Does not conform | The Franchise Tax Board states California "does not conform to the deferral and exclusion" under §§1400Z-1 and 1400Z-2. Gains invested in a fund are taxed by California when realized, and appreciation is taxed at sale. |
| New York | Partial | Since tax year 2021, gain deferred under §1400Z-2(a)(1)(A) must be added back for New York purposes. Trackers indicate the 10-year exclusion is retained (lead). A full-decoupling bill (S3340, 2025) was not enacted. |
| Massachusetts | Partial | Personal income tax follows the Code as of January 1, 2024, so the 2025 changes are delayed. From tax year 2026, zones count only if located entirely within the Commonwealth. |
| Colorado | Partial, from tax year 2027 | HB26-1289 adds back excluded §1400Z-2 gain beyond amounts invested in a Colorado-qualified fund. |
| South Carolina | Not conformed to the 2025 provisions | The Governor has called on the General Assembly "to prioritize conforming." Trackers indicate South Carolina conforms to the original rules at a fixed date (lead). |
| North Carolina | Unresolved | The Department of Revenue describes "static conformity," and S.L. 2026-31 moved the Code date to July 5, 2025, which includes the 2025 law. No Opportunity Zone-specific decoupling has been confirmed. Trackers cite nonconformity under G.S. 105-130.5. |
States without a broad personal income tax
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming do not levy a broad personal income tax, and New Hampshire does not tax capital gains. Conformity therefore matters little for individual investors there. Corporate investors should still confirm treatment under state corporate taxes.
Washington has no personal income tax but levies a capital gains excise tax. Trackers indicate that tax does not conform to the federal deferral (RCW 82.87.020; lead).
Conflicting leads
- Pennsylvania: one tracker lists full conformity for personal income tax and nonconformity for corporate tax; another lead says Pennsylvania does not conform.
- Maine: one tracker lists full conformity; another says Maine decoupled from the gain exclusion.
Treat both as unknown until confirmed with the state.
Other states: leads only
For the remaining states, we have not found a primary-source statement. Trackers describe a range of positions:
- Full conformity, rolling: Illinois, the District of Columbia.
- Full conformity at a fixed date: Minnesota, Ohio, Oregon.
- Conformity to the original rules at a pre-2025 date: Georgia, Idaho, Michigan, Vermont.
- Limited conformity:
- Alabama gives state deferral only for funds approved by its economic development agency.
- Arkansas adopted §1400Z-2 as of January 1, 2018.
- Hawaii limits benefits to Hawaii-designated zones.
- Nonconformity: Mississippi.
Every state's page lists its position and source tier.
What this means for projects and lenders
- Fund marketing. A fund raising from California residents offers them federal benefits only. The same is increasingly true for out-of-state funds marketed to Colorado and Massachusetts residents.
- Equity sizing. If a sponsor's equity plan assumes a full combined federal and state benefit, check where the investors file. A lower after-tax benefit can mean a smaller raise or a higher return requirement.
- Fixed-date states will move. Most set their conformity date in early-year legislation. Expect changes in the first quarter of 2027, and re-check before closing.
- Not a lender issue directly, but a funding-risk issue. The lender does not rely on the tax benefit. It does rely on the equity funding, and the equity depends on the investors' after-tax case.
How to verify a state's position
- Find the state's conformity statute and the Internal Revenue Code date it adopts. Is it rolling (it follows the current Code) or fixed as of a date?
- If the date is fixed before July 4, 2025, the state follows the original rules, not the 2025 changes, until its legislature moves the date.
- Check for Opportunity Zone-specific decoupling or add-backs. These sometimes sit outside the conformity statute, as in New York and Colorado.
- Read the revenue department's guidance for the current tax year. Several states publish annual conformity summaries.
- Record the source and date in the credit or investment file. Positions change with each legislative session.
How we verify this page
- Author
- Robert Mitchell
- Updated
- October 26, 2026
- Next update
- Re-verify monthly through Q1 2027; most states set their IRC conformity date in early-year legislation.
- Sources
- Numbered list below
Sources
Primary:
- California Franchise Tax Board.
- New York State Department of Taxation and Finance.
- Massachusetts Department of Revenue.
- Colorado HB26-1289.
- Office of the Governor of South Carolina.
- North Carolina Department of Revenue; S.L. 2026-31.
Leads (secondary):
- Novogradac state conformity tables and other trackers, as labeled.
General information, not tax advice. State positions change; confirm with the state revenue department or tax counsel.