HB 262
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Third Reader
House Bill 262 (Delegate Palakovich Carr)
Ways and Means Budget and Taxation
Opportunity Zone Tax Deduction Reform Act of 2021
This bill requires a person to add back to Maryland adjusted gross income or Maryland
modified income the amount of capital gains excluded under the federal Qualified
Opportunity Zones Program. The bill takes effect July 1, 2021, and applies to
tax year 2021 and beyond.
Fiscal Summary
State Effect: State finances are not expected to be materially impacted in the near term.
Local Effect: Local revenues are not expected to be materially impacted in the near term.
Local expenditures are not affected.
Small Business Effect: Potential meaningful.
Analysis
Current Law: The Federal Tax Cuts and Jobs Act of 2017 established the Qualified
Opportunity Zones Program to incentivize private investment in certain communities.
Under the Act, states may nominate up to 25% of specified low-income census tracts for
designation by the U.S. Treasury as opportunity zones. The U.S. Treasury has designated
149 zones located in Maryland. Qualifying investments may only be made through
calendar 2026.
The program offers three federal tax incentives related to capital gain taxation: (1) a
temporary tax deferral for capital gains reinvested in a Qualified Opportunity Fund; (2) a
step up in basis for these capital gains, which excludes up to 15% of the original capital
gain from taxation; and (3) an exclusion from taxable income of capital gains from the sale
or exchange of an investment in a Qualified Opportunity Fund, if the investment is held for
at least 10 years. Investors and investments must also meet numerous other requirements.
Taxpayers who realize capital gains can elect to roll over the gain into the Qualified
Opportunity Fund. If the investment is held for at least five years, the basis of the rollover
gain is increased by 10%. The basis is increased to 15% for investments held for at least
7 years. The increase in basis generally reduces the amount of the investment subject to
taxation. The remaining capital gain rollover gain is recognized and tax paid at the earlier
of the time of sale or exchange of the Qualified Opportunity Fund investment or
December 31, 2026. If a taxpayer holds the investment for at least 10 years, the taxpayer
may elect, at the time of sale or exchange of investment, to increase the basis of investment
to its fair market value at the time of sale or exchange. The subsequent additional gain from
the Qualified Opportunity Fund investment is generally excluded from taxation.
Maryland generally conforms to federal tax law, so any capital gain deferred or excluded
under the program is also deferred or excluded under the Maryland income tax.
In addition, Chapter 211 of 2019 established the Opportunity Zone Enhancement Program.
Administered by the Department of Commerce, the program provides enhanced incentives
for qualifying businesses within an opportunity zone. Qualifying businesses within an
opportunity zone may qualify for enhanced incentives under the following tax credit
programs (1) job creation; (2) One Maryland; (3) enterprise zone; (4) biotechnology
investment incentive; (5) cybersecurity investment incentive; and (6) More Jobs for
Marylanders.
State Fiscal Effect: Under current law, Maryland conforms to the federal tax treatment of
capital gains eligible for special treatment under the federal Qualified Opportunity Zones
Program. The bill requires a person to add back the amount of capital gains that are
excluded under the program, thereby making these gains taxable for State income tax
purposes.
State finances are not expected to be materially impacted in the near term. Investors may
receive a partial exclusion of the capital gains invested in the program if the investment is
held for at least 5 years. Taxpayers may exclude the additional gains from the Qualified
Opportunity Fund investment only if the investment is held for at least 10 years.
Small Business Effect: Small businesses that receive investments through the program or
small business qualified investment funds may be negatively impacted by the loss of State
and local tax benefits.
HB 262/ Page 2
 Additional Information
Prior Introductions: HB 224 of 2020, an identical bill as amended, passed the House and
was referred to the Senate Budget and Taxation Committee, but no further action was
taken. Its cross file, SB 263, received a hearing in the Senate Budget and Taxation
Committee, but no further action was taken.
Designated Cross File: SB 113 (Senator Rosapepe) - Budget and Taxation.
Information Source(s): Comptroller’s Office; Department of Legislative Services
Fiscal Note History: First Reader - January 19, 2021
rh/hlb Third Reader - February 16, 2021
Analysis by: Robert J. Rehrmann Direct Inquiries to:
(410) 946-5510
(301) 970-5510
HB 262/ Page 3


Statutes affected:
Text - First - Opportunity Zone Tax Deduction Reform Act of 2021: 10-204 Tax General, 10-305 Tax General
Text - Third - Opportunity Zone Tax Deduction Reform Act of 2021: 10-204 Tax General, 10-305 Tax General