Every year in July the Oregon Production Investment Fund (OPIF), a state agency, auctions tax credits. According to accountants you can take this credit as a charitable deduction on your federal income taxes and additionally take the tax credit on your state taxes too. The tax credits are generally beneficial if you pay Alternative Minimum Tax and can reduce the amount of tax you owe in April by buying the prior July.
However, due to changes in the US Tax Code for the 2018 fiscal year, one might expect the OPIF auction to see less volume in bids and hence see lower winning bids this year "bucking" the run up of the past few years. The reason one might expect less volume is that the changes in the US Tax Code should greatly reduce the number of individuals paying AMT. The Tax Policy Center expects tax collection in AMT to be reduced by 87%. And is expected to reduce filers from 5 million to 200k. Additionally, many less tax filers will even be deducting there taxes this year. So, those buying the OPIF might see better value in the credits, even though less bidders may be looking to benefit from these credits. Although the OPIF staff is still anticipating strong demand for this autction.
One great way to use these credits would be if you wanted to exercise non-qualified stock options in say June or July, those exercises would create a tax liability for taxes in April 2019. If you met some of the ideal criteria for these tax credits instead of leaving the amount of this tax liability in cash until April you could instead buy tax credits potentially earning a larger gain than you could in a cash investment. The biggest risk being tax law changes for the 2018 year in how these credits can be deducted.
Are you the ideal taxpayer to bid on the OPIF Tax Credits?
- You have a 2018 Oregon Tax Liability. Unused credits will carryover for 3 years. But, because of legal risk we recommend using them in the same year.
- Your income is from Oregon exclusively (Multi-state income may impact ability to receive credit for double taxed income)
- You are subject to the Alternative Minimum Tax (Turns a non-deductible state tax into a deductible charitable contribution) and you are deducting your taxes
- You are making Estimated Tax Payments
- Your accountant recommends using these credit for your individual situation
Facts about the OPIF Auctions:
- A blind Auction - credits are sold in $500 increments
- Minimum bid is $475 for $500 in credit – multiple bids are allowed.
- Credits issued to highest bidders first (ties will go to bidder who submitted bid first)
- Payment must be made in the form of a cashier’s check, certified check or money order
- Form TCA needs to be completed and received with Payment by July 20, 2018
- 2015 Auctioned $10 million, 2016 Auctioned $12 million and 2017 looks to be $14 million, 2018 looks to be ???
Process for the OPIF Tax Credits:
- Determine the appropriate amount of credits that would benefit you by reviewing your tax situation with your accountant (the price you pay for the credits and your specific tax situation will dictate your return).
- Figure out your bidding plan and access the OPIF auction website as early as possible in the auction process to purchase credits. Earlier tied bids are prioritized over later bids in an oversubscribed scenario. The auction was oversubscribed last year.
- Mail your payment and Tax Credit Auction form (OR-TCA) by deadline (July 20th) to the Department of Revenue
Sample Estimates based on bidding information and a 35% tax bracket and subject to Alternative Minimum Tax (AMT). This analysis was provided by a 3rd party and CPA:
Historical Bidding Data:
Summary for 2018:
- $14 million in tax credits should be available (bids per $500 increment)
Summary for 2017:
- $14 million in tax credits were available (bids per $500 increment)
- Highest winning bid was $555
- Lowest winning bid $515
Summary for 2016:
- $12 million in tax credits were available (bids per $500 increment)
- Highest winning bid $550
- Lowest winning bid $505
Summary for 2015
- $10 million in tax credits were available (bids per $500 increment)
- Average bid: $521
- Highest bid: $525
- Lowest successful bid: $500
- 274 bids were accepted: 200-300 were described as not successful
You can find more information about these credits through the OPIF site.