Let’s first summarize how investors defer capital gains using a QOF (Qualified Opportunity Fund). QOF investors sell a capital asset for a gain and drop that gain into a QOF within 180 days, allowing them to defer taxes on the gain.
This process starts with Form 8949. When an investor sells a capital asset such as a security or real property, Form 8949 is filed. When an investor exchanges from a security or real property into a qualified opportunity zone, Form 8949 is filed. This form informs the IRS of the capital asset and any potential deferment of taxes.
You can view Form 8997 here. Form 8997 is filled out each year for as long as an investor has an opportunity zone investment. There are four parts to the form.
Investors who defer capital gains through a QOF should file Form 8997.
Note that the information provided by each QOF administrator can vary. This can make it difficult to track down all the necessary information to fill in the form. It can also require some back and forth with the fund administrator to track down necessary information.
Some QOFs will provide a K-1, which will have most of the information needed for Form 8997. But the arrival of a K-1 also varies by the fund and can be delayed significantly compared to the arrival of other tax documents.
Some funds may issue a 1099, which simply means they are structured a little differently from those issuing K-1s. For 1099 funds, investors will list the number of shares instead of listing a percent interest on Form 8997.
For those investing via a company, the filer will list the entity's name and EIN instead of listing a personal name and social security number. Also, the filing deadline for a company is March 15 instead of April 15 for individuals.
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Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.