Personal Consumer Issues • Re: tax software for QOZ investors [Qualified Opportunity Zone--tax break]

Yes. I switched over to TaxAct from Turbo tax. Transfer wasn't too bad. Did the taxes in TurboTax and used the carryover numbers reported to enter in TaxAct.

Two things I am still not sure:
1. Can you split your QoZ investment into Long Term and Short Term to offset corresponding gains, or do you need to choose one
2. What goes in Form 8997 Part IV. TaxAct didn't fill it out automatically. I assume you need to say what you didn't use in the current tax year, so it doesn't come back to bite you when you eventually pay taxes for deferred gain.

Filed extension, so need to figure out before Oct 15.

Re #1, they can be split as long as you had eligible gains of each type that would otherwise have been recognized during the applicable 180-day window. Because deferred gains retain their tax attributes when they are later included in income, there are fairly complicated matching rules used for subsequent inclusion events or sales in Treas. Reg. section 1.1400Z2(a)-1(c). These rules could apply if some of your deferred gains are short-term and some are long-term.

Re #4, I would recommend reading the form instructions. You need to enter information for all QOF interests held on December 31, whether they are from current year deferrals or prior year deferrals.

Thanks @HootingSloth. For #2, I did read the instructions multiple times but was unable to comprehend. Really appreciate if you can comment on a simple example below. It would really help as most of us in this thread are tackling this first time:

Say I Invested 100K in a QOF that acquired a QOZ investment on 12/21/2023. I have 30K of Long Term Gain and 20K of Short Term Gain (that are in the 180 day window) that I'd like to defer. So here are the entries in 8949 and 8997 and related questions.

8949
Description / Type / Disposal Date / Proceeds / Cost Basis / Gain/Loss
2% in QOZ XYZ / Long Term (F) / 12/31/2023 / 0.0 / 0.0 / -30,000
2% in QOZ XYZ / Short Term (C) / 12/31/2023 / 0.0 / 0.0 / -20,000


8997

Part I - Not applicable as I am doing this first time in 2023

Part II - Current Year Capital Gains Deferred by Investing in QOF (this was filled out by TaxAct)
(a) / (b) / (c) / (d) / (e) / (f)
93-1234567 / 12/21/2023 / 2% in QOZ XYZ / <empty> / 0 / 30,000
93-1234567 / 12/21/2023 / 2% in QOZ XYZ / <empty> / 20,000 / 0

Part III - Not applicable as there were no inclusion events or transfers

Part IV - Total QOF Investments Due to Deferrals at Year End (what does this mean? the instructions are equally confusing)
(e) - Amount of short-term deferred gain invested in QOF
(f) - Amount of long-term deferred gain invested in QOF
Unsure what to enter for (e) and (f) for this example (Isn't this the same as Part II for the above example?)

Also, Do I need to report the 50K in QOF that was NOT used in 2023

I paid for live tax advice with TaxAct, but none of them seem to know QOZ. They are reading instructions and guessing!

Statistics: Posted by vrajkuma — Sun Oct 06, 2024 11:13 pm

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