Form 8996
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swillfam
Returning Member

Form 8996

I understand that TurboTax for Business does not include form 8996 (Qualified Opportunity Fund).  It says you need to obtain the form from another source and apologizes for the inconvenience.  The software then goes on to ask you to enter the amount from Line 16 of the form.  Unfortunately, IRS form 8996 for 2020 does not have a line 16 on it.  Can someone suggest what should go there?  I'm guessing it really should be the amount from line 15, but I didn't buy TurboTax to guess.

3 Replies
julesstcroix03
New Member

Form 8996

I'm having this same issue and guessing the same (that it's a Turbo Tax error).  Following to see if anyone can answer....THanks!

ReneeM7122
Level 6

Form 8996

For 2020, the amount that  you should enter is for the Investment Standard Calculation, line 12.    Line 15 is for the penalty, if any, which isn't what you need.  16 is a type-o, as you pointed out.

 

Here is a TurboTax article with some information about designated Qualified Opportunity Zones and how you can get a potential tax savings.

 

There are designated Qualified Opportunity Zones  located in all 50 States, the District of Columbia, and five United States territories. Over the past three years, Qualified Opportunity funds have raised $75 billion, which has been a direct investment into the most underserved areas in our country.

An Opportunity Zone Fund investment provides potential tax savings in three ways:

#1: Tax Deferral through 2026. A taxpayer may defer the tax on a capital gain when investing in a Qualified Opportunity Fund if they comply with the investing timeframe restrictions. The taxpayer has 180 days to invest but Notice 2020-39 extended the investment deadline to Dec. 31, 2020 if the 180th day to invest would have fallen on or after April 1, 2020, and before Dec. 31, 2020.

#2: Step up in tax basis of deferred gains. The “5-year, 10% basis increase” is still available for taxpayers through Dec. 31, 2021.

Example: In July 2021, a taxpayer sells a zero-basis business for $5 million, which triggers a $5 million capital gain. The taxpayer invests the entire amount in a Qualified Opportunity Zone Fund within the timeframe restrictions, resulting in no tax on the sale proceeds in 2021. On Nov. 1, 2026, the taxpayer receives a 10% adjustment to their cost basis in the Qualified Opportunity Zone investment amounting to $500,000. On Dec. 31, 2026, the taxpayer must recognize the deferred gain on the sale of the investment, and their cost basis for determining the total gain is $500,000. Assuming the overall value of the Quality Opportunity Zone investment has not decreased, then the taxpayer will pay the capital gain on $4.5 million ($5 million 2021 gain, reduced by the 5-year 10% basis adjustment of $500,000) and the taxpayer must reflect that gain on their 2026 federal income tax return to be filed in 2027.

#3: No tax on appreciation. If a taxpayer stays in the Qualified Opportunity Fund for at least 10 years the cost basis of the property will equal the fair market value on the date of sale/exchange.

 

@julesstcroix03

 

swillfam
Returning Member

Form 8996

Thank you for your reply, but I have to respectfully disagree.  I looked at the line to enter the 8996 information and it clearly is asking for a dollar amount.  Line 12 on form 8996 is a ratio.  The information that Turbotax Business requests is used on Form 1065 Schedule B line 26. I went back to the IRS instructions for that Form and the information being requested, according to the IRS, is from line 15 on form 8996 not line 16.  Please see the instructions for Form 1065, Schedule B, Question 26:  https://www.irs.gov/pub/irs-pdf/i1065.pdf

 

 

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