How do I elect qualified opportunity zone deferrals in Turbo Tax Deluxe 2018?

[woodward-apart]

If I were filing by paper, this would be analogous to putting code Z in column F on Form 8949. (https://www.irs.gov/pub/irs-pdf/i8949.pdf)

What's throwing me off is how to do this in TurboTax correctly. I don't see any option (including under advanced ones) to elect a specific transaction as deferred.

The obvious alternative (just attach a statement with code Z in place OR do an override on the 8949 form to force a code Z and then override the summation) also has issues; my state (CA) doesn't honor QOF deferral, so the gain must still be a part of the state return.  But I don't see any way in Turbotax to make state adjustments to the 8949, meaning I can't produce a complete return that is both correct for state and federal.

What's the proper way to handle this?

[rjs · Accepted solution]

TurboTax does not support deferring gain by investing in a qualified opportunity fund, and does not support code Z on Form 8949. There is no way to enter it.

An override will cancel the TurboTax accuracy guarantee, and will prevent e-filing. Overrides sometimes cause the calculations in TurboTax to break in unexpected ways.

[woodward-apart]

Well, that's unfortunate, but doesn't quite answer what I should be doing.  What's the proper way to file here?

[rjs]

The bottom line is that you can't file the proper way with TurboTax. The proper way to file is one of the following.
- Use other software that will fully support postponing gain by investing in a qualified opportunity fund, including handling it correctly on the state return.
- Use a tax professional who has such software.
- Prepare your tax return by hand on paper forms.

[woodward-apart]

Well, that's unfortunate. I'm not sure what other software even handles this; sounds like I'll just use Turbotax with overrides, carefully making sure numbers don't break, and paper file.

[vpescado]

Has TurboTax gone on record saying that this wont be supported?   I recall earlier questions where it was a "not yet" situation.

[rjs]

I haven't been able to get an official statement. Earlier in the season there was a check box for it on the Capital Gain (Loss) Transaction Worksheet, but no way to enter it in the interview. That check box was later removed from the worksheet. I take the removal of the check box as a pretty strong indication that they are not moving in the direction of supporting it.

[mmjim]

If you select box I on the capital gain worksheet it will put the letter Q on form 8949.  There will be no federal tax on the amount.  I also live in California and it does handle it correctly by taxing the amount.  Then you can print the return and manually change the Q to a Z and then file the taxes manually.  What do you think of this idea?  Also I am frustrated the TT has not responded to this issue and I do not understand why they would not provide the system to handle this.

[BobF48]

There's a fundamental issue TT must address.  A taxpayer must make a valid election to claim a Qualified Opportunity (QO) Deferral.  The IRS has prescribed the method of validly electing the QO Deferral through entries on Form 8949.  If the taxpayer does not follow the prescribed procedures, s/he is open to disallowance of his QO Deferral.  TT must provide an effective work-around to permit its customers to make valid QO elections.  The work-around doesn't need to be elegant or pretty, it just needs to work.  If TT doesn't provide a fix and chooses to abandon a segment of its customer base,  I'm walking away and never coming back.  I encourage others in the same situation to do the same.
--A retired CPA and 30-year loyal TT customer.

[woodward-apart]

@mmjim That's wrong as the reporting is much different.  For 'Q' type deferrals you put a number in column G cancelling out proceeds less basis (basically -gain).  For Z type deferrals, you don't put anything in column G; you have to open a new 8949, check box F or C,  and add a new row with the EIN of the QO fund and column G being negated. See the end of <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i8949.pdf">https://www.irs.gov/pub/irs-pdf/i8949.pdf</a>

Personally, I'm just gong to generate a spreadsheet version of the 8949 entries I deferred and paper file.  (Specifically, in TT, add a row in the 8949 with "see attachment" as a description, and all other columns sums of my spreadsheet)  Then for CA, in the "other CA adjustments" state "non-deferred QO investment" and throw the sum of the gains on there.  This has the advantage of not requiring any overrides, even if it does require paper filing.

Still surprising that TT doesn't have this. Did they think the customer base that does this is too small?

[marc-ludeke]

It is absolutely ridiculous that TT has not implemented this even though the IRS instructions are from January.  Several of us have commented on their blogs and no response whatsoever.  

[BobF48]

In their advertising, TT states:  
TurboTax Has You Covered
TurboTax has you covered and will be up to date with the latest tax laws.
Well TT, do you really have us covered?

[vpescado]

While I am disappointed that TT does not seem to currently support opportunity zone deferrals, it doesn't strike me as unreasonable.  It's software that requires deep knowledge of the complexities of tax law, with issues that are often not resolved much before the beginning of the year.   

However, I do find it unreasonable, irresponsible, and incompetent that a month before the filing deadline TT has not seen fit to provide any guidance as to what its customers can expect as far as such support.   Even in the worst case, a simple "Opportunity Zone CG deferrals will not be supported for the 2018 tax year." would at least allow its customers to find other paths forward.  And even if it won't be supported, providing a recommendation of best practices for reporting such a deferral would seem to be a minimum effort at customer service.

Instead, we are faced with the prospect of reading the tea leaves of appearing and disappearing boxes on worksheets to guess as to whether it will be supported, and rolling our own experimental solutions that may or may not cause federal and state taxes to be incorrectly calculated and even if it does ultimately may not pass muster with the IRS resulting in additional taxes, penalties and interest.

Can Turbotax *please* demonstrate some leadership and customer service and let us know where we stand?

[dave16b]

I am pushing this up because I am experiencing the same frustration.  Hello Turdo Tax are you out there?

[dave16b]

Can you at least provide some response.  Are you working on a solution?  If not are you going to refund us for the software cost so we can find an alternate product that can complete are taxes with?