Opportunity Zone Funds for Tax Year 2019

[kbeachy46]

Thanks to all for sharing that Tax Act can handle deferred capital gains for OZ investments. I have multiple capital gains with the associated tax to be deferred by virtue of an investment in a single Qualified Opportunity Fund.  The Tax Act rep suggested entering a QOF investment for each gain that I am deferring. Seems to me this will make things more complicated to enter, more complicated for the IRS, and more complicated when the QOF begins to unwind in 7 or 10 years. Does anyone see any harm in just entering the total dollar amount invested in the single QOF and not allocating the QOF investment to each capital gain?  

[hshew]

The Tax Act rep is wrong.  The two relevant IRS forms are #8949 and #8997.  On form #8949 you detail all your short term and long term capital gains/losses, AND you declare your capital gain deferals by placing a 'Z' in column f and detailing the QOF(s) and their allocated capital gain(s).  You can have your capital gains come from 1 to 10,000 sources, each previously detailed in 8949.  If your total gain were say $50,000.  You could then allocate up to $50,000 in one or several QOFs, as long as you invested within the required 180 days.  You do NOT have to say that $5 profit from stock A and $35 from stock B went into QOF #1, and $75 from stock C went into QOF #2.  You also need to report all your new/sold/existing QOF activity in for 8997.

[kbeachy46]

Thanks. That makes more sense to me than was described by the rep. 

[Anonymous]

I came here to share both my misery and gratitude with all of you 

After 20 years of TurboTax, no opportunity zone functionality. What a pain. 

Farewell. Thanks for the memories and what this community has taught me. 

[karlos011]

How about this as a hack (aided by a convo with TT pro) - 

1) complete rest of return (excluding QOF biz)

2) pay for TT return, but do not file

3) print out the nearly correct return, manually add form 8997 and correct any necessary boxes on the unfiled printout.

4) file by paper mail

Relatively quick, easy, accurate and cheaper than starting with another tax professional??   Also maintains a nearly correct version of your taxes in TT for future years if/when they add

Seems sane but I'm open to feedback!

[rjs]

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@karlos011 wrote:

3) print out the nearly correct return, manually add form 8997 and correct any necessary boxes on the unfiled printout.

4) file by paper mail

Relatively quick, easy, accurate and cheaper than starting with another tax professional??

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It's not so quick and easy. It's not just a matter of adding Form 8997. "Correct any necessary boxes" means you have to add one or more entries on Form 8949, correct the totals on that form, correct the net gain or loss on Schedule D and recalculate Schedule D, correct Form 1040 line 6 and recalculate the entire Form 1040 below that line. And you are reducing your AGI, which could change various other adjustments, deductions, or credits.

[karlos011]

Very true, thanks for your response.   I did add another 1099-b provider that I named in the name of my OZ fund, and inputted 0 for proceeds to reflect an accompanying loss.  I think that solves most of the issue you bring up, but I realize it's a questionable hack, and am more intrigued as to what my .pdf looks like and if I can make small superficial changes as needed (add the "Z").  

It's not the way this is supposed to be done, but my taxes are complex, and having a new account start fresh with all these legacy situations is really unappealing.  Painful all around for this relatively large and high profile program not to be supported, particularly given the simplicity of what's actually happening here (defer cap gains; record separate ledger of QOF investment on 8997).  

[tiger206]

It seems to be that roughly the approach karlos and others outline here works fine.   I was able to enter code Z on the 1099-B.   It showed up on my Form 8949 as code MZ.   Maybe I will white out the M.   More importantly, the numbers looked correct on how this flowed through to the rest of the return.   If anyone knows of any real issues with this approach (other than more complaints that Turbotax doesnt support this more gracefully), I'd like to know.

Yes you need to download and fill out your own Form 8997, super simple, and include it in your filing printout.  Yes, you need to file paper.   Not a big deal for me as I need to apply my refund to next year's taxes.

This is the approach I am taking for 2019 and will continue with it in future years until hopefully Intuit adds more complete support.   I am sure they are trading off how widespread QOZ investment really is among their user base.   As someone in the software business, I understand they arent going to do a feature for a very small number of users.

[DXS]

The problem is that if you are going to report Shares in a QOF you MUST use Form 8997 to show the number of shares you have.  The Form 8997 is detail that will support the exclusion on the Form 8949.  TurboTax does not support Form 8997.

Basically, if you invest in a QOF, you cannot use TurboTax to E-file.   

[luntzb]

Will it suffice to (1) print off IRS Form 8997 from online, (2) fill it out (following its instructions), (3) use form 8997's instructions to alter TurboTax's Form 8949 in TurboTax's forms mode - and TurboTax should make all other corrections based on the entries made in the 8949 form's mode (including changing the AGI and all other necessary1040 adjustments)?

[Anonymous_]

@luntzb 

You can certainly make an attempt, but you should be advised that you will have to print and mail your return and the TurboTax accuracy guarantee will be void.

You might want to consider having a tax professional guide you through the process since the form is not supported in the 2019 versions of TurboTax.

[luntzb]

Thanks.

Would Audit Defense still work/ apply?

[rjs]

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@luntzb wrote:

TurboTax should make all other corrections based on the entries made in the 8949 form's mode (including changing the AGI and all other necessary1040 adjustments)?

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@luntzb  I wouldn't count on that. An override can cause the calculations in TurboTax to break in unexpected ways, even in places that you might not think are related to the override. Once you start messing with overrides you are on your own.

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@luntzb wrote:

Would Audit Defense still work/ apply?

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Audit Defense does not explicitly say that they exclude tax returns with overrides. But if your tax return is wrong because of the override, all they would be able to do is agree with the corrections that the IRS proposes. Audit Defense would handle the correspondence with the IRS on your behalf, but they can't defend a tax return that's clearly wrong.

Also, because of the nature of the deferral of capital gain, a problem might not become apparent until years later, when you sell the QOZ investment. If you lose the tax benefit because of an error in your 2019 tax return, that's not an audit, and Audit Defense is not going to help you with it.

TurboTax is not designed to handle deferring gain by investing in Qualified Opportunity Zones. Trying to force it to do something it's not designed to do is asking for trouble. Find another way to file your tax return.

[Critter-3]

FYI ... at this late date the 2019 return must be mailed in ... efile has closed for DIY programs.

[Anonymous_]

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@luntzb wrote:

Would Audit Defense still work/ apply?

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You can contact Support and ask directly if you want to be 100% certain:

https://ttlc.intuit.com/community/using-turbotax/help/what-is-the-turbotax-phone-number/00/25632

Frankly, I doubt it would be applicable since you are most likely violating some part of the user agreement (at least the accuracy guarantee component).