Does TurboTax support Qualified Opportunity Fund (QOF) reporting for form 8949, box f code Z, and form 8997, the annual statement of QOF funds?

[wilgusme]

Qualified Opportunity Fund investments allow taxpayers to defer eligible gains.  The deferment should be reported on Form 8949 as an adjustment code Z, and on form 8997, which details the QOF account balance.  Does TurboTax support reporting of QOF deferments, where is the input for this, and what does TurboTax suggest if QOF reporting is not supported?

[rjs · Accepted solution]

TurboTax does not support deferring gain by investing in Qualified Opportunity Funds. TurboTax does not support adjustment codes Y and Z on Form 8949, nor does it support Form 8997. If you want to defer capital gain by investing in a Qualified Opportunity Fund, you cannot use TurboTax to file your tax return. You have to find another way to file your tax return.

[vidipm]

Will it be supported by next year? I had to ditch TT for this reason yesterday and had to go with a CPA. I'd rather prefer to use TT and file my takes on my own.

[rjs]

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@vidipm wrote:

Will it be supported by next year?

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@vidipm  This is the third year that Qualified Opportunity Funds have been available, and TurboTax still does not support them. I have no reason to think that they will decide to support them next year. They have not given any indication that they intend to support them in the future.

[Po4]

I had to use TaxAct last year.  It seems to be the only consumer tax software available that supports QOF.  The effort was about 25%-50% more to use a new software and reenter information from previous year.   The navigation seems easier as you are able to quickly see the forms that relates to what you are filling in and jump around.  The question and answer is sometimes worse than Turbotax and I had to redo some of the answers, but because you can easily switch to the forms view for what fields you are answering, you can update or delete quickly..  Bottom line is it is possible to do your own tax if you want to go this route for QOF.  I used the PC download version which is a bit more expensive than turbo tax pc version.

[wilgusme]

I had to switch away from TurboTax because of the unsupported QOF reporting.  I looked into TaxAct, but was ultimately unsatisfied with they way Tax Act handled Form 8997 Part II.  I made a QOF investment in calendar year 2021 that affected tax year 2020.  TaxAct wasn't reporting this correctly.  Ultimately I switched to another Intuit product called ProConnect.  It's professional grade software that requires some IRS registrations to use.  Best to use a CPA if you're unfamiliar.

[tagteam · Accepted solution]

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@wilgusme wrote:

,,,,Ultimately I switched to another Intuit product called ProConnect.  It's professional grade software that requires some IRS registrations to use.  Best to use a CPA if you're unfamiliar.

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There is absolutely nothing wrong with that product, but the vast majority of TurboTax users, who need to report an investment in a QOF, would be much better off using a CPA (as you indicated) or any other professional income tax preparation service. 

[Critter-3]

A DIY program is only good for 90% of the tax filers and the rest should be using a paid tax pro to handle the forms the DIY programs do not handle by design.  

If you still want to do this form yourself you can use the downloaded version where you can make over ride entries in the FORMS mode and file by mail to include the forms not supported.  Any overrides in the FORMS mode voids the accuracy guarantee.  

[jblumke]

Is this still true for 2022 (for tax year 2021)?

[Critter-3]

Still true.  

[Po4]

Turbo tax still does not support QOF and I see no indication it will ever.  Small update on my experience with taxact, i sold some for capital gains but the program will not report it correctly as it wont let me use code Y(previously deferred) in combination with code D (long term transaction with basis reported).  Without going to some gory details i had to create multiple entries.  Tried calling taxact support but had one obnoxious person who wont make any effort to help or admit a problem with their program, so i gave up. 

[SnortingElk]

I used TurboTax for reporting a new QOF investment.  (didn't think through closing a QOF investment, but I have years before I have to figure that out).  After reading this blog, I purchased TaxAct, but I was unhappy with it, so went back to TurboTax.  Here is what I did:

TurboTax does four things: (1) it provides data entry; (2) it rolls things up; (3) it generates PDF forms; (4) it checks everything.  To make things work I needed to modify 1 PDF form, plus create 1 PDF form, but TurboTax could then be used for everything else (my other 43 pages).

For QOF (QOZ) Data Entry

1) Navigate to "personal\investement income\stocks, mutual funds, bonds, other"

2) Click on "Add More Sales

3) Click "no" when asked,  "did you get a 1099-B or a brokerage statement"

4) Click, "I'll enter one sale at a time"

5) Enter: Description: The EIN of your fund

6) Enter: Date Acquired

7) Enter: Sale Proceeds (enter a negative amount) for the QOF

😎Select Short Term/Long Term

That will create a new 1099-B for the QOF.  It will also correctly reduce your investment income in TurboTax and as far as I can tell roll up correctly to other forms.

The 1099-B then needs to be edited in a PDF editor, or just create a substitute.  Column F in the PDF needs to have Z entered.  The value in column D needs to be deleted.    That should then match the requirements on page 11 of the IRS instructions.  https://www.irs.gov/pub/irs-pdf/i8949.pdf.

Form 8997 needs to be created manually. But this form is short, and the values at least for a new QOZ investment don't seem to roll up anywhere else.  https://www.irs.gov/forms-pubs/about-form-8997

I was using the QOZ to defer short-term capital gains from stock sales as well as short-term and long-term capital gains from 1256 Futures Contracts.  The 1256 deferral is also done on form 8949.  Say 50K short-term investment sales, and 50K futures contracts.  Futures contracts are taxes 60/40 long-term/short-term capital gains.   That means 50K + .4*50K = 70K short-term and .6*50K = 30K long-term.  So two separate lines on the 8949, one for the short-term and one for the long-term deferral per the "QOF Data Entry" above.

I'm not a tax expert, but that seems to have worked for getting my taxes filed with the right amounts, and with the forms filled out as best I could interpret the IRS instructions.

[Tgeeta]

Thank you for the solve.  A few questions:

1) Did you mail in your return given the need to include form 8997?

2) Any issues since submitting your return?

I'm about to complete our extension, and need to account for QOF investment - so wanted to check in on whether you encountered any issues submitting.

Thanks!

[ay-ay-ron]

Thank you @SnortingElk for the approach. Would you share whether you've encountered any issues since filing?

[tagteam]

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@ay-ay-ron wrote:

Thank you @SnortingElk for the approach. Would you share whether you've encountered any issues since filing?

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The user, to whom you referred, has only posted once and that was over four months ago. As a result, it is unlikely you will get a response.

Regardless, you cannot e-file a return with Form 8997 attached in TurboTax. You either need to print and mail the entire return (with Form 8997 prepared manually) or e-file your return without Form 8997 and then print and mail Form 8997 along with Form 8949 (there has been no indication on whether there are any issues with the latter approach).