Opportunity Zone Funds for Tax Year 2019

[tcdowd13]

This is the method I attempted but code Z is not available in the drop down box.

[tcdowd13]

Did you get code Z in the drop down box for Form 8949?

[DXS]

Ok folks, I went into my current return in process and did a "dummy" entry.  this is what you gotta do.

You make your entry from the Form 1099 for the stock you sold.  After you make the entry, there is a question below asking if any of these "less common" things are part of the transaction.  One of the selections is:  "Proceeds are from a Qualified Opportunity Fund."  CHECK THAT BOX.  Then CONTINUE.

Then you get the whether or not cost basis was reported to the IRS, figure out and select, CONTINUE.

Sales Proceeds, Cost basis, CONTINUE.

On the next screen, there will be a drop down menu for OTHER ADJUSTMENT CODE.

Then and ONLY then will you get the option to select CODE Z.  You have to mark the initial entry as I said above, check the box for "proceeds from QOZ." 

That's what i remember. You won't get the Z code unless you check a certain box. 

I hope this helps. 

Now I screwed up my tax form gotta go undo it, ha ha ha.

[DXS]

You have to check a certain box on the first screen when you make your initial entry in order to get the Code Z.  See my reply further down.  they really made it hard.  I'm an Accountant and it was hard for me to figure out.

[DXS]

Ok, I made a lengthy reply somewhere on here.  when you make the initial entry, on the first screen where you make the entry, there is a "Does any of the following apply" and one of the options is "proceeds are from a qualified opportunity zone fund."  Ok, this is worded weird using the word "from" but YOU HAVE TO CHECK THAT BOX or you will not get CODE Z in the drop down menu on the subsequent screens.  I hope you can find my detailed reply where I explained it screen by screen.  It was a royal pain in the butt.

[DXS]

Yeah, my capital gain was a portion of four different stocks.  Should have just had it as, "total gains, now I'm subtracting X cuz i invested it, " easy peasy.  they made it difficult.

[DXS]

You won't get the Z in the drop down menu unless you check a certain box when you make the entry.  On the first screen of the entry, there is a "does any of the following apply" and one of the options is "proceeds FROM a QOZ."  Ok, the "From" word is confusing because you are investing IN a fund, not taking money FROM the fund.  BUT!  YOU HAVE TO CHECK THAT BOX.  If you don't check that box you won't get the Z on the drop down menu three or four screens later.

TaxAxt made it really complicated.

[DXS]

I went back and did a "dummy" entry on my in process tax form.  On the first screen where you make the stock sale entry, there is a question for "any of these apply" and one of the responses is "Funds from a QOZ."  ok, the "from" is confusing, but YOU MUST CHECK THIS BOX.  then a few screens later you get the drop down menu for "adjustments."  THEN you will get the Z on the drop down menu.  If you don't have that one box checked, you won't get the Z on that one drop down menu.

They made it ridiculously cumbersome.

[DXS]

They made it ridiculously cumbersome.  When you first make the entry for the stock sale, the first screen has a question about "do any of these apply" and one of the options is "Funds from a Qualified Opportunity Zone."  well, the "From" is misleading and confusing but you MUST have that box checked.  If you don't check that box, you won't get the Z on the drop down menu a few screens later. 

[QOZ]

Thank you DXS!!!  Yes, you are right...it was on the capital gain form.  The prompt that says, "is this proceed from QOF?"  The question is tricky...since, in my case, technically, it's proceed GOING to QOF (Z code); whereas from QOF (Y)...  So, i didn't click that box before.   TA needs to add "to/from" on the question.  Bottomline, I would have given up long ago...but because YOU said you did it successfully and your hint really helped me figuring it out.  THANK YOU.  

For anyone else:  

Once you click that...the drop down box several screens down will now have Z or Y...also, a box to input your adjustment (negative of the original capital gains).  Also, something i notice...if you import your capital gains directly from your brokerage firm, even IF you click "yes" to QOF proceed, the Z/Y codes will not show up in the drop down.  It's OK...since you don't want to edit that original gain, but to add a new entry with (Z) and a negative number to offset the original gain.  All of this is in accordance to "How To Report an Election To Defer Tax on Eligible Gain Invested in a Qualified Opportunity Fund (QOF)" found in https://www.irs.gov/instructions/i8949#en_US_2021_publink100021498.  TA does it correctly...even selecting the correct (C/F -- short/long gains not reported on 1099) on the 8949 for you...  I'm impressed...  A bit clunky to use/learn, but after you get used to it...I feel like it's FASTER since you can click on the exact forms you want and not needing to answer a bunch of Q&A again.  

**For those who wonders how to populate PART II of 8997 -- it's automatic once you code your capital gains as (Z)...remember the negative number.   

NOT TAX ADVICE...just paying forward with my simple-minded understanding.  thank you all again!  

[tcdowd13]

DXS, thanks for the explanation.  However, when I check the "Proceeds are from a Qualified Opportunity Fund" box on the Form 8949 entry, I still do not get the "Z" code on the drop down on the Adjustment Codes screen.  Are you checking the box on the 8949 entry screen?

[tcdowd13]

Thanks, the secret to make it work is adding a separate entry on Form 8949 when the data is imported directly from the brokerage.  I finally got it to work by doing the separate entry for each of the capital gain sales that I am deferring due to the QOZ investment.

[ssickler]

What form are included in your taxes for the Opportunity Zone Funds?  Is the 8997 form the only one and it has your investments listed twice, once for the start of the year and once for the end of year?  Does any of the information listed on Schedule K-1 (Form 1065) show up? I am referring to the information in Part III, Partner's Share of Current year Income, Deductions, Credits, and Other Items? Shouldn't some of that information be reported somewhere?

[DXS]

Your Opportunity Funds are reported on the Form 8997.  However, you also need the Form 8949.  You report all your capital gains on the 8949 (to include any capital gains from a Schedule K-1).  If you use software or online service, the numbers from your Schedule K-1 will go to the right place.  After reporting the gains on the 8949, you apply a special code (can't remember what it is, I think it's a Q...) to the gain and report the amount, and the Q Coded (or whatever the code is) will go to the 8997 in section 2.  There are four sections to he 8997. 

Beginning balance (if you had one)

New gains added to the fund

Dollar amount removed from the fund (which you have to pay taxes on, don't remove before 2026 unless you have to, and I heard there is legislation extending it to 2028)

Ending balance (which is transferred to beginning balance the next year)

Any taxable gains (or losses to report) after completing Form 8949 and Form 8997 will automatically transfer to Schedule D. 

[DXS]

But keep in mind, Turbo tax has chosen not to support the form 8997.  They no longer got my business due to that. I used TaxActOnline they did a good job but the way the questions are worded, it's not for dummies......