Qualified Opportunity Fund (QOF) Investments, Form 8997 (2023)

Qualified Opportunity Funds (QOFs) are investment vehicles offering tax benefits for investing in economically distressed areas. Form 8997 tracks these investments and associated deferred gains, ensuring compliance with IRS regulations.

What are QOFs?

Investment vehicles channeling capital into designated Opportunity Zones (OZs).

It offers tax advantages like:

  1. Deferral of capital gains: Reinvesting certain capital gains within 180 days into a QOF defers taxes until sale or December 31st, 2026, whichever comes first.
  2. Potential reduction in deferred gains: Holding the QOF investment for at least five years reduces the deferred gain by 10%, and for seven years by 15%.
  3. Exclusion of some future gains: If held for ten years, any appreciation on the investment escapes taxation altogether.

Who needs to file Form 8997?

  • Any taxpayer who holds a QOF investment at any point during the tax year.
  • This includes individuals, trusts, estates, and corporations.
  • Form 8997 must be filed with your timely filed federal income tax return (including extensions).

What information is reported on Form 8997?

  • QOF investments: Details of each QOF investment, including the amount invested, date of acquisition, and Employer Identification Number (EIN) of the QOF.
  • Deferred gains: The amount of capital gains deferred due to each QOF investment at the beginning and end of the tax year.
  • Inclusion events: Any events during the year that triggered the recognition of previously deferred gains, such as selling the QOF investment.

For the current year's Form 8997, click here.