Qualified Opportunity Fund (QOF) Investments, Form 8997
A Qualified Opportunity Fund (QOF) allows deferring capital gains taxes by investing in economically distressed communities. Form 8997 helps the IRS track these investments and report gains/dispositions.
What are QOFs?
- Investment vehicles channeling capital into designated Opportunity Zones (OZs) - economically disadvantaged areas.
- Must hold at least 90% of assets in OZ property (real estate, businesses).
- Offer tax benefits like:
- Deferring capital gains recognition: Invest gains in a QOF within 180 days of realization.
- Reducing deferred gains: Up to 10% reduction after 5 years, 15% after 7 years.
- Exempting future appreciation from capital gains taxes: Hold the QOF investment for at least 10 years.
What is Form 8997?
- An IRS form used by eligible taxpayers to report QOF investments and deferred gains.
- Required annually if you hold a QOF investment at any point during the tax year.
The Form Tracks:
- Beginning and ending year balances of QOF investments and deferred gains.
- Capital gains deferred by investing in a QOF.
- QOF investments disposed of during the year.
Who needs to file Form 8997?
- Eligible taxpayers: Individuals, corporations, trusts, and estates that:
- Realized a capital gain during the tax year.
- Invested the gain in a QOF within the 180-day window.
- Are required to report the gain recognition under federal tax rules.
Key points to remember:
- Timely filing: Submit Form 8997 with your timely filed federal income tax return (including extensions).
- Penalties for non-filing: Failure to file can result in penalties and interest charges.
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