Starting in 2018, if you have an eligible gain you can invest that gain into a Qualified Opportunity Fund (QOF or QO Fund) and elect to defer part or all of the gain that is otherwise includible in income. The gain is deferred until you sell or exchange the investment or December 31, 2026, whichever is earlier.
The workflow to enter an election to defer tax on eligible gain by investing in a QOF in the program mirrors the Form 8949 instructions. You will need to enter it as two separate transactions, and you may need to file Form 8997. Please refer to the Form 8949 instructions for additional details.
To report the original transaction:
- Go to the appropriate screen based on the type of return you're preparing:
- Individual - Dispositions (Sch D/etc.) ⮕ Schedule D/4797/etc. ⮕ select Details
- Partnership - Schedule K ⮕ Dispositions
- Corporate - Income ⮕ Schedule D/4797/etc. ⮕ select Details
- S-Corporation - Schedule K ⮕ Dispositions (D,4797, etc.) ⮕ select Details
- Fiduciary - Income ⮕ Dispositions ⮕ Schedule D/4797/etc.
- Exempt Organization - Revenue ⮕ Dispositions
- Fill out the following fields, if applicable:
- Description of property
- Date acquired (negative date =various)
- Date sold (negative date=various)
- Taxpayer, Spouse, Joint
- Scroll down to the Schedule D section to complete the following fields:
- Sales price
- Cost or other basis (do not reduce by depreciation)
Do not make any adjustments to this transaction. Leave the Qualified Opportunity Fund subsection completely blank. Enter this transaction as if it's a general disposition.
Then, to report the Qualified Opportunity Fund Transaction:
- While still on the Dispositions (Schedule D, 4797, etc.) screen.
- In the left navigation panel, within the Disposition section, click Add.
- Enter a Description of property.
- Enter the Date acquired.
- Scroll down to the Schedule D section.
- Enter a '2' in the field Reported on: blank = Form 1099-B with basis reported to IRS, 1=Form 1099-B but basis not reported to IRS, 2=form other than Form 1099-B (Form 8949).
- While still within the Schedule D section, scroll down to the Qualified Opportunity Fund subsection.
- Check the box Rollover to Qualified Opportunity Fund.
- Enter a '1' or 2 in 1=short-term, 2=long-term.
- Enter the Deferred gain. This should be the amount of gain for which tax will be deferred.
- Enter the fund's tax identification number in TIN of QO Fund.
The program will report the deferred gain as a negative amount on its own row of Form 8949 along with the Qualified Opportunity Fund's information.
To generate Form 8997:
Most taxpayers who held Qualified Opportunity Fund investments during the year are required to file Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments.
- Go to the Qualified Opportunity Fund Investments (8997):
- Individual - Located under Miscellaneous Forms
- Partnership - Located under Other Forms
- Corporate - Located under Other Forms
- S-Corporation - Located under Other Forms
- Fiduciary - Located under Misc. Forms
- Exempt Organization - Located under Miscellaneous Forms
- Enter the applicable number in 1=Part I, 2=Part II, 3=Part III, 4=Part IV (MANDATORY). If you're not sure which part your client needs to complete, see the Form 8997 Instructions.
- Complete the required entries for the part of the form you're filling. Lacerte will not automatically generate amounts on this form from your disposition entries.
- Click Add to enter another fund, if needed.