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Entering a rollover to a Qualified Opportunity Fund (QOF) in Lacerte

by Intuit• Updated 2 years ago

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 Dispositions (Schedule D, 4797, etc.) screen.
- Individual - Screen 17.1
- Partnership - Screen 19
- Corporate - Screen 15
- S-Corporation - Screen 23
- Fiduciary - Screen 22.1
- Exempt Organization - Screen 24
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 - Screen 91
- Partnership - Screen 76
- Corporate - Screen 92
- S-Corporation - Screen 84
- Fiduciary - Screen 78
- Exempt Organization - Screen 94
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.

What if the disposition is from Section 1231 gain?

The Section 1231 disposition should be reported on the Form 4797 according to the form instructions, and also entered on the Form 8949 such that only the gains net of deferred gains, or gains including the inclusion of previously deferred gains are reported on the Schedule D.

If the taxpayer is deferring eligible gains from IRC section 1231 property that is also reported as a gain on Form 4797, please ensure a disposition has been entered that is included on the Form 4797 according to the form instructions for how to report a deferral of eligible QOF gains. Then enter another disposition on the Form 8949 with:

the date acquired,
date sold,
the box checked to Rollover to Qualified Opportunity Fund,
whether the disposition is long term or short term,
the TIN of the QO Fund,
Basis Reported: 1 = Not to IRS,
and the deferred gain.
Also enter the net gain deferred on Form 4797 as the sales price for the disposition. Do not enter the cost basis. The gain being deferred will be reported as an adjustment on the Form 8949. The deferred gain should also be reported on the Form 4797 as a negative adjustment.

If the taxpayer is reporting an inclusion of previously deferred gains from IRC section 1231 property that is also reported as a gain on Form 4797, please ensure a disposition has been entered that is included on the Form 4797 according to the form instructions for how to report an inclusion of previously deferred QOF gains. Then enter another disposition on the Form 8949 with:

the date acquired,
date sold,
the box checked for Disposition includes previously deferred gain from QOF investment,
whether the disposition is long term or short term,
the TIN of the QO Fund,
Basis Reported: 1 = Not to IRS
and the amount of QOF gain previously deferred.
Also enter the net gain reported on Form 4797 as the cost basis for the disposition. Do not enter the sales price. The deferred gain now recognized will be reported as an adjustment on the Form 8949. The gain inclusion should also be reported on the Form 4797 as a positive adjustment.

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