The ability to roll over gain from empowerment zone assets expired at the end of 2017. However, recent legislation enacted in December 2019 restored the empowerment zone rollover for 2019 and retroactively extended it to 2018. If you are eligible to roll over gain from empowerment zone assets for 2018, you will need to file an amended return, Form 1040-X, to claim it.
Are you eligible? If you sold a qualified empowerment zone asset that you held for more than 1 year, you may be able to elect to post-pone part or all of the gain that you would otherwise include in income. If you make the election, you generally recognize gain on the sale only to the extent, if any, that the amount realized on the sale is more than the cost of qualified empowerment zone assets (re-placement property) you purchased during the 60-day period beginning on the date of the sale. The following rules apply.
- No portion of the cost of the re-placement property may be taken into account to the extent the cost is taken in-to account to exclude gain on a different empowerment zone asset.
- The replacement property must qualify as an empowerment zone asset with respect to the same empowerment zone as the asset sold.
- You must reduce the basis of the replacement property by the amount of postponed gain.
- This election doesn't apply to any gain (a) treated as ordinary income or (b) attributable to real property, or an in-tangible asset, that isn't an integral part of an enterprise zone business.
- The District of Columbia enterprise zone isn't treated as an empowerment zone for this purpose.
- The election is irrevocable without IRS consent.
See IRC section 1397C for the definition of empowerment zone and enterprise zone business.
Qualified empowerment zone assets are:
- Tangible property, if:
- You acquired the property after December 21, 2000;
- The original use of the property in the empowerment zone began with you; and
- Substantially all of the use of the property, during substantially all of the time that you held it, was in your enterprise zone business; and
- Stock in a domestic corporation or a capital or profits interest in a domestic partnership, if:
- You acquired the stock or partnership interest after December 21, 2000, solely in exchange for cash, from the corporation at its original issue (directly or through an underwriter) or from the partnership;
- The business was an enterprise zone business (or a new business being organized as an enterprise zone business) as of the time you acquired the stock or partnership interest; and
- The business qualified as an enterprise zone business during substantially all of the time you held the stock or partnership interest.
See IRC section 1397B for more details.
How to report. Report the sale of empowerment zone stock or an empowerment zone partnership interest on Part II of Form 8949 as you would if you weren't making the election. Then enter “R” in column (f) and enter the amount of the postponed gain as a negative number in column (g). Put it in parentheses to show it is negative. See the instructions for Form 8949, columns (f), (g), and (h). Complete all remaining columns.
Report the sale or exchange of empowerment zone business property on Form 4797. See the Form 4797 instructions for details.