In December 2019, the IRS issued final regulations under Internal Revenue Code (IRC) section 1400Z-2 for investing in qualified opportunity funds (QOFs). The final regulations include guidance for taxpayers investing eligible gains from IRC section 1231 property in QOFs.

Taxpayers deferring eligible gains from IRC section 1231 property, including gains from installment sales and like-kind exchanges, by investing in a QOF must report the deferral election on Form 8949 in the tax year of the deferral Likewise, taxpayers selling or exchanging a QOF investment must report the inclusion of the eligible gain on Form 8949

Reporting the deferral election. Each QOF investment of IRC section 1231 gains will use two separate rows in Part I (short-term transactions) or Part II (long-term transactions), as applicable, of Form 8949.

  • For the first row, in column (a), write “QOF INVESTMENT FROM FORM 4797.” Leave columns (b) through (g) blank. In column (h), report the amount of the QOF investment from Form 4797 as a positive number. For example, if ($75,000) was reported in column (g) of Form 4797, report $75,000 in column (h) of Form 8949.
     
  • For the second row, in column (a), enter only the EIN of the QOF investment. In column (b), enter the date of the QOF investment. Leave columns (c), (d), and (e) blank. Enter code “Z” in column (f) and the amount of the deferred gain as a negative number (in parentheses) in column (g).

Reporting the inclusion. Each inclusion will use two separate rows in Part I or Part II, as applicable.

  • For the first row, in column (a), write “QOF INCLUSION EVENT FROM SECTION 1231 GAINS.” Leave columns (b) through (g) blank. In column (h), report the amount of the included section 1231 gains from Form 4797 as a negative number (in parentheses). For example, if $75,000 was reported in column (g) of Form 4797, report ($75,000) in column (h) of Form 8949.
     
  • For the second row, enter the EIN of the QOF investment in column (a). Complete columns (b), (c), (d), and (e). Enter code "Y" in column (f), and in column (g) enter the amount of previously deferred gain as a positive number.