What happened
This summer the IRS posted a draft of the new Form 8997, the statement every Opportunity Zone investor files with their return each year. Instructions had not been released when this was written.
The draft splits the inclusion section in two. One part covers inclusion events before the deferral period ends. A new part covers recognizing the remaining deferred gain at the end of the deferral period, with a fair market value column. Under the original program, the amount you report when the deferral ends is the lesser of the gain you deferred or that fair market value, minus your basis.
“That column is also one of the places where the IRS is gonna look.”
What it means for you
- Expect to support the number. If you report a value below what you deferred, have the appraisal or analysis behind it. See valuation discounts and the December 31 tax.
- The 10% and 15% step-ups are gone for most investors. They only apply if you invested by December 31, 2021 or 2019.
- Your CPA files the form. Get them the fund statements and any valuation work early in 2027.
Form 8996, the fund’s form, is changing too. See the proposed reporting rules.
General information, not tax or legal advice. Rules change, and your facts change the answer.