How do I report an inclusion event for my QOF on my taxes?

Answers

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  April 18, 2021

  The list of inclusion events (and their exceptions) can be found in Section 1400Z-2 regulations. Reporting an inclusion event simply involves calculating the amount of deferred capital gain recognized as a result of the inclusion event and reporting that capital gain as appropriate on the QOF owner's federal income tax return. The appropriate place for reporting this capital gain is different for individuals, corporations, trusts, estates and partnerships. To my knowledge, the regulations do not prescribe any other reporting necessary for inclusion events.

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  Marko Belej

  Taft

  April 14, 2021

  An inclusion event in a tax year is reported on Part III of IRS Form 8997 filed with your annual federal income tax return for the tax year. Generally, an inclusion event can result from (i) any transfer of a qualifying investment of a QOF (even if the transfer would otherwise be tax-free, such as a gift), (ii) a distribution from the QOF, or (iii) a claim of a worthlessness deduction for the qualifying investment. Not every transaction described in the foregoing will necessarily constitute an inclusion event, but the various exceptions are too involved to discuss here. In addition, a loss by a QOF of its qualification as such will also be an inclusion event.

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  Maria De Los Angeles Rivera

  Kevane Grant Thornton

  May 07, 2021

  The regulations list the events that are considered inclusion events. If you incurred one of these, the amount of the gain to be recognized will be included in the tax return for the year in which the inclusion event occurs.

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