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The election to roll over gain or to ex- • Gain attributable to real property, or an in- 12:10 - 7-Feb-2023
! clude part of the gain from income is tangible asset, which is not an integral part
CAUTION not allowed to C corporations. of a DC Zone business. 2.
• Gain from a related-party transaction. See
Rollover of gain. You can elect to roll over a Sales and Exchanges Between Related
capital gain from the sale of qualified small busi- Persons in chapter 2.
ness stock held longer than 6 months into other • Gain attributable to periods after Decem- Ordinary
qualified small business stock. If you make this ber 31, 2016.
election, the gain from the sale is generally rec- See the Instructions for Schedule D and the or Capital
ognized only to the extent the amount realized Instructions for Form 8949 for details on how to
is more than the cost of the replacement quali- report the sale and exclusion. Report the sale or
fied small business stock bought within 60 days exchange of DC Zone business property on Gain or Loss
of the date of sale. You must reduce your basis Form 4797. See the Instructions for Form 4797
in the replacement qualified small business for details.
stock by the gain not recognized.
Special Rules for Qualified Introduction
Exclusion of gain. You may be able to ex-
clude from your gross income 50% of your gain Opportunity Zone Funds You must classify your gains and losses as ei-
from the sale or exchange of qualified small (QOFs) ther ordinary or capital, and your capital gains
business stock you held more than 5 years. The or losses as either short term or long term. You
exclusion can be up to 75% for stock acquired Deferral of Gain Invested in a QOF must do this to figure your net capital gain or
after February 17, 2009, and up to 100% for loss.
stock acquired after September 27, 2010. The If you realized an eligible capital gain from a For individuals, a net capital gain may be
exclusion can be up to 60% for certain empow- sale or exchange with an unrelated person and taxed at a different tax rate than ordinary in-
erment zone business stock for gain attributable during the 180-day period beginning on the come. See Capital Gains Tax Rates in chap-
to periods on or before December 31, 2018. date the gain is realized, you invested any por- ter 4. Your deduction for a net capital loss may
The 60% exclusion doesn’t apply to gain attrib- tion of the gain in a QOF, you may be able to be limited. See Treatment of Capital Losses in
utable to periods after December 31, 2018. temporarily defer such eligible capital gain that chapter 4.
Your gain from the stock of any one issuer would otherwise be includible in the current
year’s taxable income. If you make the election
that is eligible for the exclusion is limited to the to defer gain by investing in a QOF, the eligible Capital gain or loss. Generally, you will have
greater of the following amounts. capital gain is included in taxable income only a capital gain or loss if you sell or exchange a
capital asset. You may also have a capital gain
• Ten times your basis in all qualified stock to the extent, if any, the amount of realized gain
of the issuer you sold or exchanged during exceeds the aggregate amount invested in a if your section 1231 transactions result in a net
the year. gain.
• $10 million ($5 million for married individu- QOF during the 180-day period. See the In- Section 1231 transactions. Section 1231
structions for Form 8949 for details on how to
als filing separately) minus the gain from report tax on an election to defer an eligible transactions are sales and exchanges of real or
the stock of the same issuer you used to gain invested in a QOF. depreciable property held longer than 1 year
figure your exclusion in earlier years. and used in a trade or business. They also in-
If you elect to defer tax on an eligible capital
More information. For more information on gain by investing in a QOF, you will also need to clude certain involuntary conversions of busi-
ness or investment property, including capital
sales of small business stock, see chapter 4 of complete Form 8997, Initial and Annual State- assets. See Section 1231 Gains and Losses in
Pub. 550. See the Instructions for Schedule D ment of Qualified Opportunity Fund (QOF) In- chapter 3 for more information.
and the Instructions for Form 8949 for informa- vestments. See Form 8997 and its instructions
tion on how to report the gain. for more information. Topics
This chapter discusses:
Exclusion of Gain From Previously Deferred Gain Invested
Sale of DC Zone Assets in a QOF • Capital assets
• Noncapital assets
If you previously made an election to defer the • Sales and exchanges between
If you sold or exchanged a District of Columbia inclusion of capital gain in gross income by in- related persons
Enterprise Zone (DC Zone) asset acquired after vesting such capital gain in a QOF, and now • Other dispositions
1997 and before 2012, and held it for more than you have sold or exchanged the QOF invest-
5 years, you may be able to exclude the quali- ment, you must now include into income the de- Useful Items
fied capital gain that you would otherwise in- ferred gain. If you held the QOF investment for You may want to see:
clude in income. more than 5 years, you may be able to exclude,
in part, the capital gain that you would other-
DC Zone asset. A DC Zone asset is any of the wise include in income. See the Instructions for Publication
following. Form 8949 for details on how to report the de- 550 550 Investment Income and Expenses
• DC Zone business stock. ferred gain.
• DC Zone partnership interest. Form (and Instructions)
• DC Zone business property. If you disposed of your investment in a QOF,
you will also need to complete Form 8997. See Schedule D (Form 1040) Schedule D (Form 1040) Capital Gains
Qualified capital gain. The qualified capital Form 8997 and its instructions for more infor- and Losses
gain is any gain recognized on the sale or ex- mation.
change of a DC Zone asset that is a capital as- 4797 4797 Sales of Business Property
set or property used in a trade or business. It
does not include any of the following gains. 8594 8594 Asset Acquisition Statement Under
• Gain treated as ordinary income under Section 1060
section 1245 of the Internal Revenue 8949 8949 Sales and Other Dispositions of
Code. Capital Assets
• Section 1250 gain figured as if section
1250 applied to all depreciation rather than See How To Get Tax Help for information about
the additional depreciation. getting publications and forms.
Chapter 2 Ordinary or Capital Gain or Loss Page 19