IRS Form 8997 – IRS Forms, Instructions, Pubs 2026 – In the world of tax-advantaged investing, Qualified Opportunity Funds (QOFs) offer a powerful way to defer and potentially reduce capital gains taxes by investing in economically distressed communities known as Opportunity Zones. If you’re an investor in a QOF, staying compliant with IRS reporting requirements is essential. One key form for this is IRS Form 8997, the Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments. This article breaks down everything you need to know about Form 8997, including its purpose, who must file it, how to complete it, and more. Whether you’re filing for the first time or annually, understanding this form can help you maximize your tax benefits while avoiding penalties.
For the latest version of the form, you can download the PDF directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f8997.pdf.
What Is IRS Form 8997?
IRS Form 8997 is a reporting tool designed specifically for investors in Qualified Opportunity Funds. It allows taxpayers to notify the IRS about their QOF investments and any associated deferred capital gains. The form tracks these investments over time, ensuring that the IRS has a clear picture of your holdings at the start and end of the tax year, as well as any changes, such as new investments or disposals.
Introduced as part of the Opportunity Zone program under the Tax Cuts and Jobs Act of 2017, Form 8997 helps investors claim tax deferrals on eligible capital gains. By properly filing this form, you can defer recognition of gains until as late as December 31, 2026, or earlier if you dispose of the investment. Additionally, holding the investment for at least 10 years may allow for exclusion of certain gains from taxation altogether.
Purpose of Form 8997
The primary purpose of Form 8997 is to inform the IRS of:
- QOF investments and deferred gains held at the beginning and end of the tax year.
- Capital gains deferred by investing in a QOF during the current tax year.
- Any inclusion events (such as sales or transfers) or other transfers involving QOF interests during the year.
This reporting ensures compliance with the rules governing Opportunity Zone investments and allows the IRS to verify that deferrals and exclusions are applied correctly. Failure to file can result in the loss of tax benefits or penalties.
Who Must File IRS Form 8997?
Any eligible taxpayer who holds a QOF investment at any point during the tax year must file Form 8997. Eligible taxpayers include those required to report gains under federal tax principles, such as:
- Individuals (filing Form 1040, 1040-SR, or 1040-NR).
- Estates and trusts (Form 1041).
- Partnerships (Form 1065).
- Corporations (Form 1120, 1120-S, etc.).
If you’re part of a consolidated group, each member holding QOF investments must file a separate Form 8997. Even if you didn’t dispose of any investments during the year, filing is mandatory if you held a qualifying investment.
Foreign taxpayers (non-U.S. persons or those claiming treaty benefits) must waive any treaty exemptions to defer gains and must indicate this on the form.
If you’re not otherwise required to file a tax return, you still must attach Form 8997 to an appropriate return to report your QOF holdings.
When and How to File Form 8997?
Form 8997 must be filed annually with your timely filed federal tax return, including any extensions. For most individuals, this means attaching it to your Form 1040 by the due date (typically April 15, or October 15 with an extension).
To file:
- Complete the form based on your QOF activity.
- Attach it to your tax return.
- If you need more space, use continuation sheets and transfer totals to the main form.
- Report related deferrals on Form 8949 (Sales and Other Dispositions of Capital Assets) and, if applicable, Schedule D (Capital Gains and Losses).
For the 2025 tax year, use the version of Form 8997 published in December 2025.
Breaking Down the Parts of Form 8997
Form 8997 is divided into four parts, each focusing on a different aspect of your QOF investments. You’ll need to report details like the QOF’s Employer Identification Number (EIN), acquisition or event dates, descriptions of interests (e.g., number of shares or partnership percentage), special gain codes, and amounts of short-term and long-term deferred gains.
Here’s a summary of each part:
| Part | Description | Key Columns/Information |
|---|---|---|
| Part I: Total QOF Investment Holdings Due to Deferrals Prior to Beginning of Tax Year | Reports investments held at the start of the year (e.g., January 1, 2025). Include noninclusion transfers with details. | (a) QOF EIN (b) Date acquired (c) Description (d) Special gain code (e) Short-term deferred gain remaining (f) Long-term deferred gain remaining Totals on Line 2. |
| Part II: Current Tax Year Capital Gains Deferred by Investing in QOF | Covers new deferrals from gains invested in a QOF during the year. Foreign taxpayers must check if waiving treaty benefits. | Same columns as Part I. Totals on Line 2. |
| Part III: Inclusion Events and Certain Other Transfers During the Current Tax Year | Details events triggering gain inclusion (e.g., sales, gifts, distributions). Also reports basis adjustments (5-year: 10% increase; 7-year: additional 5%). Check box if no Form 1099-B received. | (a) QOF EIN (b) Date of event (c) Description (e.g., “Sale” or “Adjustment to basis 5-year”) (d) Special gain code (e) Short-term gain included (f) Long-term gain included Totals on Line 2. |
| Part IV: Total QOF Investments Due to Deferrals at Year End | Summarizes holdings at year-end (e.g., December 31, 2025), including any deferred gains not yet invested. | Same columns as Part I, with (d) as “Deferred gain invested in QOF investment.” Totals on Line 2. |
Use special gain codes (e.g., “B” for Section 1231 gains, “G” for 5-year basis adjustment) where applicable. For noninclusion transfers (not triggering inclusion), use code “F” and provide transferor/transferee details.
Related Forms and Publications
Form 8997 doesn’t stand alone. You’ll often need to coordinate it with:
- Form 8949: To report the initial deferral of gains and any inclusions from disposals.
- Schedule D (Form 1040): For capital gains and losses.
- Form 8996: Used by QOFs themselves to certify and report compliance.
- Form 4797: If deferring Section 1231 gains.
Refer to IRS Publication 544 (Sales and Other Dispositions of Assets) for more on capital gains.
Common Mistakes to Avoid When Filing Form 8997
- Not Filing Annually: Even without changes, you must file if you hold a QOF investment.
- Incorrect Special Gain Codes: Misusing codes can lead to improper deferrals.
- Forgetting Basis Adjustments: Report 5-year and 7-year increases in Part III to claim the 10% or 15% basis step-up.
- Treaty Waiver Oversight: Foreign investors must explicitly waive benefits to defer gains.
- Incomplete Descriptions: Always include detailed descriptions and transfer info for noninclusion events.
Recent Updates and Developments for 2025
For the 2025 tax year, there are no major changes noted, but always check the IRS website for updates. Basis adjustments for long-term holdings remain a key benefit, with the final inclusion date for deferred gains approaching December 31, 2026. If you’re dealing with complex scenarios like consolidated returns or foreign investments, consult a tax professional.
By properly using IRS Form 8997, you can ensure your Qualified Opportunity Fund investments deliver the intended tax advantages. For personalized advice, reach out to a certified tax advisor or visit the IRS Opportunity Zones page for more resources.