I have a Section 1202 gain reported on a K-1. How do I enter the exclusion of the gain into Turbo Tax. The gain is from sale of Qualified Small Business Stock

[IreneS]

What type of K-1 (Partnership, S-Corp or Trust)?  What line and code on the K-1?

[rdamronjr]

The K-1 is from a partnership.  The gain is reported on line 9a.

[IreneS · Accepted solution]

Rather than entering the proceeds of the sale of qualified small business stock on line 9a of your K-1, enter the figure under stock sales in order to indicate that the sale was "qualified small business stock."  [It's not going to matter that the entry is not on the K-1.]  Please follow these steps (THESE STEPS WORK ONLY FOR TURBOTAX DESKTOP/CD VERSION):

1. Click on Federal Taxes > Wages & Income> I'll choose what I work on
   
2. In the Investment Income section click on the Start/Revisit box next to Stocks, Mutual Funds, Bonds, Other. 
3. If you have already entered some investment sales, you will see a screen Here's the investment sales info we have so far.  Click on the Add More Sales link.  
4. If you haven't yet entered some investment sales, you will see a screen Did you sell any investments in 2019?  Click the Yes box.
5. Answer No to the question, Did you get a 1099-B...?
   
6. On the screen, Choose the type of investment you sold, mark the button for Stocks and click Continue.  
7. You will be asked questions about the date of sale and purchase and the cost and sales price.  If you don't have the exact information, you can just make entries so that the information results in the figure on line 9a of your K-1 [the net gain; long-term sale, etc.]
8. When you come to the screen, Do Any Special Situations Apply to This Sale? mark the button next to Small business stock and click Continue. Then, continue with additional screens to enter the specifics of your Small Business Stock Sale."
   

[Edited | 3/19/2020 |  12:28 pm PDT]

[wideglidejrp]

I have a question about the solution described. What is the relationship between the steps you described and line 9a of the K-1. In other words, how does TurboTax know to adjust line 9a?

[wideglidejrp]

If I leave 9a blank and fill out the stock sales, dates, etc. and get the exclusion, do the total proceeds get adjusted so the proceeds will be the same as if you had entered the number in 9a? 

[DavidS127]

If you are attempting to report Section 1202 gain exclusion in TurboTax Online, either as a workaround for Section 1202 gain reported on a K-1 or a Small Business Stock sale you make personally, the steps are different than TurboTax Download/CD.  Here are the steps for TurboTax Online Premier and Self-Employed:

1. Click on Wages & Income>>Stock, Mutual Funds, Bonds, Other.
2. If you have already entered some investment sales, you will see a screen Your investment sales summary.  Click on the Add More Sales box on the lower left.
3. If you haven't yet entered some investment sales, you will see a screen Did you sell stocks, mutual funds, bonds, or other investments in 2019?  Click the Yes box. 
4. On the next screen, choose the icon for Stocks, Bonds, Mutual Funds.
5. Continue through the Get ready to be impressed screen.
6. On the Let’s import your tax info screen choose I’ll type it in myself in the bottom right.
7. On the next screen, for the Broker name, type in something descriptive, like “Section 1202 from K-1” in the box, and leave the account number blank.
8. On the next screen, pick No to “sales include any employee stock”; A few sales; then No to “other type of investments”; then Yes to whether you purchased all the investments (assuming they weren’t received as a gift or inherited).  At that point you can Continue.
9. On the next screen, choose Enter sales one by one and Continue and on the next screen Continue.
10. Now you are to the screen where you can actually enter the sale.  Select Long-term did not receive 1099-B form in the first dropdown; then Stock (non-employee) in the next dropdown; then a description of the small business stock sold in the Box 1a field; then the date the stock was acquired in the Box 1b field; and the date it was sold in the Box 1c field;
11. If you know the proceeds and cost basis you can enter those in the 1d and 1e fields; if you don’t, then the gain reported on your K-1 in the Box 1d Proceeds field and just leave the 1e cost basis blank.  Then Continue.
12. On the “special situations” screen, select the This was a small business stock box. Continue.
13. The next screen is very important to “triggering” the questions you need to calculate your Section 1202 exclusion.  If you entered a cost basis the screen will be Let us know if you would like to make any changes to the cost basis.  If you didn’t enter a cost basis the screen will be We noticed your cost basis was blank….Let us know if you would like to make any changes.  Regardless of which of the two screens you get, you must select one of the first two options (“I need help figuring out my cost basis” or “I know my cost basis and need to make an adjustment”) to properly calculate your Section 1202 gain exclusion.  Select one of the first two choices and Continue.
14. From there, follow the TurboTax Online interview to enter the specifics of your Section 1202 sale, and TurboTax will calculate the appropriate gain exclusion. Make good use of the Learn more links on these screens if you have questions.  In particular, if you entered zero for the cost basis, and there is a chance that an exclusion limitation based on the cost basis of the stock applies to your transaction, you may have to obtain the cost basis of your stock to properly calculated the exclusion amount.

[Edited 3/29/20|12:48pm PST]

[TomS1]

This does work for me. But pay attention to 2 things. (1) In different time periods of purchase, the exclusion percentages may differ.  (2) The instructions say to just enter one transaction even if there are multiple purchases.  To handle both of these, group your purchases into those at the same exclusion rate and make one entry for each group.  (BTW my entry was on line 11i of the K-1, so you may see it in different places.)

[douglasrubin]

Just had a TTOnline client that is going through this process for a 2nd time.  Thanks for the entry . . . but 1202 gains via K-1 need to be included in future TTOnline so that this is a new "feature" not a bug for the software. 

Thanks!

[Anonymous]

Thank you David, this was extremely helpful.

[jonnybadger]

Question on this - should I keep the entries in the K-1 section in addition to doing what you suggested below to report the Section 1202 gain in the stock sales section. Or should I do this instead of filling out the K-1 section? Thanks for this comment.

[AbrahamT]

No, you would not enter them twice. Enter it only through the Investment income section as Irene S explained above. 

[K1Ninja]

If the QSBS sale was only a portion of the total reported gain on the K-1 line 9a, is the correct way to report:

1. Report qsbs portion as a 1202 gain as outlined on this thread

2. report the K-1 but reduce the line 9a gain by the amount associated with the QSBS sale leaving all other fields unchanged?

[toddsawicki1972]

For the 2022 TurboTax Desktop Home & Business edition - these instructions are not work - when you enter the stock sale manually (amounts/dates/etc) on the next screen you got a screen that says "Any of these less common items for this sale?" but it does NOT list QBS as an option.  Not sure what to do here.