Form 8949 - Paid Dividend on Short Sale

[starkyfubbs]

I have read paid dividends on short sales can be added to cost basis, if the broker did not already adjust the cost basis on 1099B.

The issue is I can not get TurboTax to display it "correctly" with:

-Proceeds (d) and Cost (e) matching 1099B

-Code B in (f)

-Paid Dividend Amount in (g)

On TurboTax desktop, it appears column (g) is reserved only for wash sale adjustments.

If I select "basis is incorrect on 1099 B" and enter the correct basis, the amount is adjusted in (e). Nothing shows up in (g).

Of course both methods lead to the same gain/loss in (h), but I feel the former is more correctly handled. Please advise.

P.S. Maybe I could add something to description (a) instead??

[rjs]

It depends on what "sales section" you select. The basis was probably not reported to the IRS, or at least you are entering it in TurboTax as basis not reported. TurboTax follows the IRS instructions for Form 8949. The instructions say to report the adjustment for code B as follows.

• If basis was not reported to the IRS (box B or E is checked at the top of Form 8949), you do not enter an adjustment in column (g). You just enter the correct basis in column (e).
• If basis was reported to the IRS (box A or D is checked at the top of Form 8949), you enter the adjustment in column (g).

When you select the sales section, if you select "Short-term basis reported to IRS" or "Long-term basis reported to IRS" TurboTax will enter the adjustment in column (g). But if basis was not reported to the IRS, TurboTax puts the correct basis in column (e) and zero in column (g), which is what the IRS instructions say to do.

[starkyfubbs]

@rjs Thank you for the explanation. I moved the sale to Box A, and am now able to display it correctly on Form8949 with code B, and an adjustment in column (g).

I was misled because ChatGPT told me the sale had to be in Box B!

Just to make sure:

If my 1099B reports a basis that matches the transaction history (i.e. "correct") BUT does not add in the paid dividend (i.e. making it overall incorrect), then this sale should be reported in Box A and not Box B?

[Mike9241]

this is from IRS PUB 550

Payments in lieu of dividends. If you borrow stock to make a short sale, you may have to remit to the lender payments in lieu of the dividends distributed while you maintain your short position. You can deduct these payments only if you hold the short sale open at least 46 days (more than 1 year in the case of an extraordinary dividend, as defined later) and you itemize your deductions. You deduct these payments as investment interest on Schedule A (Form 1040). If you close the short sale by the 45th day after the date of the short sale (1 year or less in the case of an extraordinary dividend), you cannot deduct the payment in lieu of the dividend you make to the lender. Instead, you must in-crease the basis of the stock used to close the short sale by that amount.

To determine how long a short sale is kept open, do not include any period during which you hold, have an option to buy, or are under a contractual obligation to buy substantially identical stock or securities.
If your payment is made for a liquidating distribution or nontaxable stock distribution, or if you buy more shares equal to a stock distribution issued on the borrowed stock during your short position, you have a capital expense. You must add the payment to the cost of the stock sold short.
Exception. If you close the short sale within 45 days, the deduction for amounts you pay in lieu of dividends will be disallowed only to the extent the payments are more than the amount you receive as ordinary income from the lender of the stock for the use of collateral with the short sale. This exception does not apply to payments in place of extraordinary dividends.
Extraordinary dividends. If the amount of any dividend you receive on a share of preferred stock equals or exceeds 5% (10% in the case of other stock) of the amount realized on the short sale, the dividend you receive is an extraordinary dividend.

there is an issue in Turbotax. with desktop there is forms mode which would allow you to enter the dividend paid, when appropriate, as an adjustment to the gain/loss using code B in the Capital Asset Sale Worksheet. 

I could not find the adjustment column except in forms mode 

[rjs]

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@starkyfubbs wrote:

Just to make sure:

If my 1099B reports a basis that matches the transaction history (i.e. "correct") BUT does not add in the paid dividend (i.e. making it overall incorrect), then this sale should be reported in Box A and not Box B?

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No. Whether to report the sale with box A checked or with box B checked on Form 8949 has nothing to do with whether the basis on the 1099-B is correct. Whether to check box A or box B depends only on whether or not basis was reported to the IRS by the broker. The 1099-B tells you whether the basis was reported to the IRS. If it's a short-term sale and basis was reported, box A should be checked. If basis was not reported, box B should be checked.