I have a 1099R and 1099B for an ESOP. When I put it in TurboTax I bought it taxes me twice and counts it as income twice to me. What am I doing wrong.

[dmertz · Accepted solution]

The Form 1099-R appear to be reporting an in-kind distribution of the ESOP shares.  With an in-kind distribution, the cost basis of the shares becomes the gross distribution amount shown in box 1 of the Form 1099-R.  The holding period for the shares begins on the date of distribution, so the sale reported on the Form 1099-B is a sale of a short-term capital investment.  Presumably the Form 1099-B is reporting an non-covered sale requiring you to provide the cost basis, the distribution amount on the Form 1099-R, so your short-term gain/loss is $0.

[dmertz]

See TomYoung's answer if the distribution involves NUA reported in box 6.

[TomYoung]

I'm not sure that you ARE doing anything wrong.  Assuming that the "in kind" distribution of the stock out of the ESOP and the sale of that stock happened on the same day, you're going to be taxed, overall, on the Box 1 amount; part will be taxed (as ordinary income) when you enter the 1099-R, and part will be taxed (as long term capital gain) when you enter the 1099-B.  So in a way you will be "taxed twice" but it will be calculated on ordinary income and long term capital gain that IN TOTAL add up to the amount in Box 1.

Typically what the 1099-R looks like in this situation is: Box 1 reflects the total value of the stock that's distributed.  Box 2a represents the employer's contributions over time to buy that stock, and that's what's taxed when you're done entering the the 1099-R.  The Box 2a amount is also the basis for the stock if and when you sell it.  The difference between the value of the stock and your basis in the stock should show up in Box 6 "Net unrealized appreciation in employer’s securities".  This is typically referred to as "NUA" which stands for "Net Unrealized Appreciation".

If you immediately sell the stock (the "same day" aspect) then you tell TurboTax that the holding period is "Long Term" and you should end up with a long term capital gain that's pretty close to the 1099-R Box 6 amount.  TurboTax doesn't really have a "wizard" or "step by step" interview for NUA so you'll just have to make sure you enter an acquired date that's over a year prior to the sales date and make sure the basis is the same as the 1099-R Box 2a amount.

It is possible to have short term capital gain in addition to long term capital gain when you take an "in kind" distribution out of an ESOP if you don't immediately sell the stock.  If you held the stock for a while and the stock price continued to appreciate from the time of the distribution and then sold the stock after holding it less than a year, then the appreciation from the time of the distribution to the time of the sale would be considered short term and the remainder would still be considered NUA.

Perhaps you're using the wrong basis - like $0 - when you're entering the sale?

Tom Young

[sherbear461]

Thank you, this was very helpful in entering the 1099B. But how does the remaining amount get taxed as ordinary income or should I be taxed on the entire amount when entering the 1099R now.  By way of example, I have to enter $10,000 the entire amount received in the 1099R and get taxed on and penalized but then I also get taxed the $5,000.00 for the 1099B which is the taxable amount on the 1099R. So it is still adding $15,000.00 to my income like I received $15,000.00 but I only received $10,000.00. Is this correct? I was thinking I would be taxed $5,000.00 ordinary income for the 1099R and then $5,000.00 for long term capital gain for the 1099B.  Any thoughts?

[TomYoung]

"But how does the remaining amount get taxed as ordinary income or should I be taxed on the entire amount when entering the 1099R now."

This would be easier if you'd simply disclose exactly what's in each Box of your 1099-R.

But, while you do enter the entire Box 1 amount received ($10K), you also enter the Box 2a amount ($5K).  The Box 1 amount shows up on line 4a of the Form 1040 and the Box 2a amount shows up on line 4b of the Form 1040.  YOU ARE ONLY TAXED ON THE LINE 4b amount.

So you get taxed (and maybe penalized) on $5,000 or ordinary income and you get taxed on a LTCG of $5,000.

[sherbear461]

I guess I need to look at the form 1040 and stop looking at the turbotax input.
1099R form shows
Box 1 - 17,434.74
Box 2a - 9,997.60
Box 2b - Total Distribution
Box 6 - 7,437.14
I entered in this way and turbotax show the 17,434.74 and adding it to my income which is fine and after following your advise on the 1099B because that form did not show the cost basis or date acquired it now reflects the 7,437.14. What confuses me is it appears to be adding 17,434.74 and 7,437.14 to my total gross income and as you can see I only got $17,434.74.

[TomYoung]

"I guess I need to look at the form 1040 and stop looking at the turbotax input."

One of the huge advantages of using a desktop product is that all the Forms, Schedules and Worksheets are always available to you.  I assume you're using an online version where that ability is lacking.  But look, you need to review your entire income tax return before filing anyway so simply pay TurboTax their money, even if you're not done with all your entry information, at take a look at the Form 1040.

[sherbear461]

Thanks, I will do and I bought the program from the store and have it on my desktop. I'm just not happy that its not walking me through this as I thought it would which is why I bought it. Anyway, I thank you for all your help with this.

[TomYoung]

The program does "walk you through" the 1099-R interview just fine.  But TurboTax hasn't ever programmed in the "NUA" aspect, not in desktop and, I assume, not in online either.

[sherbear461]

Well, I guess so. It lets me put in the information I received on the forms but it clearly didn't tell me anything was wrong and would have let me send it that way. I checked for errors already and said its good to go and that was with the 1099B showing 17,434.74 with no cost basis in there or date acquired which my 1099B didn't have that information but clearly is important information to have.  I thought the program would let me know if something wasn't correct which is what I was expecting.

[ab211]

I am having the same problem. I received a 1099-R and a 1099-B from a life insurance contract that I invested on 11 year ago. The 1099-R is for the proceeds from the life insurance and the 1099-B is from the buy back units paid to me from the broker. I was not aware of units associated with the life insurance. From total expenses (initial cost, servicing fees, and premiums) to keep and maintain the fractional ownership of the life insurance was used to determine taxable amount on the 1099-R box 2a.  Turbo tax advised to read publication 551 to determine cost basis when on form 1099-B cost basis is blank.  The following is what's on publication 551: " The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, other property, or services. Your cost also includes amounts you pay for the fol-lowing items.
Sales tax.
Freight.
Installation and testing.
Excise taxes.
Legal and accounting fees (when they must be capitalized).
Revenue stamps.
Recording fees.
Real estate taxes (if assumed for the seller).You may also have to capitalize (add to basis) certain other costs related to buying or producing property".  This is the only way, it seems, the program will not tax you twice. I  just don't feel comfortable in using cost amount twice and prefer more advise because turbo-tax is not helping.