Tax Year Prior to 2020: I am eligible for a section 1202 exclusion. How do I indicate that?

[ThomasM125]

I agree that you may not need the second K-1 schedule entry. If you can get the correct result by entering one K-1 schedule in TurboTax, then you should do that.

You need to keep in mind that the K-1 entry does not show on your tax return. It's purpose is to report your share of the business income and deductions to aid in your tax preparation. The IRS gets a copy of it, but they probably many use it to verify that the income entries in the first three boxes are reflected on your tax return.

[wideglidejrp]

The other thing about the K-1s in TT is they are very difficult to manage. (I receive more than 50 of them.) Two things would make working with them much much easier:

1. Sort the list of K-1s in alphabetical order

2. There is an edit button for each K-1. What would be great to have that edit button offer

a. Delete (I realize you can remove a form in a different menu).

b. Duplicate

c. Edit 

[sogogoko]

Thanks for the response. First, please note that I did not receive a 1099-B for this transaction, which was the sale of restricted common stock to the private company that issued it. I saw this post earlier and was hoping for another solution, as when I "Jump to 1099-B" I am not offerred the opportunity to click "edit", rather the screen is "OK, what type of investments did you sell?" and I can click one of two options "Stocks, Bonds, Mutual Funds" (covering 1099-Bs) or "Other". When I click the "Stocks, Bonds, Mutual Funds" icon and click continue, it tries to import my tax info, which is not available for import, so I click "I'll type it in myself". Thereafter I am asked for the bank or brokerage name and account number (optional), so I just click continue, which ultimately takes me to the "Now, we'll enter one sale on your 1099-B" screen, with no option to identify this transaction as one with "special situations". 

Any additional thoughts?

Best,

Steve

[realmaddo]

I am eligible for a QSBS exclusion under Section 1202. When I follow.these instructions, after I select "This was a small business stock", I see an option for Section 1045 but not for Section 1202. How can I enter the Section 1202 exemption?  (I'm using TurboTax Live Premier as of March 13 2021.)

[ReneeM7122]

From ColeenD3

Here's how to enter a Qualified small business stock exclusion (Section 1202):

Although the below steps involve editing an existing stock sale entry, you may do well to delete the sale and start fresh.

1. With your return open, search for 1099-B (upper- or lower case, with or without the dash) in your program's search box.
2. Click the Jump to 1099-B link in the search results.
3. On the Did you sell any investments? screen, answer Yes.
4. If you land on the Summary of All Accounts screen instead, click Edit 
5. “If you have additional info about this sale, you can enter it on your own, or we can guide you.”, Select Guide me step-by-step (See the attached screenshot below. Click to enlarge.)
6. Click My sale involves one of these uncommon situations. (See the attached screenshot below. Click to enlarge.)
7. On Choose the type of investment you sold, choose "Stock" (See the attached screenshot below. Click to enlarge.)
8. Review Some Basic Info About this Sale, Click Continue
9. Click through several screens
10. On "Do Any Special Situations Apply to This Sale?", select "Small business stock" click Continue  (See the attached screenshot below. Click to enlarge.)
11. On "What Kind of Small Business Stock?" select the appropriate section 1202 type, click Continue
    Continue through the interview

§ 1202. Partial exclusion for gain from certain small business stock (a) Exclusion (1) In general In the case of a taxpayer other than a corporation, gross income shall not include 50 percent of any gain from the sale or exchange of qualified small business stock held for more than 5 years.

@realmaddo

[duke_silver]

@realmaddo @ReneeM7122 

I am in the same situation as @realmaddo. When I follow the instructions provided by @ReneeM7122 in TT Live Premier online, after "This was a small business stock", I am only able to see the option for Section 1045 but not Section 1202 for QSBS exemption.

Are you sure these instructions are updated for 2021? Any help here would be greatly appreciated.

[JulieC14]

If you are subscribing to TTLive Premier version, you have the option of talking to an expert where they can see your screen and return as you share it with them.  Please see this to contact your TTLive Agent:  How do I connect with a tax expert in TurboTax Live?

[timstaxes]

I in the same exact place. I do not see an option to select 1202. Only 1045 is available. I selected 1045 and put $0 in amount reinvested...but that isn't really accurrate is it?

Tim

[GeorgeM777]

No, because when you select the option for section 1045, you will be asked about the amount that you reinvested in other qualified small business stock.  The better option is to select None of these apply when you are on the page What kind of small business stock did you sell?

Section 1202 was enacted in 1993 to encourage investment in small businesses. It allows individuals to avoid paying taxes on up to 100% of the taxable gain recognized on the sale of qualified small business corporation stock.  It is important to consider that there are eight requirements to qualify for Section 1202 benefits.  Some of these are determined by the shareholder, while others are determined based on facts and activities of the corporation.  For example, one of the eight requirements is that the stock must be held for more than five years before it’s disposed.  

Another requirement is that the corporation must be a domestic C corporation.  An S corporation is not an eligible corporation, but an LLC that has elected to be taxed as a C corporation is eligible.  Additionally, while the corporation must be domiciled in the US, the activity of that corporation or its subsidiaries can be domestic or international.

Follow-up with additional information if you have questions about your qualified small business stock. 

@timstaxes 

[timstaxes]

Thanks for the reply. I ended up on the phone with a rep and got it solved. The 1202 option wasn't showing because I hadn't filled in the date acquired box which was used in the 5 year holding period calculation.  The acquisition date wasn't filled in on the 1099-B so I was afraid of inputting it manually, but I did now and it works.

[ncorrie123]

I am filing a 1065 Partnership return in TT Business. The Partnership received a K-1 from an underlying investment that contains QSBS Section 1202 information (a portion of Line 9a is QSBS).  How do I enter the passthrough QSBS info from the K-1 into the 1065 return so it gets passed through to my partnership K-1s?