Sale of S-Corp stock at a loss

[gclift]

I sold the majority of my ownership in an S-Corp in 2023 for a loss. The company's CPA put a note on the K-1 to enter the loss on my personal taxes. I found instructions for this situation from 2019 using TurboTax online, but those instructions no longer work.

Using the latest online version (2024) of TurboTax Online, how do I enter the loss from the sale of my shares in an S-Corp?

2019 Instructions that are no longer valid:

https://ttlc.intuit.com/community/business-taxes/discussion/how-do-i-enter-the-sale-of-an-s-corp/00/...

[tagteam]

I'm going to page Champ @Rick19744 for you. Please check back later.

[Rick19744 · Accepted solution]

Some comments which will hopefully help:

• I assume when you state 2024 version of TT, this is the software for 2023 tax returns.  Would make sense since you indicate you are using the online version and the 2024 return software is not out yet.
• As a shareholder in an S corp, you should be maintaining your tax basis.
• Not sure what you mean when you state "The company's CPA put a note on the K-1 to enter the loss on my personal taxes."
  • How does this individual know that you have a loss on the sale?
• Since you indicate that you only sold "a majority" of your stock and not ALL of your stock, your situation is somewhat different than most of the questions on this matter.  Generally, those that ask have sold ALL their stock.
• The other issue that has not been addressed is the timing of the sale.  That will impact how you determine your basis and eventual gain or loss.
  • So when did you sell your stock?
• What you can do at this point is enter the information from the K-1 just as you have in any other year.
• As I'm typing, I'm wondering if you have had any at-risk or basis (lack of) if the company passed out losses to the shareholder's?  This could add to the complexity.
• Answer these questions from above:
  • Have you been maintaining your tax basis in the S corporation?
  • Have you had any basis or at-risk limitation on losses in the past?
  • When did you sell your stock (what month)?
  • Just clarify that you only sold "a majority" and not all of your stock.
  • How did the sale of your stock occur? Redeemed by the corporation or purchased by another individual?

[gclift]

Hi @Rick19744 , thanks for your reply. 

Have you been maintaining your tax basis in the S corporation?

Yes, I know the tax basis on the transaction date and I sold the stock less than the tax basis. 

Have you had any basis or at-risk limitation on losses in the past?

No at-risk limitations. 

When did you sell your stock (what month)?

The transaction date was March 31st, 2023

Just clarify that you only sold "a majority" and not all of your stock.

I owned 95% before the transaction and sold 85%, leaving me with 10%.

How did the sale of your stock occur? Redeemed by the corporation or purchased by another individual?

I sold to stock to an individual who was the minority stock owner (from 5% to 90%)

Again, thanks for helping! I appreciate the support.

[Rick19744 · Accepted solution]

Thanks for the responses:

• Good to know that you have maintained your tax basis.
• Now that you have your K-1, you need to update your tax basis for the current year activity up through the date of sale; so you would adjust your tax basis schedule for 3/12 of the current year activity.
  • Then determine the basis for the percentage of shares you sold
• Once bullet #2 is complete, then you will determine your gain or loss on the sale of your shares; selling price minus the tax basis for the shares sold.
• One item we haven't discussed is who the shares were sold to.
  • If the shares were sold to a related party (as defined in IRC 267) any loss on the sale would be disallowed.
  • In this event, any gain on a sale by this related party in a future sale (to a non related party), would then be adjusted downward by the previous disallowed loss.
  • A gain on a sale to a related party is not impacted.
• Once you have adjusted your basis for the portion sold, then make sure you adjust it for the remaining 9/12 of the applicable K-1 line items.
• If your sale was not to a related party, and you in fact sold at a loss, then the loss is reported on form 8949 and Schedule D just as any other investment. Enter the information in the same manner as you would if you received a brokerage statement (even though you in fact did not).
• At this point you should be good to go.