how to record a section 1244 stock loss in turbo tax deluxe

[barryesc]

Hi,

I need to record a section 1244 stock loss.  Can someone describe the appropriate method for capturing it in Turbotax deluxe?

Thanks

[Anonymous_ · Accepted solution]

In order to deduct the Section 1244 loss as an ordinary loss, you need to enter the transaction under Sale of Business Property in the program.

[VolvoGirl]

Are you using the Online Deluxe program?  You need Online Premier to enter sales.  The Desktop Deluxe has all the forms.

[barryesc]

The business folded, so there was no sale of stock.  Does that matter?

[barryesc]

it wasnt a sale, the business folded so the the stock lost all value.  Does that impact how i treat it?

[Anonymous_]

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@barryesc wrote:

The business folded, so there was no sale of stock.  Does that matter?

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It does not matter, assuming the stock is worthless.

[onemoment]

Hello, I have the same question. The incentive stocks we bought from a small business went worthless and caused a loss. How do we report the loss in TurboTax? Under the 'sales of business property', I did not find the option for worthless stocks. Please advise.

thanks

[WendyN2]

You must determine the holding period to determine if the capital loss is short term (one year or less) or long term (more than one year). Report worthless securities on Part I or Part II of Form 8949, and indicate as a worthless security deduction by writing Worthless in the applicable column of Form 8949.Jan 4, 2021

IRS Guidance On Losses (Home, Stocks, Securities, etc.)

Benefiting From Worthless Stocks and Securities During Covid

To enter worthless stock as investment sales:

1. Open (continue) your return in TurboTax.
2. In the search box, search for investment sales then click the "Jump to" link in the search results.
3. Answer Yes to the question Did you sell any investments?
   • If you land on the Here's the investment sales we have so far screen, click Add More Sales.
4. Answer No to the 1099-B question.
5. On the next screen, select the type of sale you had (stock, second home, collectible, land etc.) and click Continue.
6. Continue following the onscreen instructions to enter the sale.

[onemoment]

I understand the benefit of 1244 stock loss is that it can be treated as an ordinary income loss, not as an investment loss. If follow the instruction, it looks like it still points to the turbox tax investment page. So if I enter the loss on the investment page, how will it offset ordinary income on the final return? thanks

[ThomasM125]

If you answer the questions correctly in TuboTax, the loss will show up on line 4 of schedule 1, and as such be treated as an adjustment to ordinary income. It will also be reported on form 4797 Sales of Business Property, and that may what you are referring to when you mention it flows to the investment page in TurboTax.

 You can preview your form 1040 while working in the online version of TurboTax as follows:

1. Tools
2. Tax Tools (left side of the menu bar)
3. View Tax Summary
4. Preview my 1040 (left menu bar)

[bdanubius]

This solution doesn't seem to work anymore, it asks to submit under "investment", which then is listed as capital gains. 

What is the way in 2021 to enter section 1244 stock loss?

[NJKen]

Hi, I have a huge investment loss on a start up.  I tried to follow the instructions you provided and tells me only positive (gains) can be entered here.  It keeps treating my investment loss as a stock loss, giving me only a $3K deduction.  I am missing something in your guide, can you please explain how I can get it to offset my income on my 1040.  Thank you.

[JulieS]

The program navigation has changed since the first response was posted in 2020. Here is how to enter it in the 2021 version:

1. Select Federal from the left side menu.
2. Select Wages and Income toward the top left.
3. Scroll down/ expand the list and look for Investment Income.
4. Find Stocks, Mutual Funds, Bonds, Other and click on Start or Update to the right. 
5. On the screen titled,  Did you get a 1099-B or brokerage statement for these sales? answer No.
6. On the screen titled, Tell us about this sale, answer I'll enter one sale at a time. 
7. Fill in your information about the stock. Since this is not a sale, your sale proceeds is $0, assuming you didn't recover any of your investment. Your sale date would be the date that it became clear that the stock was worthless. Holding period will be F.
8. Click Continue.
9. On the next screen, leave everything blank and click Continue.
10. On the question, Select any less common adjustments that apply, check the third one.
11. Click Continue.
12. On the next screen, What kind of Small Business Stock?, Select the second from the bottom, Qualified small business stock eligible for ordinary loss deduction (Section 1244).
13. Click Continue.
14. On the next screen select all that apply and click Continue.

See the screen below as to the choices that must be selected to qualify for the ordinary loss treatment. All of these four conditions must be true to qualify for 1244 treatment.

[NJKen]

Hi Julie, I hate to do this to you, especially after you gave such a detailed step-by-step process, but this tax return is for 2018.  So, some of the steps must be different, since I don't get step-10 on my screen.

I am not sure if this is possible to do, but could you please base it on the 2018 TurboTax?

Thanks.

[JulieS]

It is not too different in 2018:

1. Select Federal from the left side menu.
2. Select Wages and Income toward the top left.
3. Scroll down/ expand the list and look for Investment Income.
4. Find Stocks, Mutual Funds, Bonds, Other and click on Start or Update to the right. 
5. On the screen titled,  Did you sell any investments in 2018, answer Yes
6. On the screen titled,  Did you get a 1099-B or brokerage statement for these sales? answer No.
7. On the screen titled,  Choose the type of investment you sold, select Stocks.
8. On the next few screens, fill in your information about the stock. Since this is not a sale, your sale proceeds is $0, assuming you didn't recover any of your investment. Your sale date would be the date that it became clear that the stock was worthless.
9. On the question, Do any special situation apply to this sale?, select Small business stock.
10. Click Continue.
11. On the next screen, What kind of Small Business Stock?, Select Section 1244 stock.
12. Click Continue.
13. On the next screen select all that apply and click Continue.

See the screen below for the choices that must be selected to qualify for the ordinary loss treatment. All of these four conditions must be true to qualify for 1244 treatment.