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

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.

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

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

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

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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.

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

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.

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

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)

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?

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.

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.

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.

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.

JulieS - I can't thank you enough, this was perfect.  THANK YOU!  Now let's hope the IRS doesn't give me a hard-time for taking this loss.

I have a loss on a worthless stock investment in a corporation that was not a small business stock. IRS guidance is to "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". How can I do this in TurboTax Premier for 2021? Following the advice in this post I have successfully recorded the transaction. I am asking specifically how and where to input the word "Worthless".

Yes, report this in this manner.

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 This was a worthless security.
10. Finish out the section.

@brian-pat-smith

Dave,

I really appreciate your detailed advice but I can't seem to make it work. First I want to be sure we are starting from the same base. I am using TurboTax Premier 2021, the download (not online) verion to prepare my 2021 taxes. I followed your advice carefully.

- When I got to the "Stocks, Mutual Funds, Bonds, Other" category under "Investment Income" and hit "Update" I get the "Here's all the investment accounts we have so far" screen.

- Then I selected the "Add more sales" button

- I answered No to the "Did you get a 1099-B ...." question

- That brought up the "Tell us about this sale" screen with the options "I'll enter one sale at a time" or "'ll enter a summary for each sale category". I selected "I'll enter one sale at a time"

- The next screen allows you to enter all the details of the transaction. It DOES NOT allow you to select the type of the transaction.

- I entered all the details and hit continue, that brings up the "Any of these less common items for this sale?" screen and there is no option for "This was a worthless security" as you indicated in your response. None of the options applied to my circumstance

- I hit the continue button and got the "Was this a sale of employee stock" screen. I answered No and hit continue. 

- That brought up the "Select any less common adjustments that apply" screen, none applied so I hit continue

- And that brought up "Here's your sales that are not reported on Form 1099-B" screen which is the end of the process

Can you please tell me where I went wrong? It may be possible that you were giving me advice regarding the 2018 version and that the process is different in the 2021 version. I have really worked hard to see if I could find the solution on my own but I can't seem to work it out.

Any advice would be greatly appreciated.

You have gone through the steps correctly, but to follow-up on the comments from @DaveF1006, when you get to the page that allows you to enter your stock information, rather than entering the actual name of the company that issued the stock, enter "Worthless."  (You don't need to add the quotation marks). Enter your cost basis, and the sale proceeds need to be zero because the stock, as you have stated, is worthless.  Lastly, for the date sold enter 12/31/2021, which is the last day of 2021.  

Keep in mind that you can deduct worthless stock only in the tax year it becomes completely worthless. This normally happens when the corporation files for bankruptcy, stops doing business, and has no assets. Financial difficulties won't make a company's stock worthless unless there is no reasonable expectation that the company will continue as a going concern. 

@brian-pat-smith

Exactly the info that I needed. Thanks for your reply.

How to record this as 1244 ordinary loss if the stock refunded less than 1% of your original investment before it became worthless the same year?

Here is how to enter your 1244 stock loss:

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.

@jaxhunt

hi -- those parameters don't match the TurboTax versions for Self Employed or for Premier? There is also no option to say a 1099-B was not received. Also, what if value is not zero? (i.e. there is a very small recovery of your investment before it became worthless). Thanks.

In TurboTax Online, you will not see the question about receiving Form 1099-B. Continue to enter the sale and cost basis information "as if" you received this form. Any proceeds you received would be considered the sales price for your investment.