How to Report a QSBS Exclusion for Capital Gains on a K-1 Partnership

I received a K-1 for an LLC Partnership, with capital gains reported on line 9a. On a subsequent page of the K-1, there is a note indicating that a portion of the capital gains is subject to the QSBS exclusion. My question is how to best report this in Turbotax (Turbotax Deluxe 2024 Desktop software on a Windows PC). I have heard one recommendation that I subtract the QSBS exclusion from 9a, and report it as a separate QSBS sale, as if it were instead reported on a 1099-B. However, won't that trigger an audit, when my own K-1 gains do not match up with the partnership form sent directly to the IRS? Is there a better way to report this with Turbotax?

THANK YOU!

2035

Expert Alumni

Mar 3, 2025 9:25:14 AM

Instead of reporting the small business stock sale on your K-1 form entry, you would enter the sale in the Investment Income section of TurboTax under Stocks, Cryptocurrency, Bonds, Mutual funds, Other.

Choose the Stocks, Bonds, Mutual Funds option.
For the type of stock sold, choose Stock (non-employee) on the screen where you enter the sales and cost basis information.
On the next screen you will see where you can indicate that the sale is of small business stock.
Continue and answer a few questions about the small business stock.
Continue to back to the Investment Sales Summary page.

Ref: ThomasM125

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How to Report a QSBS Exclusion for Capital Gains on a K-1 Partnership