filling out Schedule D treating royalties from patent as capital gains

[Mike1127]

In 2024 I received royalties on a patent I had with my former employer, reported on a 1099-MISC. The employer stated that an analysis of past IRS directives indicates this should be treated as capital gains on a Schedule D.

This also happened in 2022 and I got some help from this forum back then. So I just need to repeat how I filled out the Schedule D like I did back in 2022, but I can't figure out how.

I need to enter $4133.33 into the box in the schedule D where it says Part 1, line 3 column (d), and $0 into column (e) (cost basis). When I try to do this it says "select an existing 8949" but it appears there is none.

So I guess I need to create an 8949, but if I could get some advice on that plus the big picture (maybe I need to enter more numbers or check some boxes somewhere)

[AnnetteB6 · Accepted solution]

Here is the gist of the advice you received on this topic a couple of years ago.  

First, do not enter the Form 1099-MISC as part of your return.  Instead, you will enter the income in the Investment Income section of your return so that it is reported on Schedule D as if you sold stock with a zero cost basis.

Use these steps:

1. Open or continue your return.
2. Navigate to the investment sales section:
   • TurboTax Online/Mobile: Go to investment sales.
   • TurboTax Desktop: Search for investment sales and then select the Jump to link.
3. Answer Yes to the question Did you sell any of these investments in 2024? 
   • If you land on the Investment sales summary or Your investments and savings screen, select Add More Sales or Add investments.

Next, choose Other as the type of investment and follow these steps:

1. Enter the company name as the broker completing the sale.
2. Choose Other as the type of investment that was sold.
3. Choose Something else for how you received the investment.
4. Enter a description.
5. Enter the date of the patent for the date acquired or date you received the investment.
6. Enter the date of your payment for the date sold.
7. Enter your payment for the proceeds.
8. Enter $0 for the cost basis.  

This will make the entry on the Schedule D and Form 8949.

Be sure to keep your Form 1099-MISC and the documentation about how to report this in your records in the event that there is ever a question about this item on your tax return.

[Mike1127]

Thanks! It worked.