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

[NJKen]

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.

[brian-pat-smith]

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".

[DaveF1006]

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

[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.

[GeorgeM777]

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

[brian-pat-smith]

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

[jaxhunt]

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?

[GeorgeM777]

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

[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.

[PatriciaV]

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.

[wfarb]

I have a section 1244 loss to report on Line 10, Form 4797. The "Help" instructions say to enter this through the "Capital Gains Wks," which I can not find. The answer from this Community, says to enter it through the "Sale of Business Property" section, but that only is for gains.

[Long_Time_TT_user]

Treat it like a total loss of the amount invested and fees.

[wfarb]

It turns out that TT changed the way it works in 2021, as I learned from reading additional answers lower in the thread. You now get to the Sec 1244 entries in the "Less Common Adjustments" section of "Stocks, Mutual Funds,..."

[B-RadK]

Is there someone that can help with updating this guide for 2022 filings?   The menu structure seems to have changed a lot from last year.  

[MoniqueLO_]

Do you have a specific question we can help you with?

@B-RadK