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How do I enter Section 1244 stock in TurboTax?

by TurboTax•94• Updated 4 months ago

Restricted stock is a type of stock that vests over time and is typically awarded to company directors and executives. It’s also known as Section 1244 stock or letter stock. 

Typically, restricted stock isn’t taxed until it vests. These are some exceptions:

  • You have an arrangement where you receive dividends on the award prior to vesting. The dividends should be included in box 1 (wages) of your W-2.
  • You made a Section 83(b) election. Your employer will report the fair market value of the award in box 1 of your W-2 and any dividends will be reported on Form 1099-DIV.

Once your restricted stock vests, you may choose to sell it. If you sell any shares, you'll get a 1099-B from your brokerage like you would with any other stock.

If you sell it at a loss, you can report it as Section 1244 stock for a tax advantage if you meet certain requirements:

  • The domestic corporation was considered a small business, with $1 million or less received in money/property for its stock or as a contribution to capital. 
  • The stock was purchased (not given as compensation). 
  • The stock was issued to the original owner, either an individual taxpayer or a partnership. However, the partners of the partnership must be original owners of the stock.
  • The company can't be an investment company and must pass a gross receipt test where more than 50% of income is from non-passive activities.

You can apply up to $50,000 ($100,000 for Married Filing Jointly) of losses to your ordinary income (or as Net Operating Loss) the year you sell the restricted stock.

Select your product and follow the instructions to enter your restricted stock as Section 1244 stock in TurboTax.

  1. Enter your other income first, such as your W-2.
  2. Go to Form 1099-B.
  3. If asked Did you have investment income in 2024? answer Yes.
  4. On the Let's import your tax info screen, select Enter a different way.
  5. Select Stocks, Bonds, Mutual Funds (1099-B) when asked to choose an investment type. 
  6. Answer the questions on the Which bank or brokerage is on your 1099‑B? screen.
  7. On the Tell us about the sales on your 1099‑B screen, answer No to Do these sales include any employee stock?
    • Section 1244 stock may seem like employee stock, but its specific requirements mean you should answer No here.
  8. Answer No to Do you have more than three sales on your 1099‑B?
  9. Answer Yes to Do these sales include any other types of investments?
  10. Answer Yes to Did you buy every investment listed on your 1099‑B?
  11. Choose to enter your sales One by one.
  12. On the Now, enter one sale on your 1099‑B screen, under Sales section title, select Short-term did not receive 1099-B form or Long-term did not receive 1099-B form or Unknown term basis not reported to IRS based on your situation.
  13. Under What type of investment did you sell?, choose Stock (non-employee).
  14. Fill out the rest of the info and Continue.
  15. Select This was a small business stock and This was a worthless security on the Let us know if any of these situations apply to this sale screen.
  16. Select I don’t want to make any changes to my cost basis right now and Continue.
  17. Select Section 1244 on the What kind of small business stock did you sell? screen and Continue.
  1. Enter your other income first, such as your W-2.
  2. Go to Federal Taxes, then Wages & Income to get to the Your 2024 Income Summary screen. 
  3. Under Investment Income, select Start next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other.
  4. Answer Yes to Did you sell any of these investments in 2024?
  5. Select Stocks, Bonds, Mutual Funds on the OK, let's start with one investment type screen.
  6. On the Let Us Enter Your Investment Sale Info screen, select Skip Import.
  7. Answer the questions on the Which bank or brokerage is on your 1099‑B? screen.
  8. On the Tell us about the sales on your 1099‑B screen, answer No to Do these sales include any employee stock?.
    • Section 1244 stock may seem like employee stock, but its specific requirements mean you should answer No here.
  9. Answer No to Do you have more than three sales on your 1099‑B?
  10. Answer Yes to Do these sales include any other types of investments?
  11. Answer Yes to Did you buy every investment listed on your 1099‑B?
  12. Choose to enter your sales One by one.
  13. On the Now, we’ll walk you through entering your sale details screen, under Sales section title, select Short-term did not receive 1099-B form or Long-term did not receive 1099-B form based on your situation. 
  14. Under What type of investment did you sell?, choose Stock (non-employee).
  15. Fill out the rest of the info and Continue.
  16. Select This was a small business stock and This was a worthless security on the Let us know if any of these situations apply to this sale screen.
  17. Select I don’t want to make any changes to my cost basis right now and Continue.
  18. Select Section 1244 on the What kind of small business stock did you sell? screen and Continue.
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