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Capital Gains

Section 1202 small business stock gains exclusion

Section 1202 excludes gains from the sale or exchange of qualified small business stock. The exclusion amount depends on the acquisition date and the holding period of the stock.

Gains from 1120S or 1065 K-1 activities

To qualify for the
Section 1202
 exclusion from a pass-through entity, the shareholder/partner needs to hold the interest from the date of the qualified small business stock purchase by the entity. This holding must continue until the entity sells the stock. UltraTax CS reports the full
Section 1202
 gain on Form 8949, Part II, Box F, with records the exclusion in column G as an adjustment.
If the qualified small business stock sale was from a partner's or shareholder's K-1:
  1. Open the
    K1 1064
    ,
    1120S
     folder.
  2. Select the
    K1
     screen.
  3. Select
    Qualifies for section 1202 exclusion
    .
  4. Select the
    K1-2
     screen.
  5. Open the
    Section 1202 gain
     statement and enter the sale information.
Don’t include Section 1202 gains in
Net long-term capital gain (loss)
.

Gains from a grantor trust K-1

  1. Open the
    K1 1041
     folder.
  2. Select the
    K1T
     screen.
  3. Select
    Grantor trust
    . If you don't mark
    Grantor trust
    , the system will gray out the
    Grantor Trust Income, Expenses, and Other Information
     section.
  4. Enter the amount of eligible long-term capital gain for the
    1202
     exclusion in a
    Section 1202 gain
     field at the bottom of the screen.
Don’t include Section 1202 gains in
Net long-term capital gain (loss)
. UltraTax CS uses the 1202 amount to calculate the allowable exclusion percentage and applies a reduction on Schedule D for the 1202 exclusion. UltraTax CS also includes the amount after exclusion in the 28% Rate Capital Gain Worksheet, on Form 4952, and as a nonbusiness capital gain in the NOL worksheet.

All other 1202 gains

For all other qualified small business stock sales:
  1. Open the
    Income
     folder.
  2. Select either the
    B&D
     screen or the
    Broker
     screen. Only use the
    Broker
     screen for consolidated broker statements.
  3. From the
    B&D
     screen, open the
    Schedule for detail
     statement. Or, from the
    Broker
     screen, open the
    Proceeds from broker transactions
     statement.
  4. Complete these fields:
    • TSJ:
       Code the sale as Taxpayer, Spouse, or Joint. If you come from the
      Broker
       screen, this field doesn’t show. The entire
      Broker
       screen codes as Taxpayer, Spouse, or Joint, automatically entering the code in
      Broker and barter exchange transactions statement
      .
    • 8949 Box:
       Enter a code to indicate the reported sale on 1099B and if the reported basis to the IRS was complete.
    • 1099B Errors:
       Use this field to identify reported errors on Form 1099B to the IRS. Make any adjustments in the Adj to G/L column.
    • Type:
       Select code
      V, X, Y
      , or
      Z
       to indicate how much of the gain qualifies as an exclusion. The taxable portion of items coded X, Y, or Z is subject to the 28% capital gains rate and the AMT 7% preference. UltraTax CS includes the amount after the exclusion in the 28% Rate Capital Gain Tax Worksheet, Form 4952, and as a nonbusiness capital gain in the NOL worksheet. Since there's no taxable gain for code
      V
       transactions, they don’t affect these worksheets.
    • Sale Price:
      Enter the amount before exclusion.
    • Cost/Basis:
      Enter the amount before exclusion.
    • Adj to G/L:
      UltraTax CS will automatically calculate the exclusion amount based on the information in the
      Type
      ,
      Sales Price
      , and
      Cost/Basis
       fields. If more adjustments are necessary for this transaction, make them in this field.
The transaction will report on Form 8949 with adjustment code
Q
 in column (f). Any taxable portion is subject to the 28% capital gains rate and the AMT 7% preference. Therefore, don’t combine
non-Section 1202
 sales with
Section 1202
 gains, or combine
Section 1202
 gains subject to different exclusion amounts. UltraTax CS includes the amount after the exclusion in the 28% Rate Capital Gain Tax Worksheet, Form 4952. The NOL worksheet includes it as a nonbusiness capital gain.

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