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:
- Open theK1 1065,1120Sfolder.
- Select theK1screen.
- SelectQualifies for section 1202 exclusion.
- Select theK1-2screen.
- Open theSection 1202 gainstatement 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
- Open theK1 1041folder.
- Select theK1Tscreen.
- SelectGrantor trust. If you don't markGrantor trust, the system will gray out theGrantor Trust Income, Expenses, and Other Informationsection.
- Enter the amount of eligible long-term capital gain for the1202exclusion in aSection 1202 gainfield 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:
- Open theIncomefolder.
- Select either theB&Dscreen or theBrokerscreen. Only use theBrokerscreen for consolidated broker statements.
- From theB&Dscreen, open theSchedule for detailstatement. Or, from theBrokerscreen, open theProceeds from broker transactionsstatement.
- Complete these fields:
- TSJ:Code the sale as Taxpayer, Spouse, or Joint. If you come from theBrokerscreen, this field doesn’t show. The entireBrokerscreen codes as Taxpayer, Spouse, or Joint, automatically entering the code inBroker 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 codeV, X, Y, orZto 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 codeVtransactions, 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 theType,Sales Price, andCost/Basisfields. 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.
