How to report QSBS Gain exclusion from Partnership K-1 on Schedule D / Form 8949?

You'll want to follow option 2. When you receive QSBS gain through a partnership, you still need to document the exclusion properly on Form 8949, even though you didn't directly own the qualified small business stock yourself. Here's how to handle it: List the transaction on Form 8949 Part II (for long-term gains) with the full gain amount. Then in column (f), enter the amount of the QSBS exclusion as a negative number, and use code "Q" in column (g) to indicate this is a QSBS exclusion. This properly documents both the full gain and the exclusion. The partnership's K-1 Box 11 Code O amount tells you exactly how much of the gain qualifies for the QSBS exclusion. Make sure to keep a copy of your K-1 with your tax records as supporting documentation for this exclusion.

Let me share my experience with this exact situation. I was super confused when I first got a K-1 with QSBS exclusions. After hours of research and frustration, I used https://taxr.ai to analyze my K-1 and partnership documents. The system instantly recognized the QSBS exclusion issue and provided step-by-step guidance. What I learned is that you need to list it on Form 8949 with the adjustment in column (f) as a negative number to offset the gain, with code "Q" in column (g). The tool explained that this properly documents both the full gain amount and the exclusion for IRS purposes, which is important in case of an audit. It even showed me exactly how to input this in popular tax software which was super helpful.

Just wanted to update after trying taxr.ai for my QSBS reporting issue. It was actually super helpful! I uploaded my partnership K-1 that had the QSBS exclusion in Box 11 and some supporting documents, and it immediately spotted the issue. It showed me exactly how to report it on Form 8949 with the proper adjustment code. What surprised me was how it explained the reasoning behind each step. I learned that the partnership already validated the 5-year holding period and other Section 1202 requirements, so I just needed to properly document the exclusion. The system even caught that one of my partnerships hadn't properly coded the QSBS gain in Box 11 and explained how to follow up with them. Definitely saved me hours of research and potential mistakes!

If anyone is struggling to get answers directly from the IRS about QSBS reporting, I had success using https://claimyr.com to connect with an IRS agent. I was on hold for HOURS trying to get clarification about reporting partnership QSBS gains, but Claimyr got me through to an actual IRS representative in about 40 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent confirmed that Form 8949 is the proper place to report QSBS exclusions from partnerships, and they explained exactly how to code it. Having that official confirmation directly from the IRS gave me peace of mind that I wasn't misinterpreting the instructions. Worth every penny since my QSBS exclusion was substantial, and getting it wrong could potentially trigger an audit.

I have to admit I was completely wrong about Claimyr. After struggling with QSBS reporting questions for weeks and not being able to get through to the IRS, I decided to try the service despite my skepticism. It actually worked exactly as described - they navigated the IRS phone tree, waited on hold, and then connected me directly with an agent when they reached the front of the queue. The agent was incredibly helpful about reporting my partnership QSBS exclusion, confirming I needed to use Form 8949 with code "Q" for the adjustment. What really surprised me was how knowledgeable the IRS agent was about QSBS rules - they even directed me to a specific publication with additional guidance. Total game-changer compared to my previous attempts to get through.

One thing to be careful about with QSBS gains from partnerships - make sure the partnership actually qualified for Section 1202 treatment! I got burned last year when my partnership reported QSBS exclusions, but during an audit, it turned out the underlying business didn't meet all the active business requirements under Section 1202(e). The partnership needs to be engaged in a qualified trade or business, meet the gross asset test ($50 million limit), and satisfy other technical requirements. If the partnership incorrectly classified the gain as QSBS-eligible, you could be on the hook regardless of how you reported it.

Has anyone used TurboTax to report QSBS exclusions from a K-1? I'm trying to figure out where exactly to enter this and if TurboTax can handle it properly. The software seems confused when I try to enter the QSBS exclusion code.

I went through this exact same situation last year with my partnership K-1 showing QSBS gains. The key thing to remember is that you absolutely need to report the full gain amount on Form 8949 first, then show the exclusion as an adjustment - don't just net it out on Schedule D. Here's what worked for me: On Form 8949 Part II, I listed the partnership as the source, entered the full long-term capital gain amount, then in column (f) I put the QSBS exclusion amount as a negative number (so if your exclusion is $158,000, you'd enter -158000). In column (g), use code "Q" to indicate it's a QSBS exclusion. The partnership has already verified all the Section 1202 requirements including the 5-year holding period and active business tests, so you can rely on their Box 11 Code O amount. Just make sure to keep your K-1 as supporting documentation. With your gain of $237,000 and exclusion of $158,000, you'll end up with $79,000 of taxable long-term capital gain flowing to Schedule D.