how to report ordinary loss on redemption of contingent payment debt instrument in proseries 1040 federal individual

[SL]

client received broker statement reporting bank cd redemption proceeds reported as a sale on broker statment (along with stock sale proceeds) but the basis was not reported to irs.  supplemental information indicates this was a contingent debt instrument and the loss on the redemption is to be treated as an ordinary loss (as the loss is less then previously earned interest).  how do i report this transaction and respective ordinary loss in proseries?

[IntuitJim · Accepted solution]

Steve, Thanks for joining the Community! According to Fidelity, it sounds like you would have an ordinary loss if less than the previously earned interest. In ProSeries,

1. Go to the Form 4797 and in the Sales of Business Property Smart Worksheet enter in the asset details.
2. In the column with the heading PT select II for Part II.
3. The asset will then flow to Part II as Ordinary Business Losses.

Hope this helps!

“Under IRS regulations, gain (if any) on disposition of a contingent payment debt instrument is usually treated as ordinary income. Any loss, to the extent that the loss is less than or equal to previously earned interest, is usually treated as an ordinary loss. Any loss greater than previously earned interest is usually treated as a capital loss."

 https://definedterm.com/ordinary_income_loss_from_dispositions_of_contingent_debt_instruments