1040-US: Form 1099-R with distribution code Q

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Question

Why aren’t the IRA distributions from Form 1099-R reducing the basis on Form 8606 - Nondeductible IRAs?

Answer

When box 7 of Form 1099-R contains code Q, it indicates a qualified distribution; therefore, this distribution is not reported on Form 8606, which reports nonqualified distributions. Because the qualified distribution is not included in the Form 8606 calculations, it does not reduce basis.

When the Total distribution received on all Roth IRAs field on the IRA screen is marked, the difference of the following calculates: Distribution reported on 1099-R and basis entered in the Roth IRA contribution basis on 12/31/20 field. When the amount of basis is larger than the distribution on Form 1099-R, the loss is reported on the Roth IRA Worksheet.

When box 7 of Form 1099-R contains code Q, the Roth IRA Worksheet reports the full distribution as a loss because the distribution is not reported on 8606 to net against the basis.

Note: UltraTax CS calculates the difference between the distributions and the basis in case you need to report it on the state return.

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