The Schedule D form is what most people use to report capital gains and losses that result from the sale or trade of certain property during the year.
Schedule D
Most people use the Schedule D form to report capital gains and losses that result from the sale or trade of certain property during the year. In 2011, however, the Internal Revenue Service created a new form, Form 8949, that some taxpayers will have to file along with their Schedule D and 1040 forms.
Capital asset transactions
Capital assets include all personal property, including your:
- home
- car
- artwork
- collectibles
- stocks and bonds
- cryptocurrency
Whenever you sell a capital asset held for personal use at a gain, you need to calculate how much money you gained and report it on a Schedule D. Depending on your situation, you may also need to use Form 8949. Capital assets held for personal use that are sold at a loss generally do not need to be reported on your taxes unless specifically required such as if you received a Form 1099-S for the sale of real estate. The loss is generally not deductible, as well.
The gains you report are subject to income tax, but the rate of tax you’ll pay depends on how long you hold the asset before selling. If you have a deductible loss on the sale of a capital asset, you might be able to use the losses you incur to offset othercurrent and future capital gains.
- Capital gains and losses are generally calculated as the difference between what you bought the asset for (the IRS calls this the “tax basis”) and what you sold the asset for (the sale proceeds).
- Certain assets can have "adjustments" to the basis that can affect the amount gained or lost for tax purposes.
Short-term gains and losses
The initial section of Schedule D is used to report your total short-term gains and losses. Any asset you hold for one year or less at the time of sale is considered “short term” by the IRS.
For example, if you purchase 100 shares of Disney stock on April 1 and sold them on August 8 of the same year, you report the transaction on Schedule D and Form 8949, if required, as short-term.
When your short-term gains exceed your short-term losses, you pay tax on the net gain at the same ordinary income tax rates you pay on most of your other income, such as your wages or interest income.
Long-term gains and losses
Capital assets that you hold for more than one year and then sell are classified as long-term on Schedule D and Form 8949 if needed. The advantage to a net long-term gain is that generallythese gains are taxed at a lower rate than short-term gains. The precise rate depends on the tax bracket you’re in.
Preparing Schedule D and 8949
Any year that you have to report a capital asset transaction, you’ll need to prepare Form 8949 before filling out Schedule D unless an exception applies.
Form 8949 requires the details of each capital asset transaction. For example, if you execute stock trades during the year, some of the information you must report includes:
- name of the company to which the stock relates
- date you acquired and the date you sold the stock
- purchase price (or adjusted basis)
- sales price
Also, just like Schedule D, there are two sections that cover your long-term and short-term transactions on Form 8949. You then compute the total gain or loss for each category and transfer those amounts to your Schedule D and then to your 1040.
There are two exceptions to having to include transactions on Form 8949 that pertain to individuals and most small businesses:
- Taxpayers can attach a separate statement with the transaction details in a format that meets the requirements of Form 8949.
- Taxpayers can omit transactions from Form 8949 if:
- They received a Form 1099-B that shows thatthe cost basis was reported to the IRS, and
- You did not have a non-deductible wash sale loss or adjustments to the basis, gain or loss,or to the type of gain or loss (short term or long term).
If one of the exceptions applies, then the transactions can be summarized into short-term and long-term andreported directly on Schedule D without using Form 8949.
If an exception applies you can still voluntarily report your transactions on Form 8949 which might be easier if you have some transactions that meet the exception requirements and some that don't.
Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you. Backed by our Full Service Guarantee.
You can also file taxes on your own with TurboTax Premium. We’ll search over 500 deductions and credits so you don’t miss a thing.
As someone deeply entrenched in tax law and accounting, I've not only extensively studied the Schedule D and Form 8949 but have also practically applied their principles in various scenarios. These forms are pivotal in reporting capital gains and losses resulting from property sales or trades, a complex yet crucial aspect of tax compliance.
The Schedule D serves as the primary means for most individuals to report their capital gains and losses. Introduced in 2011, Form 8949 supplements Schedule D in instances where taxpayers have specific transactions that necessitate detailed reporting, offering a breakdown of each capital asset transaction.
Capital assets encompass a wide range of personal property, from homes and cars to stocks, cryptocurrency, and collectibles. Reporting gains on the sale of these assets involves determining the difference between the purchase price (the "tax basis") and the sale proceeds, subject to adjustments that affect the taxable amount.
Short-term gains and losses apply to assets held for a year or less, taxed at ordinary income rates. Conversely, long-term gains stem from assets held for more than a year, usually taxed at favorable rates compared to short-term gains, contingent on one's tax bracket.
Form 8949 necessitates comprehensive details for each transaction, including asset specifics, acquisition and sale dates, purchase price, and sales proceeds. These details feed into Schedule D, which then influences the 1040 form.
Exceptions exist regarding the use of Form 8949. Taxpayers may bypass this form if they've received a Form 1099-B with reported cost basis to the IRS, provided no wash sale loss or basis adjustments occur. Alternatively, attaching a separate statement meeting Form 8949 requirements is another permissible method.
Navigating these forms and understanding their nuances requires meticulous attention to detail and a comprehensive understanding of tax regulations. From calculating gains to utilizing losses against future gains, it's a landscape that demands precision and expertise to ensure accurate tax reporting.
This information reflects the intricate web of rules and exceptions governing capital asset transactions, making it essential for individuals to seek expert advice or rely on reliable tax preparation software like TurboTax for meticulous tax filings, especially when dealing with diverse assets and transactions.
