Reporting capital gains and losses on Schedule D

What is Schedule D?

Schedule D is the IRS form you use to report sales and exchanges of certain assets, as well as the gains or losses from all asset sales. You use Schedule D to report money you made or lost by selling investments like stocks, mutual funds, digital assets, and publicly traded partnerships (PTPs).

You also use Schedule D to report the sale of other assets or exchanges, such as capital gains reported on a partnership or subchapter S corporation K-1.

You include Schedule D with your Form 1040 as part of your federal tax return.

Before Schedule D: Form 8949

Schedule D works hand-in-hand with IRS Form 8949. First, you use Form 8949 to report the sale of individual assets and calculate the related gains or losses. Then, you report your total gains or losses on your Schedule D. You often need to file both.

Form 8949 reports:

• The name of the company or other entity in which you owned and sold shares
• The purchase date for the shares
• The sale date for the shares
• The purchase price of the shares (also called the basis)
• The sale price of the shares

You may receive a Form 8949 from your financial institution, or you may need to prepare it yourself or with the help of a Tax Pro at Jackson Hewitt.

You don’t need to use a Form 8949 if you attach the same information to your tax return in a substantially similar format. You may not need to provide the information to the IRS if you received a 1099-B that includes the basis for each sale and no adjustments are needed.

For short-term capital gains and losses

Short-term capital gains and losses come from assets you held for a year or less.

With Part I, Box A, B, or C, your Form 8949 indicates whether your financial institution has also reported the basis and purchase date to the IRS.

• A – Short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS
• B – Short-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS
• C – Short-term transactions not reported to you on Form 1099-B

If the IRS has already received a record of the purchase price and date, it is called a covered transaction. Otherwise, it is a noncovered transaction. Noncovered transactions are most common with securities purchased before the IRS began mandating transaction reporting in 2008, investment accounts you have rolled over to a new broker or institution, and digital assets.

You do not need to file Form 8949 if you only have covered (Box A) transactions with no changes to the basis, but you must report them on Line 1a of your Schedule D. You report noncovered transactions on Lines 1b, 2, or 3 of your Schedule D.

For long-term capital gains and losses

Long-term capital gains and losses come from assets you held for more than a year. Part II of Form 8949 reports your long-term capital gain and loss transactions.

Similar to Part I, Boxes D, E, and F on Form 8949 indicate whether your financial institution has also reported your basis and purchase date to the IRS.

• D – Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS
• E – Long-term transactions reported on Form(s) 1099-B showing basis wasn’t reported to the IRS
• F – Long-term transactions not reported to you on Form 1099-B

You do not need to file Form 8949 if you only have covered (Box D) transactions with no changes to the basis, but you must report them on Line 8a of your Schedule D. You report noncovered transactions on Line 8b, 9, or 10 depending on which box was checked.

How to prepare Schedule D

Once you have completed—or received completed—all your necessary Forms 8949, you are ready to complete Schedule D. It’s less complicated than it looks, but it still may be a good idea to get help from a professional.

Here’s what you do.

Part I: Schedule D—Short-Term Capital Gains and Losses

In Part I, you report your short-term capital gains and losses. These are assets that you held for a year or less before you sold or exchanged them. The IRS taxes short-term gains at the same rate as your other ordinary income.

For sales of standard securities or digital assets, you will probably receive Form 1099-B or a combination statement from your financial institution. This statement will contain the proceeds (sale price) to enter in Column (d) on Line 1a if you know the basis (purchase price) and acquisition date.

If you have a great deal of investment activity reported on Form 1099-B, you can enter the aggregate proceeds from your short-term transactions directly on Schedule D instead of individually listing each security in your Form 8949. You should attach a copy of the Form(s) 8949 or 1099-B form the financial institution(s) handling your accounts if you choose this option.

• On Line 4, report your total gains or losses from certain casualty and theft loss reported on Form 4684, Section 1256, Contracts and Straddles—including installment sales and like-kind exchanges.
• Line 5 is for reporting short-term gains or losses reported on Schedule K-1 from partnerships, S corporations, estates, and trusts.
• Line 6 is where short-term capital loss carryovers from prior tax years should go.

You combine the amounts on Lines 1a through 6 on Line 7. 

Part II: Schedule D—Long-Term Capital Gains and Losses

In Part II, you report your long-term capital gains and losses. These are assets that you held for more than one year before selling or exchanging them. The IRS taxes long-term gains at a different, typically lower, rate than ordinary income.

For sales of standard securities or digital assets, you will probably receive Form 1099-B or a combination statement from your financial institution. This statement will contain the proceeds (sale price) to enter in Column (d) on Line 8a if you know the basis (purchase price) and acquisition date.

If you have a great deal of investment activity reported on Form 1099-B, you can enter the aggregate proceeds from your short-term transactions directly on Schedule D instead of individually listing each security in your Form 8949. You should attach a copy of the Form(s) 8949 or 1099-B from the financial institution(s) handling your accounts if you choose this option.

• Line 11 is where you report specific long-term gain and loss transactions such as sales of business property reported on Form 4797 and previously undistributed capital gains to shareholders on Form 2439.
• Line 12 is for your net long-term gains and losses from a Schedule K-1.
• Line 13 reports long-term capital gain distributions, such as the type generated by mutual funds.
• Line 14 reports long-term capital loss carryovers from prior tax years.

You combine the amounts on Lines 8a through 14 on Line 15.

Part III: Schedule D Summary

Part III is where you figure out what to report on your Form 1040.

On Line 16, combine the short-term gain or loss on Line 7 with the long-term gain or loss on Line 15. If the result is a net gain (a positive number) report this amount on Line 7 of your Form 1040. Your capital gains tax calculation will depend on whether the number on Line 15 is a long-term capital gain or loss. 

If Lines 15 and 16 are both gains—positive numbers—and you did not sell precious metals or real estate, you can skip Lines 18 and 19 and go directly to Line 20.

Answer Yes on Line 20 if you received qualified dividend income in the year. This income receives preferential capital gain treatment unlike ordinary dividends. You need to complete the Qualified Dividends and Capital Gain Tax Worksheet. If you didn’t receive qualified dividend income, you’re done with Schedule D.

If Line 16 resulted in a net capital loss, then on Line 21 enter either $3,000 or the amount on Line 16, whichever is smaller. The limit on capital loss deductions is $3,000 per year, so you will carry capital losses exceeding $3,000 forward into future tax years.

Line 22 is a reminder that you need to complete the Qualified Dividends and Capital Gain Tax Worksheet if you have qualified dividends on Form 1040, Line 3a.

Schedule D and Form 8949 are important and complicated. If you make a mistake, you might not be able to enjoy the full benefits of capital gains and losses from your investments and other assets. Jackson Hewitt Tax Pros have lots of experience helping people like you make sure they get their taxes right.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

More about Mark Steber Our Editorial Policy