IRS Schedule D is used by taxpayers to report gains and losses resulting from the trade or sale of certain types of property during the tax year. If you have gains that you don’t report on any other tax form, you may be required to file Schedule D and pay income tax on your gains. In some cases, you may be required to file one or more additional forms.
Filing Form 1040 Schedule D
Proceeds from the sale of real estate, personal property and investments are the types of gains typically reported to the IRS as income on Schedule D. You also have the option of using Schedule D to declare eligible losses to offset your tax liability for current and future gains. You will need to file Form 1040, the U.S. individual income tax return form, if you plan on filing Schedule D. Details about gains that must be reported can be found in the Schedule D instructions.
Before completing Schedule D, you may need to complete Form 8949: Sales and Dispositions of Capital Assets for each capital transaction. Part I of the form should be used for sales of short-term assets that were held for one year or less; Part II is for long-term assets that are held longer.
For each asset transaction, you’ll need to enter a description of the asset, the purchase price and date, the selling price and date and any adjustments. If your gains are from an investment transaction, you should receive a Form 1099-B with all the information you need. The result of the computation of long-term capital gains and short-term gains from all your 8949 forms is summarized on Schedule D.
Schedule D Carryovers
In addition to reporting a tax year's gains and losses, Schedule D is also used to report a prior year's capital loss carryover. If your capital losses total more than your capital gains for a tax year, the IRS limits how much of the excess loss you can claim to reduce your current year's tax liability.
You're only allowed to claim the lesser of $3,000 ($1,500 if married filing separately) or the amount of your net loss as shown on Line 16 of Schedule D (1040). But you don't lose the total benefit if your loss exceeds this amount, because the IRA allows you to carry it forward to subsequent years.
Included in the instructions for Schedule D is a worksheet titled "Capital Loss Carryover Worksheet." This is what you'll fill out to determine the amount of your carryover.
Exceptions for Form 8949
If you received a Form 1099-B that shows the basis was reported to the IRS and you do not need to make any corrections or adjustments, you may not need to file Form 8949. For more details, see the Form 8949 instructions.
2018 Tax Law Changes
Changes to tax law for 2018 affect the tax rates for capital gains. The long-term capital gains tax rates for 2018 are either 0, 15 or 20 percent. The tax rates for short-term capital gains correspond to the seven new federal income tax brackets: 10, 12, 22, 24, 32, 35 and 37 percent. Your rate is determined by your filing status and taxable income.
Catie Watson spent three decades in the corporate world before becoming a freelance writer. She has an English degree from UC Berkeley and specializes in topics related to personal finance, careers and business.