Tax Preparation Checklists To Help You Get Your Tax Documentation In Order

Schedule D, Capitol Gains / Losses
Tax Preparation Checklist

A Guide to preparing your Schedule D: Capital Gains and Losses tax form properly

IRS Tax Form Schedule D is used to report your capital gains and losses that result from the sale, trade, or transfer of ownership to personal property and assets.

As of 2011, the Internal Revenue Service requires some taxpayers to also include a new document, Form 8949 (Sales and Other Dispositions of Capital Assets), to be filed along with their 1040 and Schedule D tax forms.

This form is used to reconcile the amounts you report on your tax return with the amounts that were reported to you and the IRS on Form 1099-B or 1099-S (or substitute statement).

What Transfers Of Ownership Generally Qualify As Capital Asset Transactions?

Capital assets include an assortment of personal belongings acquired for personal use, including any personal property such as:

  • Your home or residence
  • Your automobile, boat, motorcycle, etc.
  • Artwork and collectibles
  • Home furnishing and personal belongings
  • Investments assets, such as stocks and bonds.

What Are Capitol Gains And Losses?

Whenever you sell a capital asset at a gain (profit) that was held for personal use, you will need to calculate and report how much profit was considered (capitol gain) in the transaction on a Schedule D. And, depending on your situation, possibly Form 8949.

Capital assets that were held for personal use and were sold at a loss, generally are not required to be reported on your tax return, and these (capitol losses) are generally not tax deductible.

How Capitol Gains And Losses Are Taxed

Profits and losses from the liquidation of your personal assets are subject to income tax. However, the tax rate you pay depends on how long you held the asset before selling.

Short-term capitol gains and losses

Assets held for one year or less at the time of sale are considered “short term capitol gains or losses” by the IRS. When short-term gains exceed short-term losses, you are required to pay taxes on the "net gain" (overall profit) at the same income tax rates you pay on your general income, like wages.

Long-term capitol gains and losses

Assets that you hold for more than one year and then sell are classified as "long-term capitol gains or losses" by the IRS. on Schedule D and Form 8949. Generally net long term gains are taxed at a lower rate than short-term gains. Your tax rate depends on the tax bracket you fall into.

Any deductible loss you have on the sale of capital assets, may be eligible to be used to offset other current and future capital gains. IRS factors that are used for calculating these gains an losses include:

  • Tax Basis: what you bought the asset for
  • Sale Proceeds: what you sold the asset for

Certain assets can have "adjustments" to the basis that may affect the net gain or loss for income tax purposes.

Preparing Schedule D and Form 8949

If you need to report a capital asset transaction, you will prepare Form 8949 prior to filling out your Schedule D tax form, "unless an exception applies".

Form 8949 tax preparation checklist details

Example of details needed for form 8949 tax preparation

  • Company name to which a stock relates
  • The date you acquired and sold the stock
  • Your purchase price (or adjusted basis)
  • Sales price (sale proceeds)

Two Exceptions exist to being required to include transactions on Form 8949 for individuals and most small businesses.

  1. Taxpayers can attach a separate statement with the transaction details in a format that meets the requirements of Form 8949.
  2. Taxpayers can omit transactions from Form 8949 if:
    • They have received a Form 1099-B showing that the cost basis was already reported to the IRS, and
    • The 1099-B form does not show 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 either of these exceptions apply, the transactions can be summarized into short-term and long-term, then it may be reported directly on Schedule D. You may still voluntarily report transactions on Form 8949 for simplicity, or if you have transactions that meet the exception requirements along with some that don't.