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Schedule D Line by Line Guide
Schedule D includes the painstaking details of all those fun and not so fun trades or sales you made in the previous tax year. Specifically, IRS Schedule D records capital gain(s) and capital loss(es) for both short-term and long-term investments, whether they are comprised of stocks, options, property, collectibles or business capital assets. The total gain or loss accumulated during the tax year is then reported on the capital gains or loss line on form 1040.To file out Schedule D you will first need to complete Form 8949, as this will be where you get the information for Lines 1, 2, 3, 8, 9, and 10 of Schedule D. Note that you may have to file Form 8949 three times, once for each box that you each off.
Quite simply, the form has 3 parts that must be completed if you sold investments or earned capital gains in the year for which taxes are being filed. Part I of schedule D is sourced from Part 1 of Form 8949. If you had transactions that you had to check box A on Form 8949 for, you will enter this value on line 1 of Schedule D. For line 2 of Schedule D, you will report the sales which forced you to check Box B on Form 8949. Finally you will do the same with Box C on Form 8949 and Line 3 of Schedule D.
Line 4 gets a zero unless you acquired additional capital gain(s) or loss(es) from non-typical assets such as installment income from sales as documented on form 6252, gain or loss from casualty or theft recorded on form 4684, contracts and straddles such as those acquired through purchase and sale of stock options from form 6781, and gain or loss incurred through exchange of business or investment property from form 8824. On line 5 of schedule D, report any income or loss from pass through business(es) you own, estates or trusts. Examples of businesses with pass through income include partnerships, small businesses, and sole proprietorships. Line 6 of Part I is for noting any short-term capital loss that could not be reported on your previous year's tax return, and line 7 totals lines 3-6.
Part II
Part II of schedule D is located on the bottom half of page 1 and is used for recording the sale(s) of investments held for more than one year i.e. long-term investments. Part II isn't much harder than part I because the format for Part II is mostly the same with the exception of references to form 4797 and form 2439 in line 11, and the long-term nature of the investments. Forms 4797 and 2439 pertain to income or loss incurred from sale of business property and undistributed long-term capital gains. Line 12 is similar to line 5 of Part I, except for the long-term nature of the gains or losses. In line 13, document any mutual fund or other capital gains distributions made to you. Line 14 is for reporting capital loss from long-term investments that could not be included on the prior year's tax return, and line 15 sums up lines 8-14.
Part III
Part III of schedule D summarizes and compiles all capital gains, losses, qualified dividends and unrecaptured taxes for the tax year; it's where you tally up last year's investments and prove that you're a premier money manager or that you're better off sticking your money in a CD. If the total sales of short and/or long-term investments yield a loss for the year, then all that's needed on Part III is the total loss on line 21, and any qualified dividends on line 22; these values are then transferred to the 1040 form being used.
Line 18 is only completed if line 17 was checked with a yes, and either a gain or loss was incurred from the sale of a collectible or collectible items and/or you claim up to 50-60% exemption from capital gains on the sale of qualified C corporation stock. Line 19 reports gains from the sale of depreciated property as determined by completion of the unrecaptured 1250 gain worksheet on the IRS schedule D instructions. If neither a gain nor a loss on sales of investments is incurred for the tax year, then all that is needed on Part III of schedule D are big fat zeroes on lines 16 and 21. If capital gains are incurred for short-term investments only, then lines 18-21 of schedule D do not need to be completed. For long-term gains however, a separate worksheet called the rate gain worksheet must be completed, information from which is transferred to schedule D. This sheet can be found in the instructions for schedule D.Additional Instructions
A few side points and caveats should be noted for schedule D, particularly the following:
- Wash sale rules apply to sales of stock that replace previously purchased stocks.
- The deadline for filing schedule D is also April 15.
- Capital gains through a tax-protected account may not require schedule D.
- A capital loss carryover, rate gain, and/or unrecaptured gain worksheet may or may not be required depending on the type of capital gain(s) and/or loss(es) being reported.
- Real esate capital gains exclusion from Schedule D is subject to qualifying primary residence requirements.
For more information on capital loss carryovers, wash sale rules, rate gains and/or unrecaptured tax, please refer to other TaxBox.org articles, the schedule D instructions or contact the IRS at
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