Investors with capital gains or losses from investments, business ventures, or partnerships during the tax year report them to the Internal Revenue Service (IRS) using Schedule D (Form 1040). Other capital gains or losses, such as from the sale of a house, are reported separately and then included on Schedule D.
Key Takeaways
- Schedule D: Capital Gains and Losses is required when a taxpayer reports capital gains or losses from investments or the result of a business venture or partnership.
- Schedule D is used for reporting short-term and long-term gains or losses.
- The calculations from Schedule D impact a taxpayer's adjusted gross income when they are added to Form 1040.
Who Files Schedule D: Capital Gains and Losses?
Taxpayers with short-term capital gains, short-term capital losses, long-term capital gains, or long-term capital losses must report this information onSchedule D, which accompanies Form 1040.
Schedule D is also used for capital gains or losses from ownership in a partnership, S corporation, estate, or trust. Taxpayers with capital loss carryovers from previous years use Schedule D to report this information. Only short-term losses can offset short-term gains and long-term losses long-term gains. Losses that are recorded that exceed any gains may be eligible to be carried forward and applied to the following year's taxes.
Short-term capital gains or losses are from investments held less than one year, and long-term capital gains or losses are those held longer than one year.
What to Include on Schedule D
Schedule D requires taxpayers to report the sales price of their investment or ownership interest, its cost or other basis, and any adjustments to the gain or loss. Taxpayers usually get this information from Form 1099-B, which the payer must file with the IRS for reporting purposes and send a copy to the payee.
Schedule D categorizes transactions according to whether they are short-term or long-term sincethe two categories of transactions are taxed at different rates, with long-term capital gains having a lower rate.
The IRS considers a capital asset any personal, non-business property, such as a house, furniture, vehicle, stocks, or bonds. However, the IRS does not require taxpayers to use Schedule D to report the capital gain or loss from the sale of their home if they lived in the house as their primary residence for two out of the five years preceding the sale and if the capital gain was $250,000 or less for single taxpayers or $500,000 or less for taxpayers married filing jointly.
How to File Schedule D
The totals from Schedule D are transferred to Form 1040, where they are used to determine the taxpayer’s total annual tax liability. Depending on the situation, Schedule D may instruct the taxpayer to prepare and bring over information from other tax forms, including:
- Form 8949 when selling investments or a home
- Form 4797when selling a business property
- Form 6252for taxpayers with installment sale income
- Form 4684for taxpayers who claimed a casualty or theft loss
- Form 8824for taxpayers who made a like-kind exchange
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All pages for Schedule D are available on the IRS website.
How Is Income on Schedule D Taxed?
Short-term capital gains are taxed at your ordinary tax rate, which will depend on your income. Long-term capital gains are taxed at the IRS capital gains rate. For the tax year 2023, a capital gains rate of 15% applies if taxable income is more than $44,625 but less than or equal to $492,300 for a single filer or more than $89,250 up to $553,850 for those married filing joint returns. For tax year 2024, the 15% applies to single filers with incomes greater than $47,025 but less than or equal to $518,900. For married couples, 15% applies to incomes between $94,050 and $583,750. Those with higher incomes are taxed at the 20% rate.
Do All Taxpayers Have to File Schedule D?
Taxpayers don't have to file Schedule D if they don't have any capital gains or losses to report from investments or a business venture or partnership.
Do I Need Schedule D If I Already Have Form 1099-B?
Those who receive a Form 1099-B must fill out Schedule D. A financial institution will send a copy of Form 1099-B if there are capital gains or losses from selling assets during the tax year.
The Bottom Line
Taxpayers must file Schedule D along with IRS Form 1040 when they have capital gains or losses to report that are from investments or are the result of a business venture or partnership. Both short-term and long-term gains and losses are included. The calculations from Schedule D are combined with the income on Form 1040 and will impact a taxpayer's adjusted gross income and tax liability.
