Taxpayers in the U.S. are presented with an array of tax forms and schedules, many of which only need to be filled out and included with your tax returns if certain situations or criteria are met. Here, we take a closer look at Schedule D, used for reporting capital gains or losses to the IRS.

Key Takeaways

  • Schedule D is required when a taxpayer reports capital gains or losses from investments or the result of a business venture or partnership.
  • The calculations from Schedule D are combined with individual tax return form 1040, where it will affect the adjusted gross income amount.
  • Capital losses that exceed the current year's gains may be carried forward as well using Schedule D.

When a Schedule D Is Needed

In general, taxpayers who have short-term capital gains, short-term capital losses, long-term capital gains, or long-term capital losses must report this information on Schedule D, an IRS form that accompanies form 1040. Schedule D is not just for reporting capital gains and losses from investments.

Schedule D is also used to report capital gains or losses from ownership in a partnership, S corporation, estate, or trust. Also, taxpayers who have capital loss carryovers from previous years use Schedule D to report this information. Using tax software can make it easy to figure out whether Schedule D is required and to complete it if so.

Notably, the IRS distinguishes between short-term capital gains or losses as those held less than one year, and long-term capital gains or losses as those held longer than one year. Only short-term losses can be used to offset short-term gains, and long-term losses for long-term gains. Losses that are recorded that exceed any gains may be eligible to be carried forward and applied to the next year's taxes.

Filling out a Schedule D

The totals from Schedule D are transferred to form 1040, where they are used along with form 1040's other data to determine the taxpayer’s total annual tax liability.

Schedule D has instructions that help you collect information about the current year capital asset sales and prior year capital loss carry-forwards. You can obtain these instructions as well as a blank form from the IRS website as well. A sample image is provided below.

Depending on your tax situation, Schedule D may instruct you to prepare and bring over information from other tax forms.

  • Form 8949 if you sell investments or your home
  • Form 4797 if you sell a business property
  • Form 6252 if you have installment sale income
  • Form 4684 if you have a casualty or theft loss
  • Form 8824 if you made a like-kind exchange
Schedule D
Schedule D.

Special Considerations

For the purposes of Schedule D, the IRS considers a capital asset to be almost any personal (i.e., 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 home 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.

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 can 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 (held for one year or less) or long-term (held for longer than one year) since the two categories of transactions are taxed at different rates, with long-term capital gains having a lower rate.