DEFINITION of Form 8949

Form 8949 is an Internal Revenue Service (IRS) form used by individuals, partnerships, and corporations to report capital gains and losses from investment activity. Taxpayers must use Form 8949 – Sales and Other Dispositions of Capital Assets, to report short- and long-term capital gains and losses from sales or investment exchanges. Before 2011, taxpayers used only Schedule D to report such transactions.

BREAKING DOWN Form 8949

When a capital asset is sold, a capital gain (or loss) is generated and must be reported to the IRS for tax purposes. Schedule D of Form 1040 is used to report most capital gain (or loss) transactions. However, before an individual can enter his net gain or loss on Schedule D, he has to complete Form 8949. The transactions that taxpayers must report on Form 8949 are reported by brokerages annually to the IRS and to taxpayers using Form 1099-BProceeds from Broker and Barter Exchange Transactions. Form 1099-B reports the cost basis of the investor’s buy and sell transactions. In effect, Form 8949 reflects information about transactions that are captured on Form 1099-B, as well as from the taxpayer’s own records.

In some cases, Form 1099-B will not report the cost basis of the assets. If this is the case, the taxpayer must determine the proper basis amount to calculate the gain or loss from a capital asset using a separate Form 8949 to report each category of financial transaction. A capital asset transaction for which no Form 1099-B (or substitute statement) is issued, must be listed on another Form 8949. Form 8949 can also be used to correct any inaccuracies in the data reported on Form 1099-B. If the capital losses or gains for the year are reported for all assets on 1099-B with the correct basis, and entering any adjustments or codes is unnecessary, the tax payer would not need to file Form 8949. However, s/he must still file Schedule D.

The types of transactions that must be reported on Form 8949 include:

  • distributed capital gains
  • undistributed capital gains
  • sale of a main home
  • sale of capital assets held for personal use
  • sale of a partnership interest
  • capital losses
  • non-deductible losses
  • losses from wash sales
  • short sales
  • gains or losses from options trading
  • disposition of inherited assets

The form is also used to report gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit, non-business bad debts, and undistributed long-term capital gains from Form 2439. Large partnerships and corporations may choose to also use Form 8949 to report their share of gain or loss from a partnership, S corporation, estate, or trust.

Form 8949 can be burdensome for active traders, especially those who trade the same investments in accounts with more than one brokerage company.