What is Schedule D
Schedule D is one of the many schedules attached to U.S. Individual Income Tax Return Form 1040 that you must complete to report any gains or losses you realize from the sale of your capital assets. Your capital assets are, pretty much, everything you own and use for pleasure or investment purposes. The capital assets you are most likely to report on Schedule D are the stocks, bonds, and homes you sell.
BREAKING DOWN Schedule D
Schedule D has instructions that help you collect information about the current year capital asset sales and prior year capital loss carryforwards. Depending on your tax situation, Schedule D may instruct you to prepare and bring over information from nine or more other tax forms. These forms could include:
Taking a simple example, assume the only property you sold during the tax year was stock and you received a Form 1099-B from your broker that reports a $4 net short-term capital gain and a net $8 long-term capital gain from the following sales:
Stock acquired on 1/1/17 for $4 and sold on 4/27/17 for $6, resulting in a short-term capital gain of $2.
Stock acquired on 1/1/17 for $3 and sold on 4/28/17 for $7, resulting in a short-term capital gain of $4.
Stock acquired on 1/1/17 for $9 and sold on 4/29/17 for $8, resulting in a short-term capital loss of $1.
Stock acquired on 1/1/17 for $9 and sold on 4/30/17 for $8, resulting in a short-term capital loss of $1.
Stock acquired on 1/1/15 for $1 and sold on 12/31/17 for $9, resulting in a long-term capital gain of $8.
Stock acquired on 1/2/15 for $1 and sold on 12/30/17 for $3, resulting in a long-term capital gain of $2.
Stock acquired on 1/3/15 for $3 and sold on 4/29/17 for $4, resulting in a long-term capital loss of $1.
Stock acquired on 1/4/15 for $3 and sold on 4/30/17 for $4, resulting in a long-term capital loss of $1.
These stock sales are sales of capital assets that you must report on Schedule D. Schedule D instructs you to first complete Form 8949. Sales of stock you own for less than a year are sales of short-term capital assets reported on Part I of Form 8949 and sales of stock you held for more than a year are sales of long-term capital assets reported on Part II of Form 8949. Conveniently, the categories on Form 1099-B correspond to those on Form 8949. You compute each stock sale’s gain or loss by subtracting its cost basis from its proceeds.
A tally of gains and losses gives a total Part I, net short-term capital gain of $4 to transfer to Part I of Schedule D. The total Part II, net long-term capital gain of $8 will transfer to Part II of Schedule D. Schedule D, Part III uses this information to compute your net allowable capital gain or loss. You have a $12 capital gain.
If instead, you had a capital loss and, due to limitations on its deductibility, you had an excess capital loss to carry forward to the next year. Input any capital loss carryforward on line 6 or line 14 of next year’s Schedule D.
Ultimately, the capital gain or loss you compute on Schedule D is combined with your other income and loss to figure your tax on Line 44 of Form 1040. Schedule D and Form 8949 are included with Form 1040 when you file your tax return.