What Is Schedule D: Capital Gains and Losses? Example With Taxes

What Is Schedule D?

Schedule D is one of the many schedules provided by the IRS and filed with the U.S. Individual Income Tax Return Form 1040. Schedule D is required when reporting any gains or losses you realize from the sale of your capital assets.

Capital assets include property you own and use for personal purposes or investment. The capital assets you are most likely to report on Schedule D are the stocks, bonds, and homes you sell.

Understanding Schedule D

Investments or assets that are sold must be recorded for tax purposes. Capital gains or losses are categorized as short-term, those held less than 12 months from the purchase date, or long-term, which are held 12 months or more from the purchase date.

Long-term capital gains tax is often more favorable depending on one's income tax bracket than short-term gains that are taxed according to ordinary income tax brackets.

Who Needs to File Schedule D?

As taxpayers collect information about the current year's capital asset sales and prior year capital loss carry-forwards, those with reportable information will use Schedule D.

The instructions for completing Schedule D advise tax filers to prepare and bring over information from the following 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

Ultimately, the capital gain or loss you compute on Schedule D is combined with your other income and loss to compute your tax on Form 1040. Schedule D and Form 8949 are submitted with Form 1040 when you file your federal tax return.

How to Fill Out Schedule D

The complete Schedule D form can be found on the IRS website. Taxpayers use the Schedule D form to report capital gains and losses that result from the sale or trade of assets including all personal property such as a home, collectibles, or stocks and bonds.

Taxpayers can complete Schedule D following the instructions online or may opt to use a personal accountant or eFile tax service provided by a third-party company.

All pages of Schedule D are available on the IRS website.

Example: Schedule D

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 was acquired on 1/1/22 for $4 and sold on 4/27/22 for $6, resulting in a short-term capital gain of $2.
• Stock was acquired on 1/1/22 for $3 and sold on 4/28/22 for $7, resulting in a short-term capital gain of $4.
• Stock was acquired on 1/1/22 for $9 and sold on 4/29/22 for $8, resulting in a short-term capital loss of $1.
• Stock was acquired on 1/1/22 for $9 and sold on 4/30/22 for $8, resulting in a short-term capital loss of $1.
• Stock was acquired on 1/1/17 for $1 and sold on 12/31/22 for $9, resulting in a long-term capital gain of $8.
• Stock was acquired on 1/2/17 for $1 and sold on 12/30/22 for $3, resulting in a long-term capital gain of $2.
• Stock was acquired on 1/3/17 for $4 and sold on 4/29/22 for $3, resulting in a long-term capital loss of $1.
• Stock was acquired on 1/4/17 for $4 and sold on 4/30/22 for $3, 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, make sure to keep your records so you can accurately input your capital loss carryforward on the next year’s Schedule D.

The Bottom Line

Schedule D is a tax form filed with IRS Form 1040 that reports the gains or losses you realize from the sale of your capital assets. Capital assets may include personal property such as a home, collectibles, or stocks and bonds and the gains earned will be considered either short-term or long-term depending on the length of time the asset has been held. The instructions and the Schedule D form are found on the IRS website.