is used to report the sale or exchange of a capital asset (stocks, mutual funds, bonds, etc.), capital gain distributions, and nonbusiness bad debts. If you owned the capital asset for 1 year or less before you sell it, then the gain or loss is short-term. If owned for more than a year before sold, then the gain or loss is long-term. Long-term gain is taxed at a lower rate than your ordinary income.
The sale of your home is not reported at all on your tax return if you qualify for the exclusion and your gain does not exceed the exclusion amount ($500,000 if you are married, $250,000 for single or head of household).
You can deduct most losses from the sale of capital assets. However, when you sell a capital asset held for personal use such as your home, jewelry, car, and furniture for a loss, the loss is not deductible. Gains from the sale of personal-use capital assets must be included on Schedule D
(except for your home if you qualify for the exclusion). You cannot deduct a loss if you sell a capital asset to family members or other related parties such as a corporation that you own or a trust that you control. You also cannot deduct a loss if you sell a stock at a loss and buy back identical stock within 30 days before or after the sale.
If you only have capital gain distributions, you do not have to fill out Schedule D
is used to report the sale or exchange of business-related property, Form 4684
is for casualty or theft losses, Form 8824
is used for like-kind exchanges, Form 6252
is for installment sale income, and Form 6781
is used to report gains and losses from section 1256 contracts and straddles.
Schedule D Tax Tips
- If you have a stock or investment that becomes worthless, the investment is considered to be sold on the last day of the tax year. Your basis in the investment is deductible as a short-term capital loss on Schedule D. A stock is worthless if the related company has gone out of business or is insolvent.
- Don't throw away your mutual fund's annual statements. If your mutual fund has dividends that are reinvested, the records are needed to calculate your cost basis in the mutual fund shares when you do eventually sell.
- When you inherit property or stocks, with certain exceptions, inherited property has a basis equal to the fair market value of the property on the date the individual passed away (not the deceased's basis in the property). EXAMPLE: Your grandfather owned a piece of real estate that on the date of his death was worth $100,000. His basis in the property was only $30,000, however, your basis in the inherited property will be $100,000.
- If you are a passive investor in a partnership or S corporation, remember to deduct suspended prior-year passive losses in the year that you sell or dispose your partnership or S corporation investment. EXAMPLE: Bob Smith is a passive investor in Goldstar LLC. Bob's 2014 K-1 from Goldstar shows a $10,000 loss and the 2015 K-1 shows a $5,000 loss. Bob did not have any passive income in 2014 or 2015 to offset the passive losses so the losses are suspended and carried forward to 2016. Bob sells his investment in Goldstar LLC in 2016. The $10,000 and $5,000 losses from 2014 and 2015 will be deducted in 2016 since his investment is disposed of.
- Make sure that you report all the stock sales shown on your 1099-B on Schedule D. The IRS matches the 1099-Bs you receive from your broker and investment company with what you report on Schedule D.
- If you have purchased shares in the same company at different times, sell the shares you bought at the highest price first. You will need to tell your broker that you want to sell the highest price shares. If you don't specifically identify the shares to be sold, the default method is to consider the shares that you purchased first as the shares that are sold first.