A big part of filing your taxes is reporting the money you made during the previous year. For many people, most of that money comes from a job, whether they’re self-employed or work for a company. However, there are also other types of income to think about. And (surprise!) the IRS wants to know about all of them.
One such type is capital gains income, which you’ll have if you’ve sold pretty much anything during the tax year — from a rare coin to a vintage rug to an NFT. You’ll report this income on Schedule D.
Here’s everything you need to know about Schedule D — including the types of capital gains and losses you might need to report, the other forms you’ll need, and how to fill out the form itself.
What is Schedule D?
Schedule D is a tax form used to report capital gains and losses. If you’ve sold a significant piece of property — also known as a capital asset — you’ll use it to let the IRS know.
A “schedule” like this one is basically an addendum to Form 1040, which is the individual income tax return everyone fills out. There are a bunch of different schedules (you might be familiar with Schedule C, which is used to calculate self-employment taxes). Each helps you report a different type of income when you’re filing your taxes.
What counts as a capital asset?
Lots of stuff, according to the IRS. “Almost everything you own and use for personal investment purposes is considered a capital asset,” reads its guide to capital gains and losses.
For the purposes of filling out Schedule D, this could include:
- Land or real estate
- Memorabilia and other collectible items, like coins
- Stocks and bonds
- Cryptocurrency and NFTs (yes, they count — they’re what are known as “digital assets”)
In general, anything that has any kind of resale value is a capital asset. That delicious cheeseburger you grilled up last night? Not a capital asset. That cheeseburger-shaped neon sign you inherited from your uncle? Now that’s a capital asset. (If you’d like to sell it, let us know. We’re interested.)
Who needs to fill out Schedule D?
You’ll fill out Schedule D if you sold any capital assets during the tax year. The only exception is if you’re a professional business seller. In that case, you’ll report the income from your sales on Schedule C. (If that applies to you, more on your situation below!)
Who else needs to fill out Schedule D?
There are also a few other, more niche situations for which you might need to fill out Schedule D.
Here’s the IRS’s list, translated into plain English:
- Income from forced sales: “Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit” — i.e. income from a sale that you had to make, like if you were forced to sell your home to make room for a highway
- Some retirement income: “Capital gain distributions not reported directly on Form 1040 (or effectively connected capital gain distributions not reported directly on Form 1040-NR).” These are generally retirement distributions you take from a tax-deferred account like an IRA or 401K
- Bad debts: They have to be “non-business bad debts” — i.e. if you personally lent out money but didn’t get paid back
What if you’re a business seller?
If you sell capital assets for work — for instance, you run a Depop shop or work as a day trader — you won’t report your income using Schedule D. Instead, you’ll report it using Schedule C of Form 1040. (You also won’t need to fill out Form 8949.)
What if you sell as a side hustle?
That’s OK! You don’t have to be a full-time business seller to take these steps. If you sell as a side hustle, that’s cool, too — as long as you’re doing so with the intention of turning a profit.
If you happen to be a business seller, you’ll get to enjoy another perk: writing off business expenses. Keeper can help you out here: It’ll flag transactions that might be business write-offs for you, so you don’t need to worry about independent recordkeeping. Those expenses might include shipping costs, transportation to find inventory, or the cost of the inventory itself — whatever you buy to keep your business running.
When your expenses are all accounted for, you can file your taxes directly on the Keeper app. (If you’re not a business seller, Keeper can handle filing for you, too!)
What information do you need in order to file Schedule D?
In order to file Schedule D, you might need to use information from other forms. Form 8949 is the big one to keep in mind, but there are a few other possibilities.
How to handle Form 8949
On Form 8949, you’ll calculate your total short-term and long-term capital gains (and/or losses) for the year. It’s short-term if you held the asset for less than a year before you sold it, and long-term if you held it for a year or more.
For more details, check out our guide to Form 8949. Keep the form handy after you’ve completed it: You’ll use some of your calculations to fill out Schedule D.
The difference between Schedule D and Form 8949
Form 8949 contains a lot of the same information as Schedule D, but you’ll still need to fill out both for eligible capital gains and losses.
“The difference between Schedule D and Form 8949 is that Schedule D summarizes the information reported on Form 8949,” says Dana Ronald, an IRS Enrolled Agent and CEO of Tax Crisis Institute. “Specifically, Form 8949 reports each sale of capital assets while Schedule D summarizes the totals from all sales.”
Think of Form 8949 as step #1, and Schedule D as step #2 — some of the figures you calculate on Form 8949 will fill in boxes on Schedule D.
Other forms you might need in order to fill out Schedule D
Even though Form 8949 is the star here, you might also need to use information from other forms. Here are the other forms you might need to report on Schedule D, according to the IRS:
- Form 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains
- Form 6242: Installment Sale Income
- Form 4797: Sales of Business Property
- Form 4684: Casualties and Thefts
- Form 6781: Gains and Losses from Section 1256 Contracts and Straddles
- Form 8824: Like-Kind Exchanges
- Schedule K-1
Confused about any of those forms? Understandable. We’ll explain how to use them in more depth next.
How to fill out Schedule D
Once you have all the necessary information in front of you, you’re ready to fill out Schedule D. Here’s how you’ll go about it.
At this point, you should have completed Form 8949, so you should have both your short-term and long-term totals. You’ll report those in the first section of Schedule D.
Part I: Short-term capital gains and losses
In this section, you’ll report your short-term capital gains and losses. Again, that’s income from assets you’ve held for one year or less. Here’s how it breaks down.
Here you’ll report “short-term transactions recorded on Form 1099-B for which basis was reported to the IRS and for which you have no adjustments.”
This basically means that:
- You sold an asset
- You received a 1099-B (which generally reports the sale of stocks, bonds, crypto,and other securities)
- The IRS is aware of how much you paid for the asset in the first place
You may have also reported these transactions on Form 8949 — if you did that, you can leave Line 1a blank and report on Line 1b instead.
If you left Line 1a blank, you’ll report your short-term transactions from Form 1099-B on this line instead. (On Form 8949, you’ll have checked box A for this transaction.)
Here, you’ll report short-term transactions that you got a 1099-B for, but where the IRS was not aware of your basis. On Form 8949, you’ll have already checked box B for these transactions.
On Line 3, you’ll report short-term transactions for which you didn’t receive a 1099-B at all. These will be sales of assets that aren’t securities — collectibles, art, crypto, etc. On Form 8949, you will have already checked box C for these transactions.
Here, you’ll report the following:
- “Short-term gain from Form 6252” — that is, net gains (not losses) from an installment sale. That’s where your payment for the sale is split into several parts over time (installments), and you receive at least one of these after the year you made the sale in the first place
- “Short-term gain (or loss) from Form 4684” — that is, gains or losses from casualties and thefts. This might be a casualty loss from a flood, fire, or other disaster. It could also be an insurance reimbursement from one
- “Short-term gain (or loss) from Form 6781,” or income from Section 1256 contracts and straddles. A straddle is taxed at a 60/40 split between your short-term and long-term capital gains rates. (It’s a “technique used in futures and options trading to create tax benefits,” since long-term capital gains rates are lower!)
- “Short-term gain (or loss) from Form 8824” — for instance, if you exchanged like-kind properties with another person, but you got a little bonus asset in the trade, too
Here, you’ll note your short-term net gains or losses from Schedule K-1. This schedule is where you report any income or dividends from “pass-through” financial entities — any organization where the proceeds from the business flow to various partners. If you’re part of a partnership or an S corporation, you’ll have filled out this form.
On Line 6, you’ll report any short-term capital loss carryover, or the amount from past capital losses that you’re eligible to “carry forward.” This way, your losses from the past can be used to lower your current taxable income — and help you pay less in taxes.
How do you know if you can carry forward your losses?
In general, you can carry forward losses from one year to the next — there just might be some nuances to consider about the type of asset you’re dealing with.
You can figure out what you’re eligible to carry over using the IRS’s Capital Loss Carryover Worksheet, which is attached to the instructions for Schedule D.
Line 7: Net short-term capital gain (or loss)
On this line, you’ll add your amounts from Lines 1-6. (If an amount is negative, adding it will lower your total.)
The result is your total short-term gain or loss.
Part II: Long-term capital gains and losses
In this section, you’ll deal with long-term capital gains and losses (income from assets you’ve held for more than a year). Here’s how it breaks down.
Here you’ll report “long-term transactions recorded on Form 1099-B for which basis was reported to the IRS and for which you have no adjustments.” Think Line 1, but for long-term transactions.
This one’s like Line 2, but for long-term transactions: If you reported the above transactions on Form 8949, you’ll report them again here. On Form 8949, you’ll have already checked box D.
Now we’re on Line 3: long-term edition. On Form 8949, you’ll have already checked box E for these transactions.
You guessed it: this one’s like Line 4, but for long-term transactions. On Form 8949, you’ll have already checked box F for these.
Here, you’ll report the total of the following:
- “Gain from Form 4797, Part I,” or income from the sale of business property (like a home you use to generate rental income)
- “Long-term gain from Form 2439,” or undistributed gains from “certain regulated investment companies,” says Ronald, the Enrolled Agent. Basically, if a fund you invested in didn’t give you your distributions for whatever reason, it needs to pay taxes on those gains for you. It’ll let you know on Form 2439
- “Long-term gain from Form 6252” — that is, income from installment sales like what’s mentioned above, but for long-term assets
- “Long-term gain or loss from Form 4684” — that is, long-term gains or losses from casualties or thefts, as explained above
- “Long-term gain or loss from Form 6781” — this refers to income from Section 1256 contracts and straddles, just like Line 4!
- “Long-term gain or loss from Form 8824,” or (as above) a like-kind property trade where you also received an extra asset. For example: You swapped beach houses with your friend, but they also gave you a Peloton in the trade
This line is similar to Line 5 in Part I. Here, you’ll note your long-term gains or losses from Schedule K-1.
Here, you’ll report capital gain distributions. For example, if you’ve invested in a mutual fund or an ETF (exchange traded fund), you might receive year-end payments from your fund. This is basically your portion of the fund’s proceeds for the year.
On this line, you’ll report your long-term capital loss carryover. Again, you can figure out what you’re eligible to carry over using the IRS’s Capital Loss Carryover Worksheet, which is attached to the instructions for Schedule D.
Finally, you’ll calculate your long-term total by adding the values from Lines 8-14. Again, any negative values will lower your total.
Part III: Summary
In Part III of Schedule D, you’ll do a little math, check a couple boxes, and wrap up the form.
Here, you’ll add the values from Lines 7 and 15, which are your short-term and long-term totals.
- If the sum is a gain (or a positive number), you’ll enter the amount on Line 7 of Form 1040. This is the final place you’ll report how much money you made from capital gains during the year.
- If the sum is a loss (or a negative number), you’ll skip down to Line 21
- If the sum is zero, you’ll skip down to Line 22. You’ll report “0” on Line 7 of Form 1040
On Line 17, you’ll check “yes” if both your long-term total and final total (lines 15 and 16) are gains. Then, you’ll move on to Line 18.
If that’s not true, you’ll check “no,” then skip to Line 22.
You’ll fill out this line if you had to fill out the 28% Rate Gain Worksheet.
“The 28% Rate Gain Worksheet is used when calculating the tax rate for certain types of capital gains, such as collectibles or qualified small business stock,” says Steve Griffin, an IRS Enrolled Agent and the CEO of Madison Avenue Technology.
If you made a long-term sale of one of those things, go ahead and fill out the worksheet to see what portion of your sale is subject to a 28% tax rate. (For long-term assets, that’s a high rate.)
If you’re not sure whether the item you sold is a collectible, refer to IRS guidance. Fun fact: Alcoholic beverages are, in fact, collectibles!
You’ll fill out this line if you had to fill out the Unrecaptured Section 1250 Gain Worksheet.
“The Unrecaptured Section 1250 Gain Worksheet is used when calculating the gain or loss from real estate sales” that you previously depreciated, explains Ronald.
When you depreciate something for tax purposes, you split the write-off for it across several years instead of taking it all at once. Depreciation can often be “accelerated,” which means you got a bigger write-off for the property early in its life instead of splitting up the savings equally.
So if you sold a piece of real estate that you’d been depreciating using the accelerated method, you’ll use this worksheet to calculate how you’ll be taxed to make up for that depreciation. Then, you’ll enter the value from Line 18 of that worksheet into Line 19 of Schedule D.
Here, you’ll check “yes” if Lines 18 and 19 are both blank (i.e. you didn’t have to fill out either of the above forms) and you aren’t filing Form 4952. If you aren’t deducting interest on your investment expenses, you can move on.
You’ll fill out this line if the amount you entered on Line 16 is a loss.
If your loss was smaller than $3,000 (or $1,500 if you’re married filing separately), you’ll enter the amount of the loss. For example, if your loss was $2,000, just enter $2,000.
However, if your loss was greater than $3,000 (or $1,500 if you’re married filing separately), you’ll enter $3,000 (or $1,500) on Line 21 instead.
What’s this for? $3,000 is the max amount of net capital loss that taxpayers can report on Schedule D. You can use this loss to offset the rest of your income. For example, if your taxable income is $35,000, but you have $3,000 on net capital loss, you’ll actually be taxed on $32,000.
If you have over $3,000 in net capital loss, you can “carry over” those losses into the next year.
This is the last line! Here, you’ll check “yes” or “no” based on whether or not you have qualified dividends.
You’ll probably know already if you have them — they’d be reflected on your 1099-DIV form, which reports dividends. So don’t sweat this too much.
Just in case, though, “a qualified dividend that might be reported on Line 22 of Schedule D is a dividend paid by a domestic corporation that meets specific requirements set forth by the IRS,” says Ronald. This includes how long you’ve held the stock. Qualified dividends are taxed at the long-term capital gains rate instead of the taxpayer’s ordinary income tax rate.
And that’s it! When you’ve filled out all the lines that apply to you, you can submit the form to the IRS alongside Form 1040 (and your other schedules).
There you go! You’ve completed Schedule D.
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At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email email@example.com with your questions.