The Purpose of IRS Form 8949

Any time you sell or exchange capital assets, such as stocks, land, or artwork, you must report the transaction on your federal income tax return. To do so, you'll need to fill out Form 8949: Sales and Other Dispositions of Capital Assets.

The sale might have meant a gain or a loss, and the transactions may be short- or long-term. That information is recorded to determine the correct tax treatment for the net results.

Schedule D of Form 1040 is used to report most capital gain (or loss) transactions. But before you can enter your net gain or loss on Schedule D, you have to complete Form 8949.

Overview of Form 8949: Sales and Other Dispositions of Capital Assets

The two-page form consists of two parts: Part I for short-term transactions and Part II for long-term transactions. A sale or taxable exchange that occurs more than 12 months from the date the asset was acquired is long-term, while a sale made within 12 months or less is considered short-term.

This determines the taxes due on the sale. Short-term gains are taxed at your regular income tax rate while long-term gains are taxed at a different rate that is lower for most taxpayers.

All pages of Form 8949 are available on the IRS website.

The form reflects information about transactions you receive on Form 1099-B: Proceeds from Broker and Barter Transactions, as well as from your own records.

How to Report Short-Term Transactions

There are three boxes used to denote whether the transaction was reported to the IRS and how you derived the tax basis for your asset. Typically, the tax basis is your cost, but it may be something else if you received property by gift, inheritance, or in some other way. The three boxes are:

• Transactions and your basis as reported to the IRS (Box A). You know this because the Form 1099-B you received from your brokerage or other financial firm indicates this information.
• Transactions and your basis that were not reported to the IRS (Box B).
• Transactions (but not your basis) that were not reported to the IRS (Box C). For example, if you sold a painting to a private collector for cash, the transaction is not reported to the IRS.

You must use a separate Form 8949 for each box you check. So, if you check all three boxes, you report short-term transactions on three separate forms. Each form has space for 14 transactions, so if you have more than 14, you need additional forms.

Once the form(s) have been populated, amounts in each column are totaled. The net result is entered on Schedule D as follows:

• If Box A is checked: line 1b of Schedule D
• If Box B is checked: line 2 of Schedule D
• If Box C is checked: line 3 of Schedule D

How to Report Long-Term Transactions

Part II for long-term transactions is similar to Part I for short-term transactions.

Again, you need to use a separate Form 8949 for each box checked regarding transactions and basis reported to the IRS.

• Transactions and your basis as reported to the IRS (Box D). You know this because the Form 1099-B that you received indicates this information.
• Transactions (but not basis) as reported to the IRS (Box E). You have to calculate your basis based on your own records, such as sales receipts and confirmation statements.
• Transactions that were not reported to the IRS (Box F). For example, if you sold a vacant lot for cash, the transaction is not reported to the IRS.

Once the form(s) have been populated, amounts in each column are totaled. The net result is entered on Schedule D as follows:

• If Box D is checked: line 8b of Schedule D
• If Box E is checked: line 9 of Schedule D
• If Box F is checked: line 10 of Schedule D

Information Required for Each Transaction

For each transaction, regardless of whether it's a short-term or long-term transaction, you need to provide seven pieces of information:

• A description of the property (Column A): For example, if you sold stock in X Corp., enter 100 sh. X Corp.
• The date you acquired it—month, day, year (Column B): For example, if you bought stock on Aug. 12, 2023, enter 08-12-23.
• The date that the property was sold or otherwise disposed of (Column C): Enter the date in the same fashion as above.
• The proceeds received on the sale (Column D): Usually, this is the sale price.
• Cost or other basis (Column E): As described earlier, basis usually is what you paid for the asset, but sometimes it can be something else.
• Adjustment to gain or loss (Columns F and G): There may be none, but if there is an adjustment, enter the code from the instructions to Form 8949 and the amount of the adjustment. For example, if you checked Box A but the IRS reported your basis incorrectly, you can enter the IRS’s reported basis in Column E, Code B in Column F, and report the correct basis in Column G. The correct basis is used to figure gain or loss (below).
• Gain or loss (Column H): This is the difference between the proceeds and basis. If the proceeds are greater than your tax basis, you have a gain. If the proceeds are less than your tax basis, you have a loss.

Completing an Electronic Form

If you use software to prepare Form 1040 or you use a paid preparer, information from brokerage firms, mutual funds, and other financial institutions may be automatically transferred to your tax return, saving you time entering the information and avoiding errors when you input the information.

The tax return software prompts you for your login information in order for the transactions to be retrieved and reported on your form(s).

The Bottom Line

Reporting capital gains and losses on Form 8949 is not necessarily straightforward. You can find more information about capital gains and losses in IRS Publication 544: Sales and Other Dispositions of Assets.

When in doubt, consult with a tax advisor.