Form 8949 is used to report the sale or exchange of capital assets, such as stocks, real estate, or cryptocurrencies to the IRS. It details the purchase and sale dates for each transaction, as well as the proceeds, cost basis and any adjustments. This information is then transferred to Schedule D, where gains or losses are totaled for tax purposes, with sections for short-term and long-term transactions. Accurate reporting on Form 8949 is essential for properly calculating capital gains or losses and complying with IRS requirements.
If you want to lower your taxes on investments, a financial advisor can optimize your portfolio to lower your tax liability.
What Is Form 8949?
Form 8949 is an IRS tax document used to report gains and losses from the sale or exchange of capital assets. The form captures detailed information about each transaction, such as dates the asset was acquired and sold, sales proceeds, cost basis and any necessary adjustments. These adjustments account for factors like disallowed losses from wash sales (selling a security at a loss and rebuying it or a substantially identical security to prevent the loss from being deducted for tax purposes) or adjustments related to inherited property.
One of the key purposes of Form 8949 is to categorize transactions by how they are taxed. It separates short-term gains or losses (from assets held for one year or less) from long-term gains or losses (from assets held longer than one year), which are taxed at different rates. Taxpayers must also indicate whether and how the transactions were reported to the IRS on Form 1099-B.
By requiring taxpayers to list individual sales, Form 8949 provides a comprehensive view of all taxable events, helping to ensure proper calculations when completing Schedule D.
Who Needs to File Form 8949?
Anyone who sold capital assets during the tax year may need to complete Form 8949, especially if the transactions are reported on Form 1099-B or 1099-S, or were not reported to the IRS at all. This includes:
- Individuals selling stocks, bonds, cryptocurrency, or other capital assets
- Homeowners who sold real estate that was not their primary residence
If there are multiple transactions, each needs to be listed, even if there were no profits earned. Any short-term or long-term capital gains or losses must be categorized based on how long the asset was held.
Completing Form 8949: Parts I and II
Form 8949 is divided into two parts to separate short-term and long-term transactions.
Part I is for short-term gains and losses, which apply to assets held for one year or less. Part II covers long-term gains and losses, applying to assets held for more than one year. This distinction is significant because short-term gains are taxed at ordinary income rates, while long-term gains generally benefit from lower, preferential tax rates.
Both parts of the form require taxpayers to report transactions based on whether the sales were reported on Form 1099-B. There are three checkboxes in both Part I and Part II:
- Box A: For transactions reported on Form 1099-B with cost basis provided.
- Box B: For transactions reported on Form 1099-B without cost basis.
- Box C: For transactions not reported on Form 1099-B.
Accurately assigning transactions to the right part and box helps ensure proper tax treatment.
Once all transactions are listed, totals from both parts are carried over to Schedule D, where gains or losses are totaled. If the form includes adjustments (e.g., for wash sales), those must be listed in the adjustment column with appropriate codes.
Reporting Gains and Losses
Each line of Form 8949 requires detailed information about the asset sold, including:
- Description of the asset: Specify the security, cryptocurrency or property
- Date acquired: The original purchase date
- Date sold or disposed: When the sale or transfer occurred
- Proceeds: The amount received from the sale
- Adjustments, if any: Adjustments can be made for things like transaction fees or wash sales
After listing these details, subtract the cost basis from the proceeds to determine the gain or loss, which you will then list in column (h). Note that wash sale rules may apply if a similar asset was bought shortly before or after selling the original one, disallowing the loss for that year.
When to Use Adjustment Codes
In some cases, an adjustment to the gain or loss is necessary. For example, if a broker didnt reportthe correct cost basis on the 1099-B or a wash sale occurred, adjustments will need to be reported on Form 8949.
Common adjustment codes include:
- Code W: For a wash sale
- Code B: When the basis reported by the broker on Form 1099-B is incorrect
- Code O: For cases involving adjustments not covered elsewhere
- Code T: You received a Form 1099-B (or substitute statement) and the type of gain (or loss) shown in box 2 is incorrect
If an adjustment is made, enter the appropriate code in column (f) and the amount of the adjustment in column (g).
Transferring Totals to Schedule D
Once all transactions are listed and gains or losses are calculated, the totals from Part I and Part II of Form 8949 need to be carried over to Schedule D. This form summarizes the overall net capital gains and losses, distinguishing between short-term and long-term transactions.
If the total capital losses exceed gains for the year, taxpayers can deduct up to $3,000 ($1,500 for married individuals filing separately) of the loss against other income. Any remaining losses can be carried forward to future tax years.
Bottom Line
Form 8949 plays a role in organizing and reporting the sale of capital assets, giving taxpayers a way to track gains and losses while meeting IRS requirements. By listing each transaction, including purchase and sale dates, proceeds and cost basis, it helps determine taxable amounts and provides space for adjustments, such as wash sales or discrepancies in 1099-B data. Transferring these totals to Schedule D offers a summary of short-term and long-term gains or losses, allowing for proper calculation of taxes owed or deductions available.
Tax Planning for Investments
- A financial advisor can help you minimize tax liabilities, optimize accounts and comply with tax regulations. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
- Tax-loss harvesting is a useful tax planning strategy that can help you reduce or even eliminate what you owe when you sell an investment for profit. You can use short-term losses to offset long-term gains but only after you’ve offset any short-term gains that you have.
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