The principal reason for filing a Schedule D tax form, is to declare your capital gain and/or capital loss. This form is one of the IRS's more complicated ones, and although few actually file the paper version, it's still a good idea to understand the form before filing electronically.
• Lists the information you'll need to complete the Schedule D
• Describes additional capital gains and capital losses
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To complete Schedule D you need the following information for each sale you make:
• the date you acquired the investment or asset
• the date it was sold
• the amount it was sold for
• the tax basis
• a description of the property
To assist you with these entries, Form 1099-B is sent to you by your broker. This statement includes crucial information about each investment sale you made during the year, such as the date of the sale and the amount you received for the sale.
Each sale needs to be categorized as a long-term or short-term capital gain or loss. The top portion of Schedule D is concerned with short-term, and the bottom portion, long-term.
If you have only simple sales of investments and assets, Schedule D is a breeze. However, there are several additional gains and losses that have their place on Schedule D too.
Lets go through each one separately to insure your Schedule D is complete:
Miscellaneous capital gains and losses
In the short-term section, you are asked to supply short term gains from a list of forms - including Forms 6252, 4684, 6781, and 8824.
These are, respectively, forms for casualties and theft, installment sales, like-kind exchanges, and commodity straddles.
Following these are entries for S corporations, estates and trusts.
Note: these types sales are beyond the scope of this course. If you have sales of this kind, we highly recommend that you talk to a tax advisor to assist you with your Schedule D.
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Carryover capital gains
Short-term capital loss carryover along with long-term capital loss carryover are also entered on your Schedule D.
What does that mean?
As a rule, you can only claim $3,000 in net capital loss each year. However, the IRS allows you to carryover any amount above the $3,000 maximum to the following tax year.
Consult last year's tax return to determine if your loss was more than the $3,000 maximum. If it was, then enter the short-term and/or long-term capital loss amount you were unable to claim last year onto this year's Schedule D.
Under the long term capital gains sections, you are also asked to enter undistributed capital gains. This includes the amount of revenue any mutual fund you own earned but was retained by your investment company to be reinvested.
On Form 2439, the amount of undistributed capital gain will be recorded along with the taxes your investment company paid on behalf of you. Enter the gains on your Schedule D and the taxes on your 1040 in the payments section.