Before staring your Schedule D, you need to know that tax basis of your investments.
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Capital gains tax: determining the basis
The tax basis is determined by:
• how you acquired the investment
• its fair market value or cost
• the amount it has depreciated or appreciated.
It can get a little trickier.
Check out our tax basis guide:
If you sell: | You need to know the asset's: | Its basis is: |
Property you purchased | cost | its cost increased by improvements or decreased by depreciation |
Property you received as a gift | • fair market value on date gift was made
• original cost to the donor
• any gift tax paid by the donor | whichever is less: the fair market value or the cost to the donor increased by any gift tax
| Property you inherited | fair market value on date of death | the fair market value on the date of death |
Property received for services | its value | the amount you paid taxes on as part of your income |
Capital gains tax: selling your investmentsWhen you're selling investments things get even more complicated.
Sidebar
Completing Schedule D can get complicated. To ease the pain, file electronically.
Depending on how you sell them makes a difference.
Here are the methods:
First-in First-out Method - The shares you buy first are sold first.
Specific ID Method - Pick and choose the shares you want to sell.
Single-Category Average Basis Method - Figures an average to figure your capital gain or loss
Double-Category Average Basis Method - Figures two averages for long and short term shares.
Next: Schedule D.
Related IRS publicationsGet more information about capital gains tax rates from IRS Publication 550.
For a paper return,complete Schedule D or Schedule D-1. If you file electronically, this will be completed for you automatically.
Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here.
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©Copyright 2005 Taxes In-Depth LLC
Read this disclaimer: This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. We make no guarantees as to the validity of the information presented. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation.
