The Purpose of IRS Form 8949

What Is Form 8949: Sales and Other Dispositions of Capital Assets?

When you sell or exchange capital assets like stocks, bonds, real estate, or artwork, you must report these transactions on your federal income tax return. IRS Form 8949 is crucial in reconciling the information reported on Forms 1099-B or 1099-S with the amounts you report on your return. These subtotals from Form 8949 are then transferred to Schedule D of your Form 1040, which is used to calculate your overall capital gain or loss.

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.

Understanding Form 8949

Form 8949 consists of two parts:

• Part I: Short-term transactions (assets held for 12 months or less).
• Part II: Long-term transactions (assets held for more than 12 months).

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.

The classification of your transaction as short- or long-term determines the tax rate applied. Short-term gains are taxed at your regular income tax rate, while long-term gains enjoy a preferential tax rate, generally lower than ordinary income tax rates.

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.

Reporting Short-Term Transactions

Short-term transactions are those where the asset was held for one year or less before being sold. Form 8949 provides three different options (Boxes A, B, or C) to report how the IRS received and calculated your cost basis (the amount you paid for the asset).

Here’s what each box represents:

• Box A: Transactions and basis as reported to the IRS. This is when your brokerage has already reported both the sale and the cost basis.
• Box B: Transactions and basis that were not reported to the IRS. You will need to report the cost basis manually.
• Box C: Transactions, but not the basis, reported to the IRS. For example, if you made a private sale, it won’t be reported by your brokerage, and you will need to report both the transaction and the cost basis.

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 can report up to 14 transactions. If you have more than 14, you need to file an additional form.

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

Reporting Long-Term Transactions

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

Long-term transactions are for assets held longer than 12 months. Just like short-term transactions, long-term sales require that you select the appropriate box to indicate whether the IRS has reported the transaction or if you need to provide the cost basis yourself.

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

The boxes for long-term transactions are:

• Box D: Transactions and your basis as reported to the IRS. You know this because the Form 1099-B that you received indicates this information.
• Box E: Transactions (but not basis) as reported to the IRS. You have to calculate your basis based on your own records, such as sales receipts and confirmation statements.
• Box F: 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:

1. Description of the property (Column A): For example, if you sold stock in X Corp., enter 100 sh. X Corp.
2. Date you acquired it—month, day, year (Column B): For example, if you bought stock on Aug. 12, 2024, enter 08-12-24.
3. Date the property was sold or otherwise disposed of (Column C): Enter the date in the same fashion as above.
4. Proceeds received on the sale (Column D): Usually, this is the sale price.
5. 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.
6. 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 adjustment amount. For example, if you checked Box A but the IRS misreported your basis, 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).
7. 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. You have a loss if the proceeds are less than your tax basis.

Filing Electronically

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 so that the transactions can be retrieved and reported on your form(s).

The Bottom Line

Form 8949 is essential for reporting capital gains and losses, ensuring that you correctly report your asset transactions to the IRS. While the form can be complex, using tax software can simplify the process. If you're unsure about any details, consulting with a tax advisor can help ensure you comply with IRS regulations and minimize your tax liabilities.