Reporting Capital Asset Sales on Form 8949- 123docz.net

5.8 Reporting Capital Asset Sales on Form 8949 and on Schedule D

You generally must report sales and other dispositions of capital assets on Form 8949, but in some cases (see below), you can report your transactions directly on Schedule D without having to report them on Form 8949. You report on Form 8949/Schedule D sales of securities, redemptions of mutual-fund shares, worthless personal loans, sales of stock rights and warrants, sales of land held for investment, and sales of personal residences where part of the gain does not qualify for the home sale exclusion (29.1).

Although capital gain distributions from mutual funds and REITs are generally reported as long-term capital gains on Line 13 of Schedule D, investors who receive such distributions but have no other capital gains or losses to report may generally report the distributions directly on Form 1040 or 1040A without having to fi le Schedule D; see 32.8 for details.

Th e favorable maximum capital gain rates (5.3) apply to net capital gain (net long-term capital gain in excess of net short-term capital loss) from Schedule D, and also to qualifi ed dividends (4.2).

Although qualifi ed dividends are subject to the same favorable maximum rates as net capital gain, they are not entered as long-term gains in Part II of Schedule D. Th e favorable rates are applied to qualifi ed dividends when tax liability is computed on either the Qualifi ed Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. You must use the applicable worksheet to obtain the benefi t of the favorable maximum capital gain rates for your net capital gain and qualifi ed dividends. Th e Schedule D Tax Worksheet in the Schedule D instructions is used only if you have a net 28% rate gain or unrecaptured Section 1250 gain (5.3). If you do not have a net 28% rate gain or unrecaptured Section 1250 gain, use the Qualifi ed Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions.

Basis of “covered” securities reported on Form 1099-B. When you sell a “covered”

security, the broker must report your basis in the security in Box 1e of the Form 1099-B sent to you and the IRS. Box 3 should be checked where the basis is being reported to the IRS. In general, a covered security is stock acquired after 2010, mutual fund shares acquired after 2011 and stock acquired after 2010 in a dividend reinvestment plan eligible for the average basis method, futures contracts entered into after 2013, and certain bonds acquired after 2013 (described in the Form 1099-B instructions).

Even if you sell a “noncovered” security, the broker may report basis in Box 1e and if so, Box 3 should be checked to indicate that basis is being reported to the IRS. For a noncovered security, Box 5 should have been checked whether or not basis is reported. If the broker does not check Box 5 for a noncovered security, penalties can be assessed against the broker if Boxes 1b (date acquired), 1e(basis) and 2 (short-term or long-term gain or loss) are not correctly completed.

If during the year you have sold more than one security with the same broker, each transaction is generally reported on a separate Form 1099-B (or equivalent statement); there is an exception for futures, option and foreign currency contracts that that may be reported on an aggregate basis.

If in the same transaction both covered and noncovered securities were sold, each type should be reported on a separate Form 1099-B (or equivalent statement). If some covered securities were held short term and others long term (over a year), the short-term transactions should be reported separately from the long-term transactions.

Can you report directly on Schedule D? You do not need to report certain transactions on Form 8949. You can aggregate the transactions reported on Forms 1099-B that show (in Box 3) that basis was reported to the IRS and report them directly on Schedule D if (1) you do not have to adjust the basis, the amount of gain or loss, or the type of gain or loss (short-term or long-term), (2) Box 1(g) of Form 1099-B does not report a nondeductible wash sale loss or show accrued market discount, and (3) the sale does not involve collectibles. Check the Form 8949 instructions for other requirements. You may choose to report the transactions separately on Form 8949 even if direct reporting on Schedule D is allowed. If you qualify for direct reporting and choose to do so, the aggregated short-term transactions are entered on Line 1a of Schedule D and the aggregated long-term transactions are reported on Line 8a of Schedule D.

Reporting transactions fi rst on Form 8949 and then entering totals on Schedule D. Use Part I of Form 8949 for short-term gains and losses (assets held one year or less) and Part II for long-term gains and losses (assets held more than one year). You may have to fi le more than one Part I or Part II, or multiple copies of both, depending on whether and how your transactions were

Caution

Sale Details Reported to IRS by Brokers on Form 1099-B

If you sold stocks, bonds, commodities, regu- lated futures contracts or other financial instruments through a broker in 2015, or you exchanged property or services through a barter exchange,the sale is reported to the IRS on Form 1099-B. You are sent Copy B of Form 1099-B or a substitute statement. In Box 1e of Form 1099- B, the broker must report your basis for “covered” securities, which includes stock acquired after 2010, mutual fund shares acquired after 2011, and certain bonds acquired after 2013.

Box 3 should be checked to indicate that the basis shown in Box 1e has been reported to the IRS. For a “noncovered” security, such as stock acquired before 2011, the broker may omit basis from Box 1e if Box 5 is checked, indicating that a

“noncovered” security was sold. Alternatively, the broker may report basis for a noncovered security in Box 1e even though Box 5 is checked, and in this case Box 3 (basis reported to IRS) will also be checked.

You report basis for the asset in column (e) of Form 8949 and Schedule D. Th e IRS can use the basis information from Box 1e of Form 1099-B to check your computation of gain or loss on Form 8949 and Schedule D.

Reporting Capital Asset Sales on Form 8949 and on Schedule D • 5.8 reported on Form 1099-B (“Proceeds From Broker and Barter Exchange Transactions”). In Parts

I and II of Form 8949, you must check a box to indicate whether your basis for sold securities was reported to the IRS by your broker on Form 1099-B. When reporting short-term transactions in Part I, check Box A if Form 1099-B shows that basis was reported to the IRS; check Box B if Form 1099-B shows that basis was not reported to the IRS; and check Box C if you did not receive Form 1099-B for the transactions. In Part II of Form 8949 for long-term transactions, you check Box D if Form 1099-B shows that basis was reported to the IRS, Box E if Form 1099-B shows that basis was not reported to the IRS; and Box F if you did not receive Form 1099-B for the transaction. If you need to check more than one type of box in either Part I or Part II, as when you have some Box A and some Box B or C transactions in Part I, or some Box D and some Box E or F transactions in Part II, you must complete a separate Part I or Part II for each type of box.

In the columns of Form 8949, you report transaction details. You report the sale proceeds in column (d) and your basis in column (e). Report your gain or loss in column (h).

If you did not receive a Form 1099-B (or substitute statement) for your transaction, enter in column (d) of Form 8949 the net proceeds. Th at is, reduce the gross proceeds by your selling expenses such as broker fees, commissions and state and local transfer taxes. Similarly, if you sold real estate and did not receive a Form 1099-S (or substitute statement), you should enter the net proceeds (gross proceeds minus your selling expenses) in column (d) of Form 8949.

If you received a Form 1099-B, the net proceeds should have been reported in Box 1d. However, if securities were sold because of the exercise of an option, the broker can decide to report the gross proceeds or to reduce the proceeds by the option premiums; a box in Box 6 will be checked to indicate if the gross proceeds or net proceeds have been reported.

If a “covered” security was sold, the basis will be reported in Box 1e, and even if a “noncovered”

security was sold (if so, Box 5 will be checked), basis may be shown in Box 1e.

On Form 8949, report the sales proceeds and basis as shown on Form 1099-B, and if you have to adjust the amounts shown, follow the Form 8949 instructions for entering the adjustment in column (g) and the adjustment code in column (f).

If you received a Form 1099-S for a real estate sale, you must enter your selling expenses as a negative adjustment in column (g) of Form 8949, with code “E” entered in column (f), to take into account your selling expenses not taken into account on the Form 1099-S.

Form 8949 must be attached to Schedule D. Th e totals from columns (d), (e), (g) and (h) of Form 8949 are transferred to the appropriate lines of Schedule D, depending on which Box was checked on Form 8949 (Box A, B, C, D, E, or F).

Th e Example below for John and Karen Taylor and accompanying worksheets illustrate how transactions are entered on Form 8949 and Schedule D.

EXAMPLE

For 2015, John and Karen Taylor fi le a joint return. They report two short-term transactions in Part I of Form 8949 and three long-term transactions in Part II of Form 8949.

On Part I, they check Box A to indicate that for each transaction they received a Form 1099-B that reported their basis. In Part II, they check Box E, indicating that the Forms 1099-B they received did not report basis. For each sale, the broker reported on Form 1099-B the net proceeds (gross sales price minus broker’s commissions on the sale and state and local transfer taxes, if any), and the Taylors report that net sales price in column (d) of Form 8949. The totals from columns (d), (e), and (h) of John and Karen’s Form 8949 are transferred to the applicable lines of their Schedule D, as shown below.

They also report on Schedule D capital gain distributions received in 2015 from their mutual funds as well as a long-term loss carryover from 2014.

1. Sale of stock (short-term gain)—The Taylors bought 200 shares of XL Research Co.

stock on July 18, 2014, for $2,400. They sold the stock on May 11, 2015, for $3,360.

2. Sale of stock received as a gift (short-term loss)—Karen’s father bought 100 shares of Ajax Auto shares on February 9, 2010, when they were worth $4,000. He gave Karen the 100 shares on November 5, 2014, when they worth $3,000. Karen sold the stock on February 10, 2015 for $2,000. Since the value of the stock at the time of the gift ($3,000) was less than her father’s basis ($4,000), Karen’s basis for purposes of fi guring a loss is the $3,000 date-of-gift value (5.17). Her holding period began on November 6, 2014, the day after the date of the gift (5.12).

5.8 • Reporting Capital Asset Sales on Form 8949 and on Schedule D

3. Sale of stock (long-term gain)—The Taylors bought 100 shares of Acme Steel stock on October 20, 2009, for $6,000. On April 24, 2015, they sold the 100 shares for

$13,000.

4. Sale of stock (long-term loss)—The Taylors bought 200 shares of Zero Computer Co. stock for $5,000 on July 10, 2007. On March 16, 2015, they sold the shares for

$2,000.

5. Sale of mutual-fund shares (long-term gain)—The Taylors bought 1,435 shares of the ABC Mutual Fund, including reinvested dividends, between 2006 and 2010. On July 21, 2015, they sold 500 of the shares for $21,500. The average basis (32.9) for their shares, shown on their sale confi rmation from the Fund, is $24.50 per share.

Thus, their basis for the 500 sold shares is $12,250 (500 × $24.50).

6. Capital gain distributions—The Taylors received capital gain distributions of $1,050 in December 2015 from mutual funds (32.4, 32.8).

7. Long-term capital loss carryover—The Taylors had a long-term capital loss carryover of $950 from their 2014 return.

Because the Taylors do not have a net 28% rate gain or unrecaptured Section 1250 gain, they are directed by Line 20 of Schedule D to use the Qualifi ed Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to compute their regular income tax liability. If they did have a net 28% rate gain or unrecaptured Section 1250 gain, the Taylors would use the Schedule D Tax Worksheet in the Schedule D instructions to fi gure their tax.

Tax computation on the Qualifi ed Dividends and Capital Gain Tax Worksheet. In the following pages, we show how John and Karen report their transactions on Form 8949 and Schedule D, and how their 2015 tax liability is fi gured on the Qualifi ed Dividends and Capital Gain Tax Worksheet. On the Worksheet, John and Karen will fi gure the tax on their 2015 taxable income, taking into account the favorable rates (5.3) for net capital gain and qualifi ed dividends. Assume that the taxable income on their 2015 joint return is $83,000. In addition to their net capital gain of $13,310 from Line 16 of Schedule D (net long-term gain of $13,350 less net short term loss of $40), the Taylors have $1,200 of qualifi ed dividends (4.2) that are eligible for the favorable capital gain rates (5.3). The qualifi ed dividends are added to their net capital gain reported on the Qualifi ed Dividends and Capital Gain Tax Worksheet.

Under this set of facts, the Taylors will avoid tax completely on $6,410 of their $14,510 in qualifi ed dividends plus net capital gain. The $6,410 is eligible for the 0% rate (5.3) because it falls within the 15% bracket: $6,410 is the excess of $74,900, the top of the 15% joint return bracket for 2015, over $68,490, their “ordinary income” ($68,490 =

$83,000 taxable income minus $14,510 qualifi ed dividends plus net capital gain). The balance of their qualifying dividends and net capital gain, or $8,100, is taxed at the 15% capital gain rate, for a tax of $1,215. The tax on the ordinary income of $68,490 is

$9,349, fi gured at regular rates (10% and 15% rates apply; see 1.2 ). The Taylors’ total tax liability of $10,564 ($1,215 plus $9,349) is $1,780 less than the liability of $12,344 that would apply (shown on Line 26 of the Worksheet) if the law did not provide favorable rates for net capital gain and qualifi ed dividends.

Reporting Capital Asset Sales on Form 8949 and on Schedule D • 5.8 Sample Form 8949—Sales and Other Dispositions of Capital Assets