Table of Contents
This chapter discusses how to report capital gains and losses from sales, exchanges, and other dispositions of investment property on Schedule D of Form 1040. The discussion includes the following topics.
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How to report short-term gains and losses.
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How to report long-term gains and losses.
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How to figure capital loss carryovers.
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How to figure your tax on a net capital gain.
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An illustrated example of how to complete Schedule D.
If you sell or otherwise dispose of property used in a trade or business or for the production of income, see Publication 544, Sales and Other Dispositions of Assets, before completing Schedule D.
Publication
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537 Installment Sales
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544 Sales and Other Dispositions of Assets
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550 Investment Income and Expenses
Form (and Instructions)
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Schedule D (Form 1040) Capital Gains and Losses
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4797 Sales of Business Property
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6252 Installment Sale Income
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8582 Passive Activity Loss Limitations
Report capital gains and losses on Schedule D (Form 1040). Enter your sales and trades of stocks, bonds, etc., and real estate (if not reported on Form 4684, 4797, 6252, 6781, or 8824) on line 1 of Part I or line 8 of Part II, as appropriate. Include all these transactions even if you did not receive a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or Form 1099-S, Proceeds From Real Estate Transactions (or substitute statement). You can use Schedule D-1 as a continuation schedule to report more transactions.
Be sure to add all sales price entries in column (d) of lines 1 and 2 and enter the total on line 3. Also add all sales price entries in column (d) of lines 8 and 9 and enter the total on line 10. Then add the following amounts reported to you for 2007 on Forms 1099-B and Forms 1099-S (or on substitute statements):
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Proceeds from transactions involving stocks, bonds, and other securities, and
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Gross proceeds from real estate transactions (other than the sale of your main home if you had no taxable gain) not reported on another form or schedule.
If this total is more than the total of lines 3 and 10, attach a statement to your return explaining the difference.
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Improved or unimproved land, including air space,
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Inherently permanent structures, including any residential, commercial, or industrial building,
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A condominium unit and its accessory fixtures and common elements, including land, and
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Stock in a cooperative housing corporation (as defined in section 216 of the Internal Revenue Code).
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Proceeds from transactions involving stocks, bonds, and other securities, and
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Gross proceeds from real estate transactions (other than the sale of your main home if you are not required to report it).
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Undistributed long-term capital gains from a mutual fund (or other regulated investment company) or real estate investment trust (REIT),
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Your share of long-term capital gains or losses from partnerships, S corporations, and fiduciaries,
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All capital gain distributions from mutual funds and REITs not reported directly on line 10 of Form 1040A or line 13 of Form 1040, and
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Long-term capital loss carryovers.
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The only amounts you would have to report on Schedule D are capital gain distributions from box 2a of Form 1099-DIV (or substitute statement).
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You do not have an amount in box 2b, 2c, or 2d of any Form 1099-DIV (or substitute statement).
If both of the above statements are true, report your capital gain distributions directly on line 13 of Form 1040 and check the box on line 13. Also, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax. You can report your capital gain distributions on line 10 of Form 1040A, instead of on Form 1040, if both of the following are true.
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None of the Forms 1099-DIV (or substitute statements) you received have an amount in box 2b, 2c, or 2d.
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You do not have to file Form 1040 for any other capital gains or losses.
If your capital losses are more than your capital gains, you can claim a capital loss deduction. Report the deduction on line 13 of Form 1040, enclosed in parentheses.
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$3,000 ($1,500 if you are married and file a separate return), or
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Your total net loss as shown on line 16 of Schedule D.
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Your allowable capital loss deduction for the year, or
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Your taxable income increased by your allowable capital loss deduction for the year and your deduction for personal exemptions.
Example.
Bob and Gloria sold securities in 2007. The sales resulted in a capital loss of $7,000. They had no other capital transactions. Their taxable income was $26,000. On their joint 2007 return, they can deduct $3,000. The unused part of the loss, $4,000 ($7,000 − $3,000), can be carried over to 2008.
If their capital loss had been $2,000, their capital loss deduction would have been $2,000. They would have no carryover.
The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates.
The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.
For 2007, the maximum capital gain rates are 5%, 15%, 25%, or 28%. See Table 16-1 for details.
If you figure your tax using the maximum capital gain rates and the regular tax computation results in a lower tax, the regular tax computation applies.
Example.
All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. Because you are single and your taxable income is $25,000, none of your taxable income will be taxed above the 15% rate. The 28% rate does not apply.
Table 16-1. What Is Your Maximum Capital Gain Rate?
IF your net capital gain is from ... | THEN your
maximum capital gain rate is ... |
collectibles gain | 28% |
gain on qualified small business stock minus the section 1202 exclusion | 28% |
unrecaptured section 1250 gain | 25% |
other gain 1 and the regular tax rate that would apply is 25% or higher | 15% |
other gain 1 and the regular tax rate that would apply is lower than 25% | 5% |
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You have to file Schedule D, and
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Schedule D, line 18 (28% rate gain) or line 19 (unrecaptured section 1250 gain), is more than zero.
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You received qualified dividends. (See Qualified Dividends in chapter 8.)
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You do not have to file Schedule D and you received capital gain distributions. (See Capital gain distributions only , earlier.)
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Schedule D, lines 15 and 16, are both more than zero.
Emily Jones is single and, in addition to wages from her job, she has income from stocks and other securities. For the 2007 tax year, she had the following capital gains and losses, which she reports on Schedule D. All the Forms 1099 she received showed net sales prices. Her filled-in Schedule D is shown in this chapter.
28% Rate Gain Worksheet for Emily Jones—Line 18
1. | Enter the total of all collectibles gain or (loss) from items you reported on line 8, column (f), of Schedules D and D-1 | 1. | 0 | |||||||
2. | Enter as a positive number the amount of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 50% of the gain, plus of any section 1202 exclusion you reported on line 8, column (f), of Schedules D and D-1, for which you excluded 60% of the gain | 2. | 1,500 | |||||||
3. | Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only if Form 4684, line 15, is more than zero); Form 6252; Form 6781, Part II; and Form 8824 | 3. | ||||||||
4. | Enter the total of any collectibles gain reported to you on:
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4. | ||||||||
5. | Enter your long-term capital loss carryovers from Schedule D, line 14, and Schedule K-1 (Form 1041), box 11, code C | 5. | ( 500) | |||||||
6. | If Schedule D, line 7, is a (loss), enter that (loss) here. Otherwise, enter -0- | 6. | ( 550) | |||||||
7. | Combine lines 1 through 6. If zero or less, enter -0-. If more than zero, also enter this amount on Schedule D, line 18 | 7. | 450 |
Schedule D Tax Worksheet
Complete this worksheet only if line 18 or line 19 of Schedule D is more than zero. Otherwise, complete the Qualified Dividends and Capital Gain Tax Worksheet on page 35 of the Instructions for Form 1040 (or in the Instructions for Form 1040NR) to figure your tax. | ||||||||||||||||||||
Exception: Do not use the Qualified Dividends and Capital Gain Tax Worksheet or this worksheet to figure your tax if:
Instead, see the instructions for Form 1040, line 44 (or Form 1040NR, line 41). |
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1. | Enter your taxable income from Form 1040, line 43 (or Form 1040NR, line 40) | 1. | 30,000 | |||||||||||||||||
2. | Enter your qualified dividends from Form 1040, line 9b (or Form 1040NR, line 10b) | 2. | ||||||||||||||||||
3. | Enter the amount from Form 4952 (used to figure investment interest expense deduction), line 4g | 3. | ||||||||||||||||||
4. | Enter the amount from Form 4952, line 4e* | 4. | ||||||||||||||||||
5. | Subtract line 4 from line 3. If zero or less, enter -0- | 5. | ||||||||||||||||||
6. | Subtract line 5 from line 2. If zero or less, enter -0- | 6. | ||||||||||||||||||
7. | Enter the smaller of line 15 or line 16 of Schedule D | 7. | 9,350 | |||||||||||||||||
8. | Enter the smaller of line 3 or line 4 | 8. | ||||||||||||||||||
9. | Subtract line 8 from line 7. If zero or less, enter -0- | 9. | 9,350 | |||||||||||||||||
10. | Add lines 6 and 9 | 10. | 9,350 | |||||||||||||||||
11. | Add lines 18 and 19 of Schedule D | 11. | 450 | |||||||||||||||||
12. | Enter the smaller of line 9 or line 11 | 12. | 450 | |||||||||||||||||
13. | Subtract line 12 from line 10. | 13. | 8,900 | |||||||||||||||||
14. | Subtract line 13 from line 1. If zero or less, enter -0-. | 14. | 21,100 | |||||||||||||||||
15. | Enter the smaller of: | |||||||||||||||||||
• The amount on line 1
or • $31,850 if single or married filing separately; $63,700 if married filing jointly or qualifying widow(er); or $42,650 if head of household |
15. | 30,000 | ||||||||||||||||||
16. | Enter the smaller of line 14 or line 15 | 16. | 21,100 | |||||||||||||||||
17. | Subtract line 10 from line 1. If zero or less, enter -0- | 17. | 20,650 | |||||||||||||||||
18. | Enter the larger of line 16 or line 17 | 18. | 21,100 | |||||||||||||||||
If lines 15 and 16 are the same, skip lines 19 and 20 and go to line 21. Otherwise, go to line 19. | ||||||||||||||||||||
19. | Subtract line 16 from line 15 | 19. | 8,900 | |||||||||||||||||
20. | Multiply line 19 by 5% (.05) | 20. | 445 | |||||||||||||||||
If lines 1 and 15 are the same, skip lines 21 through 33 and go to line 34. Otherwise, go to line 21. | ||||||||||||||||||||
21. | Enter the smaller of line 1 or line 13 | 21. | ||||||||||||||||||
22. | Enter the amount from line 19 (if line 19 is blank, enter -0-) | 22. | ||||||||||||||||||
23. | Subtract line 22 from line 21. If zero or less, enter -0- | 23. | ||||||||||||||||||
24. | Multiply line 23 by 15% (.15) | 24. | ||||||||||||||||||
If Schedule D, line 19, is zero or blank, skip lines 25 through 30 and go to line 31. Otherwise, go to line 25. | ||||||||||||||||||||
25. | Enter the smaller of line 9 above or Schedule D, line 19 | 25. | ||||||||||||||||||
26. | Add lines 10 and 18 | 26. | ||||||||||||||||||
27. | Enter the amount from line 1 above | 27. | ||||||||||||||||||
28. | Subtract line 27 from line 26. If zero or less, enter -0- | 28. | ||||||||||||||||||
29. | Subtract line 28 from line 25. If zero or less, enter -0- | 29. | ||||||||||||||||||
30. | Multiply line 29 by 25% (.25) | 30. | ||||||||||||||||||
If Schedule D, line 18, is zero or blank, skip lines 31 through 33 and go to line 34. Otherwise, go to line 31. | ||||||||||||||||||||
31. | Add lines 18, 19, 23, and 29 | 31. | ||||||||||||||||||
32. | Subtract line 31 from line 1 | 32. | ||||||||||||||||||
33. | Multiply line 32 by 28% (.28) | 33. | ||||||||||||||||||
34. | Figure the tax on the amount on line 18. Use the Tax Table or Tax Computation Worksheet, whichever applies | 34. | 2,778 | |||||||||||||||||
35. | Add lines 20, 24, 30, 33, and 34 | 35. | 3,223 | |||||||||||||||||
36. | Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever applies | 36. | 4,113 | |||||||||||||||||
37. | Tax on all taxable income (including capital gains and qualified dividends). Enter the smaller of line 35 or line 36. Also enter this amount on Form 1040, line 44 (or Form 1040NR, line 41) | 37. | 3,223 | |||||||||||||||||
*If applicable, enter instead the smaller amount you entered on the dotted line next to line 4e of Form 4952. |
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