What IRS Form 8949 Is For
IRS Form 8949 (2018) is used to report the sale or exchange of capital assets such as stocks, bonds, mutual funds, or other investments. It helps taxpayers calculate capital gains and losses by reconciling details from Forms 1099-B or 1099-S with the amounts listed on their tax return.
The form consists of two parts: Part I, for short-term transactions (held for one year or less), and Part II, for long-term transactions (held for more than one year). These distinctions determine the capital gains tax rate, since long-term gains often receive lower rates than short-term gains, which are taxed as ordinary income for tax purposes.
When You’d Use IRS Form 8949
You must file IRS Form 8949 (2018) whenever you sell or exchange capital assets such as stocks, bonds, real estate, or mutual funds. The form ensures that all your capital gains and losses are accurately reported for tax purposes.
Here are the main situations when you’d use Form 8949:
- Regular Filing: Include the form with your annual tax return if you sold investments during 2018. It must be attached to Schedule D, which summarizes your total gains and losses.
- Late Filing: If you missed the April 15 deadline, include Form 8949 when submitting a late return. Filing accurately can help prevent penalties and additional tax obligations.
- Amended Returns: Attach a revised Form 8949 to Form 1040-X when correcting previous errors—such as an incorrect cost basis or missing transactions.
Visit the IRS Form Help Center for clear guidance on forms commonly used alongside capital gains reporting and investment documentation.
Key Rules and Details for 2018
When completing IRS Form 8949 (2018), it’s essential to follow the reporting rules that determine how your capital gains and losses are calculated. Each transaction must be reported accurately to reflect the correct cost basis, fair market value, and gain or loss for tax purposes.
At the top of Part I and Part II, check the box that matches your transaction type:
- Boxes A, B, and C cover short-term sales (assets held one year or less).
- Boxes D, E, and F cover long-term sales (assets held for more than one year).
Use the amounts from your Form 1099-B provided by your brokerage firm to report the purchase price and sale proceeds. Be sure to use the correct cost basis method, such as FIFO or average cost basis, to calculate your adjusted cost basis.
For 2018, special rules applied to inherited property and investments in Qualified Opportunity Funds. Ensure that your broker's reported proceeds and basis align to prevent any discrepancies or potential IRS notices. If earlier filings omitted capital asset sales or incorrect basis entries, use our guide on filing unfiled federal returns to restore compliance.
Step-by-Step Filing (High Level)
- Gather tax forms from your financial institution and your own records, including Form 1099-B and any substitute statements that list all your transactions. Confirm the original cost, additional costs, and any stock splits or a single stock split noted during the previous tax year.
- Separate sales by property held period to determine short-term capital gain or long-term capital gain. This choice affects your taxable income and the amount of your eventual tax bill under tax law.
- Start calculating the cost basis using your chosen method, and note any reinvested dividends, interest income, and adjustments for wash sales or transfers made after the original owner's death.
- For each sale, compute net gain, taxable gain, capital loss, or capital losses. You may use losses to offset capital gains and report any net capital loss in accordance with the instructions.
- Verify that totals on this tax form match figures reported by many brokerage firms to ensure both you and the IRS see consistent data.
- Double-check other capital gains from various assets, confirm sales at a lower price are reflected correctly, and ensure totals flow to Schedule D.
- If your situation is complex, consult a tax professional before filing your return.
Common Mistakes and How to Avoid Them
Many taxpayers make errors when completing IRS Form 8949 (2018). The following list outlines the most frequent issues and how to avoid them:
- Mixing personal and investment sales: Report only investment-related property sold or other dispositions. Never include items for personal use, such as vehicles or collectibles, that are not held for investment.
- Incorrect or missing cost data: Strengthen your understanding of the cost basis by verifying the original investment, shares purchased, and any other fees before reporting. Keep detailed records for every sale.
- Using the wrong figures or forms: Ensure that all data on other forms (such as Form 1099-B) aligns with what you report. Avoid estimating or rounding numbers.
- Claiming invalid losses: Be aware of disallowed loss situations, such as wash sales or trades in similar properties.
- Inconsistent reporting: Double-check that all sold shares are listed with the correct acquisition and sale dates. Maintaining complete documentation reduces the chance of IRS correspondence or penalties.
Review how to request an IRS installment agreement when the tax owed from your capital gains exceeds what you can pay at once.
What Happens After You File
After submitting IRS Form 8949 (2018), the IRS compares your entries with information reported by brokers and financial institutions to confirm each capital gain or loss. If the numbers do not match, the IRS may send a notice requesting clarification or supporting records.
Keep copies of your cost basis information, including transaction details and the CUSIP number for each security, for future reference. Review your per-share cost basis calculations and ensure that your selected FIFO method or other accounting approach is applied consistently. Accurate records and a clear understanding of the cost basis help you explain differences or verify adjustments if questions arise. Make sure any sales linked to investments that generate other income—such as dividends or interest—are also reported correctly on your return to ensure compliance and avoid delays in processing.
FAQs
Do I need to file IRS Form 8949 for all my capital assets?
Yes, you must report the sale or exchange of capital assets, including stocks, bonds, or mutual funds. Each transaction helps determine your overall capital gains and losses for the year.
How do I report my capital gains if I already received Form 1099-B from my brokerage firm?
You still include those sales on Form 8949. The brokerage firm reports proceeds to the IRS, but you must show your adjusted cost basis to calculate your actual capital gain or loss.
What is the difference between capital gains and capital losses?
A capital gain occurs when you sell an asset for more than its purchase price, while a capital loss happens when you sell it for less. You can use capital losses to offset capital gains, which may reduce your capital gains tax.
Can I use average costs for my mutual fund transactions?
Yes, many mutual fund investors use the average cost basis method when reporting sales. Once selected, you must continue using it for all future sales of that same fund.
How do I start calculating the cost basis for my investments?
Begin by identifying your purchase price, commissions, and other fees. When calculating the cost basis, ensure that you apply consistent methods—such as FIFO or specific identification—to ensure accurate reporting.
