What Form 8949 Is For
IRS Form 8949 (2020) reports the sale or exchange of capital assets such as stocks, bonds, real estate, and cryptocurrency. It lists each transaction’s purchase price, sales price, and cost basis adjustments to calculate capital gains and losses accurately. The form helps ensure your information matches data reported by brokerage firms on Form 1099-B.
After completion, totals from Form 8949 transfer to Schedule D, where your net gain or loss is summarized and applied to determine your income tax liability. Visit our IRS Form Help Center to learn more about forms connected to capital asset reporting, Schedule D, and Form 1099-B reconciliation.
When You’d Use IRS Form 8949
You must file IRS Form 8949 (2020) if you sold or exchanged capital assets during the 2020 tax year. This form applies to the sale of stocks, mutual funds, cryptocurrency, or investment property. It allows the Internal Revenue Service to verify your capital gains and losses and ensure that the details match information reported on your Form 1099-B.
You’ll typically use Form 8949 in several situations:
- Selling investments: You must report the sale of stocks, bonds, mutual funds, or other securities when you dispose of them for a gain or loss.
- Real estate transactions: You must record any gains or losses from investment or rental property when you sell or exchange it.
- Cryptocurrency trades: You must report each sale, exchange, or use of digital assets as a taxable transaction.
- Worthless securities or bad debts: You can claim a loss for investments that became worthless or for nonbusiness bad debts that cannot be recovered.
If you discover an error or forget to include a transaction, you can file an amended return using Form 1040-X and attach a corrected Form 8949.
Key Rules and Details for 2020
Several key rules determined how taxpayers reported capital gains and losses on IRS Form 8949 (2020). Knowing these rules helps ensure accurate reporting and prevents costly mistakes.
- Short-term vs. long-term gains: Assets held for one year or less create short-term capital gains, taxed at ordinary income tax rates. Assets held for more than a year generate long-term capital gains, which are taxed at lower rates depending on the taxpayer's income.
- Form 1099-B matching: The Internal Revenue Service compares reported transactions with information from brokerage firms. Taxpayers must select boxes A–F on Form 8949 to show whether the cost basis was reported.
- Covered vs. non-covered securities: Brokers report the basis for covered securities, while you must track the adjusted cost basis for non-covered ones.
- Wash sale rule: A loss cannot be deducted if you buy the same or substantially identical security within 30 days of the sale.
- Cryptocurrency: All virtual currency sales or exchanges must be reported as capital asset transactions on Schedule D.
Step-by-Step Guide (High Level)
Filing IRS Form 8949 (2020) correctly is essential for accurate tax preparation and proper reporting of capital gains and losses. Follow these steps to make sure all your transactions are complete and organized.
Step 1—Gather Your Records
Collect every tax form related to your investments, including Form 1099-B, brokerage statements, and documentation showing the original purchase price, fair market value, and adjusted basis for each sale. This ensures accuracy when you report sales of capital assets held in taxable accounts.
Step 2—Separate by Category
Group transactions based on short-term gains and long-term holdings. You can use average costs for mutual funds or similar investments. Confirm that both you and your broker have transactions reported consistently to the IRS.
Step 3—Complete the Form
Enter each capital gain or loss, apply adjustment codes, and total your results. If capital losses exceed gains, you can offset capital gains or use a capital loss carryover for future filings.
Step 4—Transfer Totals to Schedule D
Transfer the totals to Schedule D Form 1040, which determines the amount of tax you owe or the refund you will receive. Consider consulting a certified public accountant or tax professional for guidance on tax strategy, qualified opportunity fund investments, and other tax-deductible options.
Common Mistakes and How to Avoid Them
When completing IRS Form 8949 (2020), even minor errors can affect how much tax you owe or the refund you receive. The following are frequent mistakes and ways to avoid them.
- Mixing short- and long-term transactions: Always separate each sale before you file Schedule D. Combining them can change your net long-term gain and result in incorrect capital gains taxes.
- Using an incorrect cost basis: Verify the average cost basis or adjusted purchase price before entering totals. This step ensures accuracy for capital gains distributions and future filings.
- Omitting certain transactions: Remember to include personal property, involuntary conversions, or other dispositions that must be reported directly on the form.
- Ignoring carryovers: If your net capital loss exceeds gains, it can be carried forward to offset future capital gains.
- Filing status errors: Married individuals filing separately must check limits for loss deductions and confirm eligibility for dividends received deductions or eligible gain exclusions.
Careful recordkeeping and reviewing your tax filing with a professional can prevent these issues and protect your remaining balance on future returns. Visit our IRS Payment Plans page to learn more about setting up a payment agreement when capital gain taxes increase your balance due.
What Happens After You File
After you file IRS Form 8949 (2020), the Internal Revenue Service reviews your information and compares it with data from your brokerage firms. If everything aligns, your tax situation continues without delay. The IRS evaluates capital gains, capital losses, interest income, and any installment sales or deferred capital gains invested in a Qualified Opportunity Fund to confirm eligibility.
Your filing status—married filing jointly or married filing separately—determines how gain limits and excess loss rules apply. Keep all records for at least three years for future verification purposes. If the IRS reaches out after you file, visit our site for guidance on our tax problem solutions page.
FAQs
Do I need to report all my capital gains on IRS Form 8949?
Yes, you must report all capital gains from sales or exchanges, even if your broker provided a Form 1099-B, unless every transaction was reported correctly with no adjustments.
How do I figure out the correct cost basis for my investments?
Your cost basis is typically the purchase price plus any applicable fees or commissions. You may use the average cost basis method if you reinvest dividends or own mutual funds.
Can I deduct my capital losses on my tax return?
Yes, you can use capital losses to offset gains. If losses exceed gains, claim up to $3,000 ($1,500 if married filing separately) and carry forward the rest.
What counts as capital gains and losses for tax purposes?
They occur when you sell a capital asset for more or less than your adjusted cost basis. You must report results when you file Schedule D.
How are capital gains distributions reported on Form 8949?
Capital gains distributions from mutual funds are reported on Form 1099-DIV and are entered directly on Schedule D, not on Form 8949.
