What Schedule D (Form 1040) Is For

Schedule D (Form 1040) is the IRS form you use to report profits and losses from selling investments and other capital assets during the 2016 tax year. Think of it as your "investment scorecard" that tallies up whether you made or lost money when you sold stocks, bonds, mutual funds, real estate (including your home in some cases), or other valuable property.

A capital asset is essentially anything you own for personal use or investment—your house, car, furniture, stocks, bonds, and even collectibles like artwork or coins. When you sell these items for more than you paid, you have a capital gain (profit). When you sell for less, you have a capital loss.

Schedule D works hand-in-hand with Form 8949, which is where you list each individual transaction. Form 8949 provides the detailed line-by-line breakdown, while Schedule D summarizes those totals and calculates your final tax impact. The form distinguishes between short-term gains and losses (assets held one year or less) and long-term gains and losses (assets held more than one year), because they're taxed at different rates Source.

When You’d Use Schedule D (Including Late/Amended Returns)

You must file Schedule D for your 2016 tax return if you:

• Sold stocks, bonds, mutual funds, or other securities during 2016
• Sold your home and can't exclude all the gain, or you received Form 1099-S
• Received capital gain distributions from mutual funds (shown on Form 1099-DIV box 2a)
• Had capital gains or losses from partnerships, S corporations, estates, or trusts
• Need to carry forward capital losses from 2015 to 2016
• Disposed of business property reported on Form 4797

For late or amended returns: The original deadline for 2016 tax returns was April 18, 2017 (April 19 for Maine and Massachusetts residents due to Patriots' Day). If you discover errors on your 2016 Schedule D after filing, you can file an amended return using Form 1040-X. Generally, you have three years from the date you filed your original return to file an amendment Source.

Importantly, you don't need to amend for simple math errors—the IRS corrects those automatically. However, if you forgot to report a stock sale, miscalculated your cost basis, or incorrectly reported capital loss carryovers, you should file an amended return.

Key Rules or Details for 2016

Holding Period Matters

The length of time you owned an asset determines whether your gain or loss is short-term or long-term. Assets held one year or less generate short-term capital gains, taxed at ordinary income rates (up to 39.6% in 2016). Assets held more than one year generate long-term capital gains, taxed at preferential rates: 0% for taxpayers in the 10–15% tax brackets, 15% for those in the 25–35% brackets, and 20% for those in the 39.6% bracket.

The $3,000 Loss Limit

You can deduct capital losses against capital gains dollar-for-dollar with no limit. However, if your losses exceed your gains, you can only deduct up to $3,000 of net losses ($1,500 if married filing separately) against your ordinary income in 2016. Any remaining losses carry forward indefinitely to future years Source.

Cost Basis Reporting

For 2016, brokers were required to report cost basis (what you paid) to the IRS for most stocks acquired after 2010. This information appears on Form 1099-B and helps you calculate your gain or loss. However, you're responsible for tracking basis for older holdings and for property like real estate.

Form 8949 Is Mandatory

Unlike earlier years, you generally cannot skip Form 8949. You must complete it before filling out Schedule D lines 1b, 2, 3, 8b, 9, or 10. Form 8949 requires you to list each transaction separately, check specific boxes based on whether basis was reported to the IRS, and make any necessary adjustments.

Home Sale Exclusion

If you sold your primary residence in 2016, you might exclude up to $250,000 of gain ($500,000 if married filing jointly) if you owned and lived in the home for at least 2 of the 5 years before the sale. Even if you qualify for the full exclusion, you must still report the sale if you received Form 1099-S Source.

Step-by-Step (High Level)

Step 1: Gather Your Documents

Collect all Forms 1099-B from brokers, Form 1099-DIV showing capital gain distributions, closing statements for real estate sales, and records showing your purchase price and any improvements. For property inherited or received as a gift, obtain documentation showing the fair market value at the time of transfer.

Step 2: Complete Form 8949 First

Form 8949 has two parts: Part I for short-term transactions and Part II for long-term transactions. For each sale, enter the description of property, dates acquired and sold, sales price, cost basis, and any adjustments. At the top of each Form 8949, check the appropriate box (A, B, or C for Part I; D, E, or F for Part II) depending on whether your broker reported the transaction to the IRS and whether you need to make adjustments. Calculate the gain or loss for each transaction in column (h).

Step 3: Transfer Totals to Schedule D

Add up all transactions from each Form 8949 and transfer the column totals to the corresponding lines on Schedule D. Part I of Schedule D (lines 1–7) summarizes short-term gains and losses. Part II (lines 8–15) summarizes long-term gains and losses. Don't forget to include any capital loss carryover from 2015 on lines 6 and 14.

Step 4: Complete Part III (Summary)

Line 16 combines your short-term and long-term results. If it's a gain, you may need to complete additional worksheets (28% Rate Gain Worksheet, Unrecaptured Section 1250 Gain Worksheet, or Qualified Dividends and Capital Gain Tax Worksheet) to calculate your tax at preferential rates. If it's a loss, line 21 limits your deduction to $3,000 ($1,500 if married filing separately).

Step 5: Transfer Final Numbers to Form 1040

Enter the amount from Schedule D, line 16 (or line 21 if you have a loss) on Form 1040, line 13. Complete any required tax calculation worksheets in the Form 1040 instructions Source.

Common Mistakes and How to Avoid Them

Mistake 1: Forgetting to Report All Transactions

The IRS receives copies of your Forms 1099-B. If you don't report a transaction that appears on a 1099-B, you'll likely receive a CP2000 notice proposing additional tax. Review all 1099-B forms carefully and report every sale, even if you broke even or had a loss.

Mistake 2: Incorrect Cost Basis

Many taxpayers forget to adjust basis for return of capital distributions, stock splits, or reinvested dividends. For mutual funds, if you reinvested dividends over the years, those amounts increase your basis—don't pay tax twice on the same money. Keep detailed records or use your broker's basis calculation if available.

Mistake 3: Wrong Holding Period

Count carefully when determining if you held an asset more than one year. The holding period begins the day after you acquired the property and includes the day you sold it. A stock bought on January 15, 2015, and sold on January 15, 2016, is short-term (exactly one year), but if sold on January 16, 2016, it's long-term.

Mistake 4: Overlooking Capital Loss Carryforwards

If you had unused capital losses in 2015, you must carry them forward to 2016 on Schedule D, lines 6 and 14. Use the Capital Loss Carryover Worksheet in the Schedule D instructions to calculate the correct amount. Failing to claim this carryover means paying more tax than necessary Source.

Mistake 5: Reporting Wash Sales Incorrectly

A wash sale occurs when you sell stock at a loss and buy substantially identical stock within 30 days before or after the sale. The loss is disallowed for the current year (though it adjusts your basis in the replacement shares). Many brokers identify wash sales on Form 1099-B, but if you have accounts at multiple brokers or repurchased in an IRA, you must track these yourself. Report wash sales on Form 8949 with code "W" in column (f) and add the disallowed loss in column (g).

Mistake 6: Misunderstanding the $3,000 Loss Limit

The $3,000 limit only applies when deducting losses against ordinary income. You can offset unlimited capital gains with capital losses. For example, if you have $50,000 in gains and $60,000 in losses, you can offset all $50,000 of gains and deduct $3,000 against ordinary income, carrying forward the remaining $7,000 to next year.

What Happens After You File

Once you file your 2016 tax return with Schedule D attached, the IRS processes it and matches the transactions you reported against the Forms 1099-B brokers submitted. This matching typically occurs 12–18 months after filing.

If Everything Matches

The IRS accepts your return as filed. If you're due a refund, expect it within 21 days of e-filing or 6–8 weeks for paper returns.

If Discrepancies Exist

You may receive a CP2000 notice indicating "underreported income." This isn't an audit but a proposal for additional tax. You have the right to respond with documentation explaining the discrepancy (for example, showing that your basis was higher than reported on the 1099-B, or that the IRS didn't account for adjustments you made on Form 8949).

Capital Loss Carryforward

If you have unused capital losses after applying the $3,000 limit, you must track these for future years. The IRS doesn't automatically track carryforwards—it's your responsibility to maintain records and report them correctly on future returns. Consider completing the Capital Loss Carryover Worksheet and keeping it with your permanent tax records Source.

State Tax Returns

Most states require you to report capital gains and losses on your state return. Some states conform to federal treatment, while others have their own rules. File your state return after completing your federal Schedule D.

FAQs

1. Do I need to report the sale of my home on Schedule D?

Only if you can't exclude all the gain under the home sale exclusion rules, or if you received Form 1099-S from the closing. If you qualify for the full $250,000/$500,000 exclusion and didn't receive Form 1099-S, you typically don't need to report it. However, if you used part of the home for business or rental after May 6, 1997, special rules may require reporting Source.

2. What if I lost my records and don't know my cost basis?

Contact your broker—they may have historical records. For inherited property, the executor should have provided Form 8971 (for estates settling after July 2015) showing the estate tax value, which becomes your basis. For older inherited property, research the fair market value on the date of death. If records are truly unavailable, you might need to use zero basis, which maximizes your gain and tax.

3. Can I deduct losses from selling my personal car or furniture?

No. Losses on personal-use property aren't deductible. However, gains on personal property are taxable. If you sold your car for more than you paid (rare for vehicles, but possible for collectible cars), you'd report the gain on Schedule D. If you received Form 1099-S for a loss on personal property, report it but enter code "L" on Form 8949 to make the loss non-deductible.

4. How do I report stocks I received as a gift?

Your basis is generally the donor's basis, not the value when you received the gift. Ask the person who gave you the stock what they paid for it. Your holding period usually includes the time the donor held the stock. If the stock's value when gifted was less than the donor's basis, special rules apply—see IRS Publication 551.

5. What's the difference between short-term and long-term capital gains?

Short-term gains (assets held one year or less) are taxed at ordinary income rates, the same as your salary. For 2016, the top rate was 39.6%. Long-term gains (assets held more than one year) benefit from preferential rates: 0%, 15%, or 20%, depending on your tax bracket. This difference can be substantial—always check the holding period before selling.

6. Do I have to report capital gain distributions even if I reinvested them?

Yes. Capital gain distributions from mutual funds are taxable even if automatically reinvested. They appear in box 2a of Form 1099-DIV and should be entered on Schedule D, line 13. If you reinvest them, they increase your basis in the fund, which reduces your gain when you eventually sell the shares.

7. Can I use capital losses from 2016 in future years?

Absolutely. Capital losses never expire—they carry forward indefinitely until you use them. Each year, you can offset all capital gains plus deduct up to $3,000 against ordinary income. Any remaining loss carries to the next year. Track your carryforward using the Capital Loss Carryover Worksheet and report it on line 6 or 14 of next year's Schedule D Source.

For More Information

The complete instructions for 2016 Schedule D are available at IRS.gov. Additional guidance on capital gains and losses appears in IRS Publications 550 (Investment Income and Expenses) and 544 (Sales and Other Dispositions of Assets).