What the Form Is For

Schedule D (Form 1040) is the IRS form you use to report profits or losses from selling investments and certain other assets during the 2022 tax year. Think of it as the final scorecard that tallies up all your investment wins and losses for the year.

You'll need Schedule D when you've sold stocks, bonds, mutual funds, cryptocurrency, real estate (not your main home in most cases), or other capital assets. The form also captures capital gain distributions from mutual funds or REITs, even if you didn't sell any shares yourself. Additionally, if you wrote off a bad debt that wasn't related to your business or had property taken through condemnation or other involuntary conversion, Schedule D is where you report it.

The form works hand-in-hand with Form 8949 (Sales and Other Dispositions of Capital Assets). Generally, you'll list each individual transaction on Form 8949 first, then carry the totals over to Schedule D, where the IRS calculations happen. Schedule D is divided into two main parts: Part I for short-term transactions (assets you held one year or less) and Part II for long-term transactions (assets you held more than one year). This distinction matters enormously because the IRS taxes long-term gains at preferential rates (0%, 15%, or 20% depending on your income), while short-term gains are taxed at your regular income tax rates, which can be much higher.

One crucial function of Schedule D is handling capital losses. If your losses exceed your gains, you can deduct up to $3,000 of net capital losses against your other income ($1,500 if married filing separately). Any remaining losses carry forward to future years, which Schedule D helps you calculate and track.

When You'd Use It (Including Late and Amended Returns)

You must file Schedule D with your Form 1040, 1040-SR, or 1040-NR by the regular tax deadline—for 2022 returns, that was April 18, 2023 (April 15 fell on a weekend, and the 17th was Emancipation Day in Washington, D.C.). If you requested an extension, you had until October 16, 2023, but remember that extensions give you more time to file, not to pay. Any taxes owed were still due by the April deadline.

Late Filing

If you missed the deadline and need to file Schedule D for 2022, you should do so as soon as possible. The IRS can assess penalties and interest on unpaid taxes, and these accrue daily. Even if you can't pay what you owe, filing on time (or as close to on time as possible) reduces penalties. For Schedule D specifically, failing to report capital gains can trigger notices from the IRS, especially since brokers report these transactions via Form 1099-B, giving the IRS a copy of what you sold.

Amended Returns

Discovered an error on your Schedule D after filing? You'll need to file an amended return using Form 1040-X (Amended U.S. Individual Income Tax Return). Common reasons for amending include receiving a corrected Form 1099-B from your broker, finding you miscalculated your cost basis, forgetting to report a transaction entirely, or incorrectly classifying a gain as short-term when it was actually long-term (or vice versa). You have three years from the original filing deadline or two years from when you paid the tax (whichever is later) to amend your return and claim a refund. When amending, you'll attach a corrected Schedule D and any necessary Forms 8949 to your Form 1040-X, showing both your original figures and the corrected amounts.

Key Rules for 2022

Holding Period Matters

The IRS draws a bright line at one year. If you bought stock on March 15, 2021, and sold it on March 15, 2022, that's exactly one year—making it short-term. Sell it on March 16, 2022, and it becomes long-term. Short-term gains get taxed as ordinary income (10% to 37% depending on your tax bracket), while long-term gains enjoy preferential rates (0%, 15%, or 20% for most taxpayers, though special rules apply to collectibles and certain business property).

The $3,000 Loss Limitation

This is one of the most important rules on Schedule D. If your total capital losses exceed your total capital gains, you can only deduct up to $3,000 of the net loss against your other income (wages, interest, etc.) in any single year. If you're married filing separately, the limit drops to $1,500. Any unused losses don't disappear—they carry forward indefinitely to future tax years, where the same rules apply again.

Form 8949 Requirement

Almost every capital asset sale requires detailed reporting on Form 8949 before it reaches Schedule D. There are limited exceptions for certain broker-reported transactions that meet specific criteria, which can be reported directly on lines 1a or 8a of Schedule D. The instructions spell out exactly when you can use this shortcut—when in doubt, use Form 8949.

Non-Deductible Losses

Not all losses count. You cannot deduct losses from sales of personal-use property (like your car or vacation home), losses from sales between related parties (like selling stock to your spouse or child at a loss), or losses from "wash sales" (where you sell a security at a loss but buy substantially identical securities within 30 days before or after the sale). However, even if a loss isn't deductible, you still must report the transaction if you received a Form 1099-S or Form 1099-B.

Basis is Critical

Your gain or loss depends on subtracting your "basis" (usually what you paid, plus improvements and costs) from your selling price. Many taxpayers stumble here, especially with inherited property (which gets a "stepped-up" basis), gifted property, or stock acquired through various means. Keep meticulous records, including purchase confirmations, reinvested dividends, and any adjustments.

Capital Loss Carryovers

If you had unused capital losses from 2021, you must bring them forward to 2022 using the Capital Loss Carryover Worksheet in the Schedule D instructions. These carryovers are used first before any current-year losses.

Step-by-Step: How to Complete Schedule D (High Level)

While the actual form has detailed line-by-line instructions, here's the general workflow:

Step 1 – Gather Your Documents

Collect all Forms 1099-B from brokers, Forms 1099-DIV showing capital gain distributions, and your own records of transactions not reported by brokers (like cryptocurrency sales, real estate, or private sales). Also locate your 2021 tax return if you have capital loss carryovers.

Step 2 – Complete Form 8949

For each capital asset you sold, report the transaction on Form 8949, separating short-term (Part I) from long-term (Part II). Include the description of the property, dates acquired and sold, sales price, cost basis, and any adjustments. Your Form 1099-B will help you determine which box to check on Form 8949 (based on whether basis was reported to the IRS). Total each section of Form 8949.

Step 3 – Transfer Totals to Schedule D Parts I and II

Carry the totals from Form 8949 to the corresponding lines on Schedule D. Part I handles short-term transactions (lines 1–7); Part II handles long-term transactions (lines 8–15). Add any capital gain distributions from mutual funds (from Form 1099-DIV) to line 13.

Step 4 – Calculate Your Net Gain or Loss

Combine all your short-term transactions to get your net short-term gain or loss (line 7). Do the same for long-term transactions (line 15). Part III brings these together, starting at line 16.

Step 5 – Handle Capital Loss Limitations

If you have a net loss, Schedule D will apply the $3,000 limitation. If you have losses exceeding this, you'll use the Capital Loss Carryover Worksheet (found in the Schedule D instructions) to calculate what carries forward to 2023.

Step 6 – Determine Your Tax

If you have a net capital gain, you'll generally use the Qualified Dividends and Capital Gain Tax Worksheet (found in Form 1040 instructions) to calculate your tax, taking advantage of the lower long-term capital gains rates. If you have collectibles gains or unrecaptured Section 1250 gain from real estate, you may need additional worksheets.

Step 7 – Attach to Form 1040

Attach the completed Schedule D (and all supporting Forms 8949) to your Form 1040. The final figure from Schedule D flows to Form 1040, line 7 (for the 2022 version).

Common Mistakes and How to Avoid Them

Mistake #1 – Skipping Form 8949

Many taxpayers try to report everything directly on Schedule D without completing Form 8949. Unless your transactions meet the narrow exceptions for lines 1a or 8a, this is incorrect. Solution: Complete Form 8949 for all sales, even if it seems redundant.

Mistake #2 – Wrong Holding Period

Miscounting days is surprisingly common. Remember: the holding period starts the day after you acquire the asset and ends on the day you sell it. Solution: Use your actual trade dates from confirmations. When in doubt, count carefully or use an online date calculator.

Mistake #3 – Incorrect Cost Basis

Forgetting to include reinvested dividends, commission costs, or using the wrong basis method for mutual fund sales leads to overpaying taxes. Solution: Keep detailed records throughout the year. For stocks with reinvested dividends, track each reinvestment as it increases your basis. Use your broker's cost basis information but verify it's correct.

Mistake #4 – Claiming Non-Deductible Losses

Reporting losses from personal property sales, related-party transactions, or wash sales without proper adjustments can trigger IRS scrutiny. Solution: Understand which losses are deductible. For wash sales, adjust the basis of your replacement shares rather than claiming the loss.

Mistake #5 – Forgetting Capital Loss Carryovers

Failing to carry forward unused losses from previous years means leaving money on the table. Solution: Always check your prior-year return (line 16 of your 2021 Schedule D) for any capital loss carryover. Use the worksheet in the instructions to properly calculate and apply it.

Mistake #6 – Not Reporting Zero-Gain Transactions

If you received a Form 1099-B or 1099-S, you must report the transaction even if there's no gain or even a non-deductible loss. Solution: Report everything that generates a 1099. The IRS matches these forms to your return.

Mistake #7 – Mismatching Form 1099-B Information

Incorrectly transcribing amounts from your 1099-B creates IRS matching problems. Solution: Double-check every figure. If you received a corrected 1099-B after filing, amend your return promptly.

What Happens After You File

IRS Matching Process

The IRS receives copies of all your Forms 1099-B and 1099-S directly from brokers and closing agents. Their computers automatically match these against what you reported. If there's a discrepancy—say you forgot to report a stock sale—you'll likely receive a CP2000 notice proposing additional tax, penalties, and interest. This usually arrives 12–18 months after filing, though it can take longer.

If You Owe Additional Tax

Schedule D determines whether your capital transactions increased or decreased your tax bill. If you owe more and didn't pay enough through withholding or estimated taxes, you'll owe the balance (plus interest from the April deadline). The IRS will send a bill if you didn't pay with your return.

If You're Due a Refund

Capital losses that offset your other income can increase your refund. The IRS typically processes refunds within 21 days for e-filed returns, though paper returns take longer (six to eight weeks or more). Your refund will be either directly deposited or sent as a check.

Carryover to Next Year

Any capital losses exceeding the annual $3,000 limit automatically carry forward. You don't need to file special paperwork—just keep your 2022 Schedule D and worksheets for when you prepare your 2023 return. The amount shows on line 16 of Schedule D and flows to your Capital Loss Carryover Worksheet.

Audit Potential

While most returns aren't audited, capital gains transactions can attract attention, especially if you report losses on high-value assets or if your transactions don't match IRS records. The IRS typically has three years from your filing date to audit (longer if they suspect substantial underreporting or fraud). Keep all records—including brokerage confirmations, closing statements, and cost basis documentation—for at least three years, preferably seven.

State Returns

Don't forget that most states tax capital gains as well. Your Schedule D information will flow to your state return, though some states have different rules (some don't tax long-term gains preferentially, for instance).

FAQs

1. Do I need to report stocks that I held all year but didn't sell?

No. Schedule D only reports actual sales or exchanges that occurred during 2022. Unrealized gains or losses on investments you still own aren't reported. However, you must report capital gain distributions from mutual funds, even if you didn't sell any shares and even if the distributions were automatically reinvested.

2. I sold my home in 2022. Does it go on Schedule D?

It depends. If you qualify for the home sale exclusion (up to $250,000 for single filers, $500,000 for married filing jointly), and your gain is less than the exclusion amount, you don't report the sale at all. However, if you received Form 1099-S, have gain exceeding the exclusion, don't qualify for the exclusion, or have a deductible loss on business or rental use, you'll need to report it. The rules are complex—see Publication 523 (Selling Your Home) for details.

3. What if my broker didn't report the correct cost basis on Form 1099-B?

You're responsible for reporting the correct basis, even if the broker gets it wrong. On Form 8949, enter the amounts from your 1099-B in the appropriate columns, then make an adjustment in column (g) to correct the basis. Include code "B" (for basis) in column (f) to show the adjustment. Attach a statement explaining the change if needed. This prevents IRS matching problems while ensuring you pay the correct tax.

4. Can I deduct losses from selling my personal car, furniture, or jewelry?

No. Losses on personal-use property aren't deductible. Gains are taxable, though. So if you sold grandmother's diamond ring for more than her original cost (your basis), you report a capital gain. If you sold it for less, you have a non-deductible loss—but if you received Form 1099-B (unlikely for personal items but possible at auction), you still report the transaction showing no deductible loss.

5. I had a wash sale. How do I report it?

A wash sale occurs when you sell a security at a loss and buy substantially identical securities within 30 days before or after the sale. The loss isn't currently deductible—instead, it's added to the basis of the replacement shares. Your broker will usually identify wash sales on Form 1099-B. Report the transaction on Form 8949, and use code "W" in column (f) with an adjustment in column (g) to disallow the loss. The disallowed loss increases the basis of your replacement shares, so you'll benefit when you eventually sell those.

6. How far back can I carry capital losses?

Capital losses don't carry back to previous years—they only carry forward indefinitely to future years. Each year, you apply them against that year's capital gains first, then deduct up to $3,000 against other income, then carry the rest forward again. Keep good records, because you may be carrying losses for many years.

7. I sold cryptocurrency in 2022. Does it go on Schedule D?

Yes. The IRS treats virtual currency (cryptocurrency) as property, not currency. Any sale or exchange is a capital transaction. If you held the crypto one year or less, it's short-term; more than one year makes it long-term. You'll need to determine your cost basis (what you paid, including fees) and report each transaction on Form 8949 and Schedule D. Many exchanges don't provide complete tax reporting, so keep detailed records yourself.

Sources: All information in this guide comes from official IRS sources, including the 2022 Schedule D instructions, About Schedule D (Form 1040), and IRS Topic 409 (Capital Gains and Losses).

This guide is for informational purposes only and is not tax advice. Consult a qualified tax professional for your specific situation.