What IRS Form 8949 Is For
IRS Form 8949 (2013) is used to report the sale or exchange of capital assets, such as stocks, bonds, mutual funds, and property held for investment. The form lists each transaction in detail—showing the purchase price, sale price, and gain or loss—so the IRS can verify your totals. It acts as a bridge between your brokerage firm’s 1099-B forms and your Schedule D, where all capital gains and losses are summarized.
Accurate reporting helps ensure you meet your tax obligations and that your federal return reflects the correct cost basis and fair market value of your investments. Visit our IRS Form Help Center to learn more about the forms required for reporting capital gains and losses accurately.
When You’d Use Form 8949
You must file IRS Form 8949 (2013) whenever you sell or exchange capital assets such as stocks, bonds, mutual funds, or investment property. The form is required whether the transaction results in a gain or a loss, and it must be filed even if your broker or financial institution did not issue a Form 1099-B.
You’ll typically use Form 8949 in the following situations:
- Selling investments: When you sell shares, ETFs, or mutual funds, you need to report each transaction separately.
- Selling investment property: When you dispose of real estate held for investment, such as a vacation home that is not your primary residence.
- Filing corrections: When you need to modify information from a prior tax year by submitting an amended return (Form 1040X).
Completing Form 8949 correctly ensures your federal return accurately reflects your capital gains, losses, and cost basis under current tax law. Visit our page on IRS bank levies to learn more about how unresolved capital gain discrepancies can lead to enforced collection.
Key Rules and Details for the 2013 Tax Year
The 2013 IRS Form 8949 introduced significant updates to cost basis reporting and the categorization of capital gains and losses. Beginning that year, brokerage firms were required to report the adjusted cost basis for most stocks purchased in 2011 or later, as well as for mutual fund shares acquired in 2012 or a later year. This change helped the IRS verify the gain or loss you report against the information your broker submits.
The form requires separating transactions based on the holding period:
- Short-term capital gains apply to assets held for one year or less.
- Long-term capital gains apply to property held for more than a year and may qualify for lower capital gains tax rates—0%, 15%, or 20%, depending on income level.
Each transaction is assigned to boxes A–F based on whether the cost basis was reported to the IRS. You may also need to enter adjustment codes (W, B, H, or E) to explain changes, such as wash sales or corrections to basis information.
Step-by-Step: How to Complete Form 8949 (High Level)
- Gather your records: Collect brokerage statements that show the CUSIP number, shares purchased or sold, the original cost, reinvested dividends, other fees, and additional costs associated with the original investment and other investments; this is your essential cost basis. Include any interest income reported for tax purposes and note any other forms you’ll need (such as Schedule D).
- Identify the holding period: Mark each sale as a short-term or long-term gain. Apply special rules for assets received at the original owner's death.
- Choose a basis method: When calculating the cost basis, select a process (for example, the average cost basis, the FIFO method, or the per-share cost basis) based on your records and broker options; this supports understanding the cost basis choices.
- Compute results and adjustments: Determine the gain or loss for each item. Flag any disallowed losses from wash-sale situations. Tally capital losses that may offset capital gains, and see how results affect taxable income and your potential tax bill.
- Transfer totals and file: Move subtotals to Schedule D, then electronically file (or e-file) your federal return. Opt for direct deposit to speed refunds; coordinate with a tax preparer if you also have business returns.
- Get help if needed: A tax professional can verify entries and method choices before submission. Visit our page on IRS payment plans to learn more about setting up a payment agreement if capital gains increase your tax due.
Common Mistakes and How to Avoid Them
When preparing IRS tax forms, such as Form 8949, simple errors can result in incorrect reporting of your capital gain or loss. Below are some common issues and ways to prevent them:
- Mixing short- and long-term transactions: Always check the holding period on your Form 1099 to confirm whether each sale results in a short-term gain or a long-term one before entering it on the form.
- Incorrect cost basis due to stock splits or reinvestments: Review statements from many brokerage firms to ensure you’re not using a lower price than your actual purchase cost. Compare these details with your records.
- Forgetting other capital gains or losses: Make sure you include all reportable transactions and correctly calculate your net capital loss to claim available deductions.
- Mismatched broker data: Verify that both you and your broker report the exact figures to prevent notices or delays in processing your return for taxable gain accuracy.
What Happens After You File
After filing your tax return, the IRS reviews all transactions listed on Form 8949 and matches them against data from brokers and financial institutions. If the details align, your return is processed, and any refund or payment is based on your net gain or loss. If discrepancies appear—such as missing transactions or incorrect figures from the previous tax year—the IRS may issue a notice requesting clarification.
To prevent issues, keep copies of your records, including trade confirmations, brokerage statements, and cost basis information, for a minimum of three years. Accurate documentation helps ensure a smooth review and quick resolution. Visit our Unfiled Federal Returns page to learn more about catching up on missing filings that include capital asset transactions.
FAQs
Do I need to report all my capital gains on Form 8949?
Yes, whenever you sell or exchange capital assets, such as stocks, real estate, or mutual funds, you must report the resulting capital gains or losses on Form 8949 to ensure accurate tax reporting.
How does the IRS determine my cost basis for capital gains tax purposes?
Your cost basis is generally the amount you paid for an asset, including fees or commissions. The capital gains tax is calculated on the difference between this figure and the sale price, adjusted for allowable changes.
What is the adjusted cost basis, and why is it important?
The adjusted cost basis takes into account factors such as reinvested dividends, stock splits, or additional purchase costs. Using the correct adjusted figure ensures your capital gains and losses are accurate.
Can I use the average cost basis for mutual funds?
Yes, some brokerage firms allow investors to use the average cost basis method when reporting mutual fund sales. This simplifies tracking multiple purchase prices over time.
What if I discover errors after filing my Form 8949?
If you realize a mistake—such as an omitted sale or miscalculated gain—you can correct it by filing an amended return using Form 1040X and an updated Form 8949.
