Understanding Your Layman's Guide to Reporting Capital Gains and Losses
When you sell investments like stocks, bonds, or real estate in 2014, the IRS wants to know about it—not just whether you made or lost money, but also the details of each transaction. Form 8949 is the tax form that captures these details and reconciles what your broker reported with what you're claiming on your tax return. Think of it as the itemized receipt that backs up the bottom-line numbers you'll eventually report on Schedule D.

What the Form Is For

Form 8949, titled "Sales and Other Dispositions of Capital Assets," serves as the detailed transaction log for reporting capital gains and losses. When you sell capital assets—investments like stocks, mutual funds, bonds, real estate, or even certain collectibles—you must report each sale to calculate whether you made a profit or took a loss.

The form works hand-in-hand with Schedule D, which summarizes your overall capital gains and losses. While Schedule D gives the IRS your final numbers, Form 8949 provides the supporting detail for each transaction. For 2014, the form was specifically designed to help taxpayers reconcile information they received on Form 1099-B (from brokers for stock sales) or Form 1099-S (for real estate transactions) with what they're reporting on their returns.

Form 8949 applies to individuals, corporations, partnerships, estates, and trusts. Beyond standard investment sales, you also use this form to report nonbusiness bad debts (money you loaned that won't be repaid), worthless securities (stocks that became completely valueless), and certain involuntary conversions of capital assets. IRS Form 8949 Instructions 2014

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

You must file Form 8949 with your 2014 tax return if you sold or exchanged capital assets during the year. The form is attached to your Schedule D, which accompanies your main tax return (Form 1040 for individuals, Form 1120 for corporations, Form 1041 for estates and trusts, or Form 1065 for partnerships).

Regular Filing Timeline

Form 8949 is due when your tax return is due. For calendar year 2014, individual taxpayers had until April 15, 2015 (or October 15, 2015, with an extension) to file their returns including Form 8949.

Late Filing

If you failed to report capital asset sales on your original 2014 return, you should file an amended return using Form 1040X (for individuals) as soon as you discover the error. You'll need to include a corrected Schedule D and Form 8949 with the amended return. The IRS may assess penalties and interest on any additional tax owed, so it's important to amend promptly once you realize transactions were omitted.

Amended Returns

You would need to amend your 2014 return if you discover errors such as incorrect basis amounts (what you originally paid for the asset), wrong dates, missing transactions, or incorrect gain/loss calculations. Common reasons for amending include receiving corrected 1099-B forms from brokers, discovering forgotten transactions, or realizing you qualified for an exclusion you didn't claim (such as the home sale exclusion). When amending, you complete Form 8949 as it should have been filed originally, showing all transactions correctly. IRS Form 8949 Instructions 2014

Key Rules for 2014

Several important rules governed Form 8949 reporting for the 2014 tax year:

Short-term vs. Long-term

You must categorize your transactions based on how long you held the asset. Assets held one year or less generate short-term gains or losses (reported on Part I of Form 8949), while assets held more than one year generate long-term gains or losses (reported on Part II). This distinction matters because long-term capital gains receive preferential tax rates. The holding period begins the day after you acquired the property and includes the day you sold it.

Broker Reporting and Basis

For 2014, brokers were required to report cost basis to the IRS for most stock acquired in 2011 or later, and for certain debt instruments acquired in 2014 or later. This means Form 1099-B statements received from brokers increasingly included basis information in box 1e. The form has three checkbox categories for each part (A/B/C for short-term, D/E/F for long-term) that correspond to whether basis was reported to the IRS, wasn't reported, or you didn't receive a 1099-B at all.

Inherited Property

If you inherited property, you generally report the sale as long-term regardless of how long you held it, and the basis is typically the fair market value at the date of death. You enter "INHERITED" in the date acquired column.

Aggregation Exception

If all your Form 1099-B statements showed that basis was reported to the IRS and you didn't need to make any adjustments, you didn't have to complete Form 8949 for those transactions. Instead, you could report the total directly on Schedule D, line 1a (short-term) or line 8a (long-term).

Wash Sale Rules

If you sold stock at a loss and then bought substantially identical stock within 30 days before or after the sale, the loss is disallowed and must be added to the basis of the replacement stock. You report wash sales on Form 8949 with a code "W" in column (f).

Capital Loss Limits

For individuals, capital losses are deductible only up to the amount of capital gains plus $3,000 ($1,500 if married filing separately). Excess losses carry forward to future years. IRS Schedule D Instructions 2014

Step-by-Step (High Level)

Step 1: Gather Your Documentation

Collect all Form 1099-B statements from brokers, Form 1099-S for real estate sales, and your own records showing purchase dates, purchase prices, and sale information for any transactions not reported on these forms.

Step 2: Separate Transactions by Holding Period and Reporting Status

Sort your sales into short-term (held one year or less) and long-term (held more than one year). Then, within each category, separate them based on whether you received a 1099-B showing basis was reported to the IRS (check boxes A or D), basis wasn't reported (boxes B or E), or you didn't receive a 1099-B at all (boxes C or F).

Step 3: Complete Part I for Short-term Transactions

Fill out separate Part I sections for each checkbox category (A, B, or C) that applies. For each transaction, enter the description of the property (such as "100 shares XYZ Corp"), date acquired, date sold, proceeds (sales price), cost or other basis, and calculate gain or loss. If you need to make adjustments—such as correcting incorrect basis, excluding gain from a home sale, or adding back a disallowed wash sale loss—enter the appropriate code in column (f) and the adjustment amount in column (g).

Step 4: Complete Part II for Long-term Transactions

Follow the same process as Part I, but use Part II of the form and check the appropriate box (D, E, or F) based on your 1099-B reporting status.

Step 5: Total Each Part

Add up columns (d), (e), (g), and (h) for each completed Part I and Part II, entering the totals on line 2 of each part.

Step 6: Transfer Totals to Schedule D

Carry the totals from each Form 8949 to the corresponding lines on Schedule D—line 1b, 2, or 3 for short-term transactions, and line 8b, 9, or 10 for long-term transactions, depending on which box you checked. Schedule D then calculates your overall capital gain or loss, which flows to your main tax return. IRS Form 8949 2014

Common Mistakes and How to Avoid Them

Mistake #1: Reporting Transactions on the Wrong Part

Many taxpayers confuse short-term and long-term holding periods. Remember: one year or less is short-term (Part I), more than one year is long-term (Part II). Use the trade date (the date the transaction was executed), not the settlement date.

Mistake #2: Using Incorrect Basis

Your basis is usually what you paid for the asset, including commissions and fees. Don't forget to adjust for stock splits, reinvested dividends, return of capital distributions, or previous wash sales. If your 1099-B shows basis, verify it's correct—brokers can make errors.

Mistake #3: Checking the Wrong Box

The box you check (A through F) must match how the transaction was reported to the IRS. If box 3 on your Form 1099-B is checked, basis was reported to the IRS—use box A (short-term) or D (long-term). If box 3 is blank, use box B or E. If you didn't receive a 1099-B, use box C or F.

Mistake #4: Failing to Report Adjustments

If your 1099-B shows incorrect basis or you qualify for an exclusion (like the home sale exclusion), you must enter the adjustment in column (g) with the proper code in column (f). Simply using different numbers without showing the adjustment will trigger IRS notices.

Mistake #5: Forgetting to Report All Transactions

Every sale must be reported, even if you didn't receive a 1099-B, even if the transaction resulted in a loss, and even if you reinvested the proceeds. The IRS receives copies of all 1099-B forms and will notice omissions.

Mistake #6: Not Keeping Adequate Records

If you can't document your purchase date and cost basis, you may have to use zero as your basis, which dramatically increases your taxable gain. Keep brokerage statements, trade confirmations, and records of reinvested dividends indefinitely.

How to Avoid These Mistakes

Carefully review each 1099-B against your own records before completing Form 8949. Use tax software that can import transactions directly from brokers, verify the holding periods, and double-check basis adjustments. When in doubt, consult the detailed instructions or seek professional help. IRS Form 8949 Instructions 2014

What Happens After You File

Once you file Form 8949 with your return, the IRS's computers match the information against the 1099-B and 1099-S forms filed by brokers and closing agents. This matching process typically happens several months after you file.

If Everything Matches

Your return is processed normally, and if you're due a refund, you receive it according to the normal timeline (typically within 21 days for e-filed returns).

If There's a Discrepancy

The IRS may send you a CP2000 notice, which proposes changes to your return based on the information they received from third parties. This isn't an audit, but rather a request to explain the difference. You'll have an opportunity to respond and provide documentation showing why your reported amounts are correct.

Common Reasons for IRS Inquiries

Missing transactions that appear on a 1099-B you received, proceeds amounts that don't match what the broker reported, or basis amounts that differ from what was reported to the IRS. These situations often arise from corrected 1099-B forms that taxpayers received after filing, multiple 1099-B forms from account transfers between brokers, or legitimate adjustments that weren't properly coded.

How to Respond

If you receive an IRS notice, don't ignore it. Review it carefully, gather your documentation, and respond by the deadline shown (usually 30 days). If your return was correct, explain why and provide supporting evidence. If you discover you made an error, you can agree to the IRS's proposed changes or file an amended return if additional corrections are needed.

Statute of Limitations

Generally, the IRS has three years from your filing date to audit your return or assess additional tax. For substantial understatements (omitting more than 25% of your income), they have six years. Keep your Form 8949 records and supporting documentation for at least three years, and longer if you've claimed capital loss carryovers that extend into future years. IRS About Form 8949

FAQs

Q1: Do I need to file Form 8949 if I only had capital gains distributions from mutual funds?

No. Capital gains distributions reported in box 2a of Form 1099-DIV are reported directly on Schedule D, line 13 (for Form 1040). You don't use Form 8949 for distributions, only for actual sales of shares.

Q2: What if I sold my home in 2014? Do I use Form 8949?

It depends. If you qualify for the home sale exclusion (you lived in the home for at least 2 of the last 5 years and your gain is under $250,000 if single or $500,000 if married filing jointly), you don't need to report the sale at all if you can exclude the entire gain. If your gain exceeds the exclusion amount or you don't qualify, you report it on Form 8949, Part II (long-term), and use code "H" to claim the partial exclusion.

Q3: I received a corrected 1099-B after I filed my return. What do I do?

If the correction changes your tax liability, you should file an amended return (Form 1040X for individuals) with a corrected Form 8949 and Schedule D. If the correction doesn't change your tax liability (for example, a minor difference in basis that doesn't affect gain or loss), you may not need to amend, but keep the corrected form with your records in case the IRS inquires.

Q4: Can I wait until I have capital gains to use my capital losses, or must I take them in the year of the sale?

You must report capital losses in the year the sale occurs. However, if your losses exceed your gains plus the $3,000 annual deduction limit, you carry the excess forward to future years. You cannot choose to "save" a loss for a more advantageous year.

Q5: What's the difference between "cost basis" and "adjusted basis"?

Cost basis is what you originally paid for an asset. Adjusted basis is your cost basis plus or minus certain adjustments—adding capital improvements (for real estate) or subtracting depreciation, stock splits, or return of capital distributions. Adjusted basis is what you use to calculate gain or loss on Form 8949.

Q6: I day-trade stocks. Do I need to list every single transaction separately?

Generally, yes—each transaction should be on a separate row. However, if you qualify for trader tax status (which has specific requirements) or if you meet the special aggregation exceptions for certain entities, you may be able to use summary reporting. Most individual day traders must report each trade separately, though tax software can help automate this.

Q7: What happens if I can't find records of what I paid for stock purchased years ago?

Unfortunately, if you cannot establish your cost basis and the broker doesn't have records, the IRS may require you to use zero as your basis, which would mean your entire proceeds are taxable as gain. Contact your broker first—they may have archived records. Also check old tax returns for records of dividend reinvestments or previous transactions in the same security that might help establish basis. IRS Form 8949 Instructions 2014

Form 8949 may seem intimidating with its multiple parts and detailed requirements, but it's essentially a comprehensive transaction log that ensures both you and the IRS are working from the same information. By understanding the basic structure, keeping good records, and carefully matching your reporting to the 1099 forms you receive, you can navigate this form successfully and accurately report your capital gains and losses for 2014.