What Form 8949 Is For

Form 8949 is the IRS form you use to report the sale or disposal of investments and other capital assets. Think of it as the detailed receipt book that supports your Schedule D, which calculates your overall capital gains and losses for the year.

When you sell stocks, bonds, mutual funds, real estate (that isn't your main home), or other investments, the IRS wants to know what you paid for them (your "basis"), what you sold them for (the "proceeds"), and whether you made or lost money on the deal. Form 8949 is where you list each transaction individually, showing the purchase date, sale date, cost, sale price, and any adjustments needed to calculate your actual gain or loss.

The form serves a critical reconciliation function. Your broker sends information about your sales to both you and the IRS on Form 1099-B. Form 8949 ensures that what you report on your tax return matches what the IRS already knows about from those broker reports. If there are any differences—perhaps your broker didn't have complete cost information, or adjustments are needed for things like wash sales—Form 8949 is where you explain and document those adjustments.

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When You’d Use Form 8949

Late/Amended Returns

For your 2016 tax return, you should have filed Form 8949 by the original due date of April 18, 2017 (or October 16, 2017, if you filed for an extension). The form attaches to Schedule D and goes with your Form 1040.

If you missed reporting investment sales on your 2016 return, you need to file an amended return using Form 1040X. You would prepare a corrected Form 8949 and Schedule D showing all transactions that should have been reported, then file Form 1040X to amend your original return. Generally, you have three years from the original filing date to amend a return, so for a 2016 return filed in April 2017, the deadline would have been April 2020.

If you discover errors after filing—perhaps your broker sent a corrected 1099-B, or you realize you used the wrong cost basis—you should also file Form 1040X with corrected Form 8949 and Schedule D. The IRS may assess additional tax and interest if the correction results in more tax owed, but filing an amended return proactively can help you avoid more serious penalties.

Late filing of Form 8949 (if you missed the original deadline entirely) should be done as soon as possible. Late filing penalties can accumulate, but they're generally less severe if you file voluntarily before the IRS contacts you. If your broker already reported your sales on Form 1099-B, the IRS knows those transactions occurred and will be looking for them on your return.

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Key Rules or Details for 2016

Short-Term vs. Long-Term

You must separate your transactions based on holding period. Assets held one year or less are short-term (reported on Part I), while assets held more than one year are long-term (reported on Part II). The holding period starts the day after you acquire the property and includes the day you dispose of it. This matters because long-term capital gains receive preferential tax rates.

Inherited property is almost always treated as long-term, regardless of how long you actually held it. For 2016, if you inherited property, you generally use the fair market value on the date of death as your basis.

Covered vs. Non-Covered Securities

Starting with stock acquired after 2010 (2011 for mutual funds), brokers were required to track and report cost basis to the IRS. These are "covered securities." For 2016 transactions, most of your stock sales probably involved covered securities. Covered securities also included certain debt instruments acquired after 2013, and options, warrants, and certain other instruments acquired after 2013.

Form 1099-B Reporting Boxes

Your Form 1099-B indicates which box to check on Form 8949. Box A or D means basis was reported to the IRS; Box B or E means basis wasn't reported; Box C or F is for transactions not reported on 1099-B at all. You complete separate sections for each category.

Exception for Simple Covered Securities

If all your transactions involved covered securities where basis was correctly reported to the IRS and no adjustments are needed, you can skip Form 8949 entirely and report summary totals directly on Schedule D, line 1a (short-term) or line 8a (long-term). This exception applies only when there are no adjustments needed.

Basis Consistency Requirement for Inherited Property

Beginning in 2016, taxpayers who inherited property had to use a basis consistent with the estate tax value reported on the estate's return (if applicable). Executors were required to provide Form 8971 and Schedule A showing the property's estate tax value.

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Step-by-Step (High Level)

Step 1: Gather Your Documents

Collect all Forms 1099-B from your brokers, along with your own records showing purchase dates, purchase prices (cost basis), and any other relevant information. If you inherited property, get Form 8971/Schedule A from the executor.

Step 2: Separate Short-Term from Long-Term

Sort your transactions into two piles based on holding period: one year or less (short-term) versus more than one year (long-term).

Step 3: Determine Which Box Applies

For each transaction, check whether your Form 1099-B shows basis was reported to the IRS (usually indicated by a checkmark in box 3). This determines whether you use Box A/D (basis reported), Box B/E (basis not reported), or Box C/F (no 1099-B received).

Step 4: Complete Part I for Short-Term Transactions

Use a separate Part I for each category (A, B, or C). For each sale, enter the property description in column (a), dates acquired and sold in columns (b) and (c), proceeds in column (d), and cost basis in column (e). If adjustments are needed, enter the adjustment code in column (f) and the adjustment amount in column (g). Column (h) automatically calculates your gain or loss.

Step 5: Complete Part II for Long-Term Transactions

Follow the same process as Part I, but using Part II and checking Box D, E, or F as appropriate.

Step 6: Total Each Section

Add up all amounts in the totals row (line 2) for each Part I and Part II you completed.

Step 7: Transfer Totals to Schedule D

Carry the totals from each Form 8949 section to the corresponding line on Schedule D. Schedule D then combines all your capital gains and losses to determine your overall capital gain or loss for the year.

Step 8: Attach Form 8949 to Your Tax Return

Form 8949 must be filed along with Schedule D and your Form 1040. If you have many transactions, you may need multiple copies of Form 8949.

IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Mixing short-term and long-term transactions.

Always keep short-term transactions (Part I) completely separate from long-term transactions (Part II). Double-check your holding periods by counting from the day after purchase through the sale date.

Mistake #2: Using the wrong box.

Check your Form 1099-B carefully. If box 3 is checked, your broker reported basis to the IRS and you should use Box A or D. If box 3 isn't checked, use Box B or E. Many taxpayers check the wrong box, causing IRS computers to flag the return for review.

Mistake #3: Forgetting to report transactions that didn't generate a 1099-B.

Just because you didn't receive a 1099-B doesn't mean you don't have to report the sale. Report all capital asset sales on Form 8949, even if you didn't receive a form.

Mistake #4: Using the wrong cost basis.

This is extremely common. Make sure you include all costs (commissions, fees) in your basis. If you reinvested dividends, those purchases increase your basis. For inherited property, use the date-of-death value, not what the deceased person originally paid. For gifts, special rules apply. Keep good records so you know your true basis.

Mistake #5: Failing to adjust for wash sales, stock options, or other special situations.

If you sold stock at a loss and bought it back within 30 days before or after the sale, you have a "wash sale" and must adjust your loss. Stock options often require basis adjustments for amounts previously included in your wages. Use column (f) to enter the appropriate code and column (g) to show the adjustment.

Mistake #6: Not matching the 1099-B exactly.

Even if your broker's basis is wrong, you should enter the basis shown on Form 1099-B in column (e), then use column (g) to adjust it to the correct basis. Enter code "B" in column (f) to indicate a basis adjustment. This prevents IRS computers from sending you an automatic notice.

Mistake #7: Forgetting to attach Form 8949 to your return.

Schedule D by itself isn't enough if you're required to file Form 8949. The IRS may delay processing your return or send a notice requesting the missing form.

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What Happens After You File

Once you file Form 8949 with your 2016 tax return, the IRS will process it along with Schedule D and your Form 1040. Here's what to expect:

IRS Computer Matching

The IRS automatically matches the proceeds amounts you report on Form 8949 against the amounts your broker reported on Forms 1099-B. If the amounts match, your return processes normally. If there's a mismatch, you may receive a CP2000 notice proposing additional tax. This is why it's crucial to report 1099-B amounts accurately and use column (g) for any adjustments.

Refund or Payment

If your Form 8949 shows net capital losses, you can deduct up to $3,000 of those losses against your ordinary income for 2016 (calculated on Schedule D). Any excess loss carries forward to future years. If you have net capital gains, you'll owe tax on those gains at either ordinary income rates (for short-term gains) or preferential long-term capital gains rates of 0%, 15%, or 20%, depending on your 2016 income level.

Three-Year Audit Window

Generally, the IRS has three years from when you filed your 2016 return to audit it. During this time, the IRS might question transactions on your Form 8949, especially if basis information was missing or adjustments were made. Keep all supporting documentation (purchase confirmations, statements showing basis, records of adjustments) for at least three years after filing.

Carryover Information

If you had capital losses exceeding the $3,000 annual deduction limit, or if you had state taxes that differ from federal, you'll need the information from your 2016 Form 8949 and Schedule D to properly report capital loss carryovers on your 2017 and subsequent tax returns.

Amended Return Processing

If you file an amended return with a corrected Form 8949, expect slower processing—typically 8 to 12 weeks, sometimes longer. The IRS will send you a letter explaining any changes to your tax, refund, or amount owed.

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FAQs

Q1: Do I have to file Form 8949 if my broker already reported everything to the IRS?

Yes, usually. Even though your broker sent information to the IRS, you still need to report the transactions on your return. However, there's an exception: if all your transactions were covered securities (basis reported to IRS), you received Forms 1099-B showing correct basis, and no adjustments are needed, you can skip Form 8949 and report summary totals directly on Schedule D, lines 1a or 8a.

Q2: What if I don't know my cost basis for stock I bought years ago?

First, contact your broker—they may have historical records. Check old account statements or trade confirmations. For covered securities (stock acquired after 2010), your broker should have tracked basis. If you truly cannot determine basis, you may have to report zero basis, which means the entire proceeds become taxable gain. However, making a reasonable estimate with documentation is better than reporting zero.

Q3: How do I report cryptocurrency sales on Form 8949?

Cryptocurrency is treated as property for tax purposes. Report crypto sales the same way you report stock sales on Form 8949. Enter the crypto description (e.g., "1 Bitcoin"), dates acquired and sold, proceeds, and basis. Most crypto transactions won't have Form 1099-B reporting, so you'd use Box C (short-term) or Box F (long-term).

Q4: What's a wash sale and how do I report it?

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 and added to the basis of the replacement stock. Your broker may identify wash sales on Form 1099-B. Enter code "W" in column (f) and adjust your loss to zero in column (g). The disallowed loss increases the basis of the replacement shares.

Q5: Can I handwrite Form 8949 or do I need tax software?

You can handwrite Form 8949 if you have relatively few transactions. Download the form from IRS.gov, complete it by hand, and attach it to your paper return. However, if you have many transactions or complex adjustments, tax software makes the process much easier and reduces errors.

Q6: What if I inherited stock in 2016 and sold it later—do I report it now?

No. You only report the sale on Form 8949 in the year you actually sold the stock, not the year you inherited it. For 2016, you'd only report sales that occurred in 2016. When you eventually sell inherited stock, you'll use the date-of-death value as your basis.

Q7: What are the most common adjustment codes for column (f)?

Common codes include: B (basis adjustment when broker's reported basis is incorrect), E (adjustment for selling expenses not included in broker's proceeds), W (wash sale loss disallowed), M (multiple adjustment codes apply), and H (home sale exclusion). The full list of codes is in the Form 8949 instructions. Always use the appropriate code when making adjustments in column (g).

For More Information: Visit IRS.gov/form8949 for the current form, instructions, and updates. For 2016-specific documents, see the 2016 Form 8949 and 2016 Instructions.