Form 8949: Sales and Other Dispositions of Capital Assets (2020)
What the Form Is For
Form 8949 is the IRS form you use to report the sale or exchange of capital assets—essentially, things you own for investment or personal purposes. Think of it as the detailed receipt book that backs up your Schedule D tax form.
Capital assets include stocks, bonds, mutual funds, cryptocurrency, real estate (in most cases), and even collectibles. When you sell any of these assets, Form 8949 is where you list each transaction individually, showing what you bought, when you bought it, what you sold it for, and what you originally paid for it.
The form helps reconcile the information your broker or financial institution reported on Form 1099-B with what you're claiming on your tax return. It’s also where you make adjustments for things like commissions, wash sales, or inherited property. After completing Form 8949, the totals flow to Schedule D (Form 1040), where your overall capital gain or loss is calculated.
When You’d Use It (Including Late or Amended Returns)
You’ll file Form 8949 for any tax year in which you sold or exchanged capital assets.
For 2020:
- Regular filing deadline: April 15, 2021
- Extended filing deadline (if using Form 4868): October 15, 2021
You must file Form 8949 if you:
- Sold stocks, bonds, or cryptocurrency
- Sold or exchanged investment real estate
- Had nonbusiness bad debts or worthless securities
- Invested in a Qualified Opportunity Fund (QOF)
Amended or late filings:
If you receive a corrected Form 1099-B or discover an omission/error in your cost basis, file Form 1040-X (Amended Return) with a corrected Form 8949 attached. Most taxpayers have three years from the original filing deadline to amend.
Key Rules for 2020
1. Short-Term vs. Long-Term:
- Assets held one year or less → short-term (taxed at ordinary rates).
- Assets held more than one year → long-term (taxed at 0%, 15%, or 20%).
2. The 1099-B Matching Requirement:
Check boxes A–F on Form 8949 to indicate whether your broker reported basis to the IRS. Incorrect or missing reconciliation is a frequent IRS notice trigger.
3. Covered vs. Non-Covered Securities:
- “Covered” means the broker reported cost basis to the IRS (e.g., most stocks purchased after 2010).
- “Non-covered” means you must determine and report your own basis.
4. Wash Sale Rules:
Selling a stock at a loss and repurchasing substantially identical stock within 30 days disallows the loss. Instead, add the loss to the basis of the new stock.
5. Virtual Currency Treatment:
Crypto is property, not currency. Each sale, exchange, or purchase made with crypto must be reported on Form 8949, with gains/losses categorized as short- or long-term.
Step-by-Step Guide (High Level)
Step 1: Gather Documents
Collect all Forms 1099-B, crypto exchange reports, and your own purchase/sale records.
Step 2: Organize by Category
Separate into short-term and long-term transactions, and then by whether your broker reported cost basis (A/B/C or D/E/F).
Step 3: Complete the Form
For each transaction:
- (a) Property description (e.g., “100 shares Apple Inc.”)
- (b) Date acquired
- (c) Date sold
- (d) Proceeds (sales price)
- (e) Cost basis
- (f) Adjustment code (e.g., “B,” “E,” or “W”)
- (g) Adjustment amount
- (h) Gain or loss
Step 4: Apply Adjustments
Use codes to adjust for brokerage errors, expenses, or disallowed wash-sale losses.
Step 5: Total Each Page
Add up proceeds, basis, and gains/losses at the bottom of each page.
Step 6: Transfer to Schedule D
Enter totals in the appropriate lines of Schedule D to determine overall net gain/loss.
Common Mistakes and How to Avoid Them
- Mixing short- and long-term sales: Report them separately.
- Incorrect cost basis: Always verify broker-reported basis includes adjustments (dividends, splits, commissions).
- Missing transactions: Even if your broker sent the IRS a 1099-B, you must include those sales on your own Form 8949.
- Unreported cryptocurrency: Every crypto trade or exchange must be reported.
- Ignoring wash sales: Brokers only track wash sales within their firm—cross-account or IRA-related wash sales are your responsibility.
- Leaving blanks: Avoid incomplete fields; don’t enter “various” unless you attach full documentation.
What Happens After You File
IRS Matching: The IRS compares your Form 8949 against 1099-B data. Discrepancies lead to CP2000 notices proposing extra tax.
Refunds/Payments:
- Net capital losses (up to $3,000; $1,500 if MFS) reduce taxable income.
- Excess losses carry forward indefinitely.
- Net capital gains increase tax liability, taxed at applicable short- or long-term rates.
Audit Triggers:
Large losses, crypto trades, or non-reported basis items can attract extra scrutiny. Keep records at least three years, longer for inherited/gifted assets.
FAQs
Q: Do I still need Form 8949 if my broker reported everything?
A: Usually yes, unless all transactions are “covered,” have no adjustments, and you report summary totals directly on Schedule D.
Q: How do I report inherited stock?
A: Basis is the fair market value on the date of death. Enter “INHERITED” in column (b) and report as long-term regardless of holding period.
Q: What if I forgot a sale?
A: File an amended return with a corrected Form 8949. Doing this voluntarily avoids larger penalties later.
Q: Can I deduct wash-sale losses?
A: Not immediately. Add the disallowed loss to the new stock’s basis and defer the deduction until a later sale.
Q: How many pages can I file?
A: As many as needed—one for each category (A–F). You may attach a brokerage statement in the same format instead.
Q: What’s the penalty for not reporting?
A: Unreported sales = underreported income → 20% accuracy penalty + interest. Intentional omission can trigger fraud penalties (75%) or criminal charges.
Q: Do I report crypto trades here?
A: Yes. Every crypto sale or exchange (e.g., BTC → ETH) belongs on Form 8949. Each is a taxable event.
Sources:
Disclaimer: This guide is for informational purposes only and does not constitute legal or tax advice. Always consult a qualified tax professional for personal guidance.
