What Form 8949 Is For

Form 8949 is the IRS form you use to report the sale or exchange of investment assets—things like stocks, bonds, mutual funds, real estate, and even digital currencies like Bitcoin. Think of it as the detailed receipt that shows the IRS exactly what you bought, when you bought it, what you sold it for, and how much profit or loss you made.

The form serves as a critical bridge between what your broker or financial institution reports to the IRS (via Forms 1099-B or 1099-S) and what you actually report on your tax return. It helps reconcile any differences in these numbers. For example, if your broker reported you received $10,000 from selling stock but didn't know you originally paid $8,500 for it, Form 8949 is where you provide that missing cost information.

Once you complete Form 8949, the totals get transferred to Schedule D (Capital Gains and Losses), which then flows to your main tax return (Form 1040). The form is divided into two parts: Part I for short-term transactions (assets held one year or less) and Part II for long-term transactions (assets held more than one year). This distinction matters because long-term capital gains typically receive more favorable tax treatment.

IRS Form 8949 Instructions

When You’d Use Form 8949 (Including Late and Amended Filings)

You must file Form 8949 with your 2022 tax return if you:

Sold stocks, bonds, mutual funds, or other securities during the year
Exchanged or disposed of real estate investment property
Sold or traded digital assets (cryptocurrency, NFTs)
Had worthless securities or nonbusiness bad debts
Made an election to defer capital gains by investing in a Qualified Opportunity Fund (QOF)

Important exception: You may not need Form 8949 if all your Forms 1099-B show that your broker reported your cost basis to the IRS and you don't need to make any adjustments. In this case, you can report summary totals directly on Schedule D.

Late filings: If you missed reporting capital gains or losses when you originally filed your 2022 return, you'll need to file an amended return using Form 1040-X (Amended U.S. Individual Income Tax Return). Include the corrected Form 8949 and Schedule D with your amendment. Late filing may result in interest charges and potentially penalties, especially if the correction increases your tax liability.

Amended filings: You should amend your return if you discover errors such as incorrect cost basis, missing transactions, wrong holding periods, or miscalculated adjustments. Common scenarios include receiving corrected 1099-B forms after filing, discovering unreported sales, or finding calculation errors. You typically have three years from the original filing deadline to amend and claim a refund.

IRS About Form 8949

Key Rules or Details for 2022

Holding Period Classifications

Short-term: Assets held for one year or less (reported in Part I). Taxed as ordinary income at your regular tax rate.
Long-term: Assets held for more than one year (reported in Part II). Subject to preferential capital gains rates of 0%, 15%, or 20% depending on your taxable income.

Capital Loss Limitations

You can deduct capital losses against capital gains dollar-for-dollar. If your losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against other income. Any remaining losses carry forward to future tax years indefinitely.

Cost Basis Reporting

For "covered securities" (generally stocks acquired after 2010 and certain debt instruments acquired after 2013), brokers must report your cost basis to the IRS. You must use this reported basis unless you have documentation showing it's incorrect. For inherited property, you generally use the fair market value on the date of death as your basis.

Record-Keeping Requirements

You must maintain documentation showing purchase price, sale price, dates of acquisition and sale, commissions, and any adjustments to basis (such as stock splits, reinvested dividends, or improvements to property). Keep these records for at least three years after filing, though longer is prudent.

Digital Assets

The IRS treats cryptocurrencies and NFTs as property, not currency. Every sale, exchange, or use to purchase goods or services is a taxable event that must be reported on Form 8949.

IRS Topic 409 - Capital Gains and Losses

Step-by-Step (High Level)

Step 1: Gather Your Documentation

Collect all Forms 1099-B from brokers, Forms 1099-S for real estate sales, and your own records of acquisition dates and costs. If you sold cryptocurrency, compile transaction records from exchanges.

Step 2: Organize by Category

Separate transactions into six categories based on checkboxes at the top of Parts I and II:

Short-Term Categories

• Box A: Short-term with basis reported to IRS
• Box B: Short-term with basis NOT reported to IRS
• Box C: Short-term with no 1099-B received

Long-Term Categories

• Box D: Long-term with basis reported to IRS
• Box E: Long-term with basis NOT reported to IRS
• Box F: Long-term with no 1099-B received

Step 3: Complete the Form

For each transaction, enter:

• Column (a): Description of property (stock name, number of shares)
• Column (b): Date acquired
• Column (c): Date sold
• Column (d): Proceeds (sales price from 1099-B)
• Column (e): Cost or basis
• Column (f): Adjustment code(s) if needed
• Column (g): Adjustment amount
• Column (h): Gain or loss (calculated automatically if using software)

Step 4: Make Necessary Adjustments

Use column (f) codes if you need to adjust for wash sales (code W), non-deductible losses (code L), incorrect basis (code B), or other special situations. Enter the adjustment amount in column (g).

Step 5: Calculate Totals

Add up all gains and losses at the bottom of each Part. Transfer these totals to the corresponding lines on Schedule D.

Step 6: Review and File

Double-check that all transactions match your 1099-B forms and that totals transfer correctly to Schedule D. File Form 8949 as an attachment to your Form 1040.

Common Mistakes and How to Avoid Them

1) Mixing Short-Term and Long-Term Transactions

Mistake: Reporting a long-term gain in Part I (short-term section).
Solution: Carefully count the holding period from the day after purchase to the sale date. If more than one year, use Part II.

2) Ignoring the Exception for Simple 1099-B Reporting

Mistake: Manually entering hundreds of transactions when you could report summary totals directly on Schedule D.
Solution: If all your 1099-B forms show basis reported to IRS (box 3 checked) with no adjustments needed, use the Exception 1 shortcut.

3) Using Incorrect Cost Basis

Mistake: Using the sale price instead of original purchase price, or forgetting to adjust for stock splits.
Solution: Carefully review your broker statements and maintain records. If basis isn't shown on 1099-B, contact your broker for historical records.

4) Forgetting Adjustment Codes

Mistake: Making basis corrections without entering the required code in column (f).
Solution: Use code "B" when correcting basis, "W" for wash sales, "E" for expense adjustments. The form requires these codes to explain adjustments.

5) Missing Transactions Entirely

Mistake: Not reporting cryptocurrency sales, private stock sales, or gifts of securities because no 1099-B was received.
Solution: Report all capital asset sales, even without a 1099-B. Use Box C or F depending on holding period.

6) Inconsistent Inherited Property Reporting

Mistake: Using purchase price instead of stepped-up basis for inherited assets.
Solution: For inherited property, use fair market value at date of death. Enter "INHERITED" in column (b) and report on Part II regardless of actual holding time.

7) Poor Record-Keeping

Mistake: Discarding purchase confirmations and then being unable to document cost basis during an audit.
Solution: Keep all brokerage statements, purchase confirmations, and records of reinvested dividends for at least three years after filing.

What Happens After You File

Immediate Processing

When you file your return with Form 8949, the IRS computers automatically match your reported proceeds (sales amounts) against the 1099-B information brokers submitted. If the numbers match and your return is otherwise complete, processing proceeds normally and you'll receive any refund or pay any balance due.

Reconciliation Review

The IRS cross-checks your reported gains and losses against third-party reports. Significant discrepancies—like reporting $5,000 in proceeds when your broker reported $50,000—can trigger automated notices. Minor differences usually don't cause problems if you've properly used adjustment columns.

Potential Correspondence

If there's a mismatch, you may receive a CP2000 notice (Proposed Changes to Your Tax Return) typically 12-18 months after filing. This isn't an audit but rather a request to explain the difference. Respond promptly with documentation supporting your reported amounts.

Tax Calculation Impact

Your net capital gain or loss from Form 8949 (via Schedule D) directly affects your tax liability. Long-term gains may qualify for lower tax rates (0%, 15%, or 20% for 2022). Short-term gains are taxed at your ordinary income rate. Capital losses offset gains and up to $3,000 of other income.

Carryover Tracking

If you have capital losses exceeding your gains by more than $3,000, the IRS tracks your capital loss carryforward. This unused loss appears on your tax account and can be used in future years until exhausted.

Refund or Payment

Capital losses can increase your refund or decrease what you owe. Capital gains do the opposite. The IRS typically processes returns with Form 8949 in the same timeframe as other returns—21 days for e-filed returns, 4-6 weeks for paper returns.

IRS About Schedule D

FAQs

Q1: Do I need to file Form 8949 if I only had losses?

Yes. Whether you have gains, losses, or both, you must report all capital asset sales on Form 8949. Losses are valuable because they offset gains and up to $3,000 of ordinary income, and unused losses carry forward.

Q2: What if my broker's cost basis is wrong on Form 1099-B?

You should use the correct basis you know to be accurate. Enter the incorrect basis from Form 1099-B in column (e), then enter code "B" in column (f) and the correction amount in column (g). Keep documentation supporting the correct basis in case of IRS questions.

Q3: How do I report cryptocurrency transactions?

Treat each crypto sale or exchange as a property transaction. In column (a), include the full name of the digital asset (e.g., "Bitcoin") and the amount of units. Report on Part I if held one year or less, Part II if held longer than one year. Many crypto exchanges now provide 1099-B forms, but you're responsible for reporting even without one.

Q4: Can I file Form 8949 electronically?

Yes. Most tax software handles Form 8949, and many programs can import transactions directly from broker files. E-filing is generally faster and more accurate than paper filing. If you have numerous transactions, electronic filing with imported data is strongly recommended.

Q5: What's a "wash sale" and how does it affect Form 8949?

A wash sale occurs when you sell a security at a loss and buy the same or substantially identical security within 30 days before or after the sale. The loss is disallowed for current-year deduction but gets added to the basis of the replacement stock. Your broker typically identifies wash sales on Form 1099-B with code "W," which you must report in column (f).

Q6: Do I need Form 8949 for selling my primary residence?

Usually not. Most home sales qualify for the $250,000 ($500,000 if married) capital gains exclusion under section 121. If your gain exceeds the exclusion or you don't meet the ownership and use tests, report the taxable gain on Form 8949. Otherwise, you don't report it at all.

Q7: How long do I need to keep records related to Form 8949?

Keep records for at least three years from the filing date, which is the standard audit period. However, the IRS recommends keeping records for as long as seven years for significant transactions, and indefinitely for purchase records of property you still own since you'll need them when you eventually sell.