What IRS Form 8949 Is For
IRS Form 8949 (2022) is used to report the sale or exchange of capital assets such as stocks, bonds, real estate, cryptocurrency, and mutual funds. It provides a detailed breakdown of each transaction, including the purchase price, sale price, and adjusted cost basis, to help you calculate your capital gain or loss. The form ensures that what you report matches the data submitted by your brokerage firm on Form 1099-B. Form 8949 has two parts—Part I for short-term and Part II for long-term transactions—and its totals flow to Schedule D, which determines your overall capital gains and losses for your tax return.
When You’d Use IRS Form 8949
Use IRS Form 8949 when you sell or exchange capital assets during the tax year. These assets include stocks, bonds, mutual funds, real estate, and digital assets such as cryptocurrencies and NFTs. Each time you report a capital gain or loss, the IRS requires you to include this information on Form 8949.
Form 8949 is required in several situations. When you sell or exchange investments reported on Form 1099-B from a brokerage firm, you must complete Form 8949. You also need this form when you dispose of real estate or personal property held for investment. It is required when you report worthless securities or non-business bad debts.
You must use it when you file an amended return on Form 1040-X to correct information previously reported. It is also required when you invest in a Qualified Opportunity Fund to defer capital gains. If the cost basis was reported correctly and no adjustments are needed, you may summarize the totals directly on Schedule D instead of itemizing each transaction on Form 8949.
Key Rules and Details for 2015
For the 2015 tax year, IRS Form 8949 required taxpayers to classify each capital asset as short-term or long-term to calculate the correct capital gains tax. The following labeled points summarize the main rules and reporting requirements for that year:
- Short-term capital gains apply to assets held for one year or less, and they are taxed at your ordinary taxable income rate.
- Long-term capital gains apply to assets held for more than one year, and they qualify for reduced tax rates of 0%, 15%, or 20%, depending on your filing status and total income.
- Capital loss deductions allow you to offset capital gains dollar-for-dollar, which reduces your overall tax obligation.
- Excess loss limits permit you to deduct up to $3,000 in losses ($1,500 if you are married filing separately) against other types of income.
- Capital loss carryovers allow any unused losses to be carried forward to future tax years to lower your taxable gains later.
- Broker reporting rules require brokerage firms to provide the cost basis of covered securities to ensure accurate tax reporting.
- Record-keeping requirements obligate taxpayers to maintain documentation for purchase prices, selling expenses, stock splits, reinvested dividends, and adjusted cost basis for verification purposes.
- Digital asset reporting rules treat virtual currency as property, requiring you to follow the same reporting steps used for other capital assets.
Visit our IRS Payment Plans page to learn more about setting up a payment agreement if capital gain taxes increase your balance due.
Step-by-Step Guide (High Level)
1. Gather documents: Collect Forms 1099-B, 1099-DIV, and any other statements showing capital gain distributions, interest income, and past tax returns. If a form is missing, request a substitute statement from your broker. Most financial institutions allow you to download a complete record of transactions for tax purposes.
2. Classify each sale: Separate short-term gains (assets held one year or less) from long-term gains. Identify any wash sales under the IRS wash sale rule, which can create disallowed losses. Ensure that your records align with your broker’s classifications.
3. Determine the basis: Use the correct cost basis method for your investments. For mutual funds, the average cost basis is typically used to calculate the adjusted basis. Apply fair market value for inherited assets and document exceptional cases, such as community or DC zone property.
4. Enter line items: Record the proceeds and basis for each sale, using adjustment codes as needed for market discounts or bond accruals.
5. Total and review: Calculate your net gain or capital loss carryover, ensure compliance with tax law, and file accurately. Seek a tax professional’s review if complex holdings are involved.
Common Mistakes and How to Avoid Them
Many taxpayers make minor but costly errors when completing IRS Form 8949. The following are common mistakes and simple ways to avoid them:
- Incorrect cost reporting: Errors in calculating the cost basis can cause over- or under-reported gains. Always confirm purchase and sale data before filing.
- Omitting distributions: Failing to include received capital gain distributions from mutual funds or brokerage statements can result in incomplete reporting.
- Inaccurate transaction details: Improperly reporting multiple transactions, or using only one code when more are required, often results in IRS mismatches.
- Ownership confusion: Listing the wrong actual owner or failing to adjust for the original owner’s death can create issues with inheritance reporting.
- Overlooking related costs, such as brokerage fees, can affect the remaining balance of gain or loss.
- Entity reporting errors: Estates, trusts, or other qualified entities sometimes misreport shared assets. Review records carefully to prevent these errors from occurring.
- Entry mistakes: In the above example, incorrect figures, such as “gain h,” can cause inaccuracies when entered. Double-check every line before submission.
Learn more on our Penalty Abatement page to learn more about relief options when Form 8949 filing mistakes lead to IRS penalties or added interest.
What Happens After You File
After you file IRS Form 8949 with your tax return, the IRS compares your reported figures to the data on Form 1099-B from your broker. If everything matches, your return moves through standard processing, and any refund or balance due is issued on schedule. If differences appear—such as sale proceeds or cost basis errors—the IRS may send a notice for clarification.
Provide supporting documents, including brokerage fees or commissions, to ensure accurate reporting of your final capital gain or loss. If you receive a balance due or a letter, visit our site for support in our tax issue help hub.
FAQs
Do I need to file Form 8949 if I only had a small capital gain?
Yes, even a small capital gain from selling investments, such as stocks, bonds, or cryptocurrency, must be reported on IRS Form 8949 and summarized on Schedule D.
How do I figure out my adjusted cost basis?
The adjusted cost basis equals your original purchase price plus commissions and fees, minus any adjustments, such as stock splits or returns of capital. Always verify these numbers before filing.
Can capital losses reduce my tax bill?
Yes, capital losses can offset capital gains, reducing the capital gains tax owed. If losses are larger, the remaining balance may qualify for a capital loss carryover to future years.
What if I am unsure which cost basis method to use?
Many brokerage firms allow taxpayers to choose between average costs and other methods. Selecting the right one can simplify the calculation of the expenses for mutual funds or other investments.
How does accrued market discount affect reporting?
When a bond is purchased below its face value, the accrued market discount must be reported as taxable interest when the bond is sold or matures. This ensures the IRS correctly records your capital gains and losses.
