What Form 8949 Is For
IRS Form 8949 (2024) is used to report the sale or exchange of capital assets such as stocks, bonds, mutual funds, cryptocurrency, or investment property. It provides the Internal Revenue Service with a detailed record of each capital gain or loss, including the purchase price, sales price, and cost basis of every transaction.
This form helps ensure your records match what brokers report on Form 1099-B or Form 1099-S. Form 8949 also separates short-term and long-term capital gains and losses, which determines how your income is taxed. Accurate reporting supports correct tax return calculations and prevents IRS mismatches.
When You’d Use Form 8949
You’ll need to include Form 8949 with your tax return whenever you sell or exchange capital assets during the year. This includes everyday investment transactions and exceptional cases where gains or losses must be reported to the Internal Revenue Service.
Use Form 8949 when:
- You sell or exchange capital assets such as stocks, mutual funds, cryptocurrency, or investment real estate.
- You have capital gains or losses that need to be reported for the 2024 tax year.
- You receive a Form 1099-B or 1099-S showing proceeds from brokered sales.
- You must correct reporting errors or update an incorrect cost basis by filing an amended return (Form 1040-X).
- You have wash sales, adjustments, or other short-term or long-term transactions not already matched by the IRS.
If all your trades were accurately reported to the IRS and require no changes, you may skip Form 8949 and report totals directly on Schedule D instead. Visit our page on the IRS collection process to learn more about how the IRS reviews capital gain reporting and verifies Form 8949 entries with Form 1099-B data.
Key Rules or Details for 2024
When filing IRS Form 8949 (2024), several IRS rules determine how your capital gains and losses are reported for tax purposes:
- Holding period: The holding period determines how your capital gains are taxed. Assets held for one year or less result in short-term capital gains, which are taxed as ordinary income. Assets held for more than one year qualify for long-term capital gains rates.
- Broker reporting: Match the sales proceeds exactly as listed on Form 1099-B or other brokerage statements. Record any differences as adjustments with the correct code.
- Cost basis: Use the broker’s cost basis method unless you can document a different adjusted cost basis. Keep records for reinvested dividends, stock splits, and other trading costs.
- Digital assets: Every sale or exchange of cryptocurrency or NFTs must be reported to the Internal Revenue Service.
- Wash sale rules: Losses from buying the same security within 30 days are disallowed and must be added to your new cost basis.
Step-by-Step Filing Process (High Level)
Filing IRS Form 8949 (2024) helps you report each capital asset transaction correctly and meet your tax obligations. Follow these steps for smooth tax preparation and accurate tax filing:
- Gather your records: Collect every tax form, including Forms 1099-B and 1099-S, and statements showing capital assets held, dividend reinvestment plan entries, and brokerage fees.
- Organize transactions: Separate short-term transactions (held one year or less) from long-term transactions reported (held longer than a year).
- Determine cost basis: The cost basis is usually the purchase price plus any related fees. Use the average cost method or average cost basis, as required, for mutual funds.
- Calculate gains or losses: Subtract your tax cost basis from the sales price or fair market value to find your net gain or capital losses.
- Apply rules: Remember that short-term gains are taxed as ordinary income, while long-term gains may be subject to lower income tax rates under current tax law.
- Review totals and adjustments: Ensure that all short-term transactions reported and long-term transactions reported match the broker's data to avoid errors.
- Confirm deductions and carryforwards: Eligible capital losses can provide a tax deduction or offset future capital gains.
- Seek help if needed: Consult a tax professional for tax advice on complex cases like interest income, deferring gains to defer income, or minimizing higher capital gains.
Accurately calculating the cost basis and verifying fair market values helps reduce tax liability. Check our IRS Payment Plans page to learn more about setting up a payment agreement if corrected capital gain reporting increases your tax balance.
Common Mistakes and How to Avoid Them
When completing IRS Form 8949 (2024), even minor errors can affect your tax return or trigger IRS notices. Here are frequent mistakes and how to prevent them:
- Incorrect cost basis: Many taxpayers overlook the need to include reinvested dividends or adjustments resulting from stock splits. Use your broker’s statement or the IRS-approved cost basis method to confirm accuracy.
- Wrong holding period: Miscounting one year can change your capital gain rate. Track purchase and sale dates carefully to distinguish short- and long-term assets.
- Unreported crypto or digital asset sales: Every trade or exchange must be reported. Download transaction records from each platform before filing.
- Ignoring wash sale rules: Buying the same stock within 30 days disallows a loss. Wait beyond the 30-day window or adjust your cost basis properly.
- Mixing categories: Combining short-term and long-term transactions on a single form can lead to errors. Use separate Form 8949 pages for each transaction type.
What Happens After You File
After you submit Form 8949 with your tax return, the IRS reviews all your transactions to ensure they match what brokerage firms report, and many brokerage firms report on Form 1099-B or any substitute statement. The IRS compares your reported stock sales, personal property, and other investments against data from brokers to verify reporting income and the original purchase price of each asset.
If mismatches occur—such as using more than one code or inconsistent totals—the IRS may issue a notice for clarification. Usually, this happens months after tax season. To avoid issues, confirm that both you and your broker report the exact details. For complex cases, seek further guidance from a tax professional or the IRS website. If the IRS sends a notice, visit our site for guidance on our IRS problem support page.
FAQs
Do I need to report every sale of capital assets on Form 8949?
Yes, you must report each sale or exchange of capital assets such as stocks, mutual funds, or crypto, unless your broker has already reported them accurately to the IRS.
How do I determine the correct cost basis for my transactions?
Your cost basis is generally the purchase price plus related fees. Review your broker statements to verify accuracy and keep records for all trades.
Which cost basis method should I use when reporting mutual fund sales?
Most taxpayers use the average cost method, but you can also choose specific identification or FIFO, depending on your records and broker’s reporting system.
How is capital gains tax calculated for short-term and long-term sales?
The capital gains tax depends on how long you held the asset. Short-term gains are taxed as ordinary income, whereas long-term gains may be subject to lower rates.
What’s the difference between average cost basis and adjusted cost basis?
The average cost basis calculates the mean purchase price of identical shares. An adjusted cost basis accounts for changes such as reinvested dividends, stock splits, or wash sales.
