What Schedule D Is For

Schedule D (Form 1040) is the IRS form you use to report profits and losses from selling investments and other capital assets during the 2011 tax year. Think of it as the final summary page where all your buying and selling activity gets tallied up to determine whether you owe taxes on investment gains or can claim a deduction for investment losses.

Capital assets include most property you own for personal use or investment purposes—stocks, bonds, mutual funds, rental property, your home (in certain cases), and even cryptocurrency. When you sell these assets for more than you paid, you have a capital gain. When you sell for less, you have a capital loss. Schedule D is where you report these transactions and calculate your bottom-line tax impact.

A major change in 2011: The IRS introduced a new companion form called Form 8949, which replaced the old Schedule D-1. Before 2011, you could list many transactions directly on Schedule D. Starting in 2011, you must first complete Form 8949 to list each individual transaction, then transfer the totals to Schedule D. This two-step process helps the IRS match your reported transactions with the Forms 1099-B that brokers send to both you and the IRS.

Schedule D consists of three parts: Part I for short-term gains and losses (assets held one year or less), Part II for long-term gains and losses (assets held more than one year), and Part III where you combine everything to determine your final capital gain or loss for the year.

When You’d Use Schedule D (Late/Amended)

You should have filed Schedule D with your 2011 tax return by April 17, 2012 (the deadline was extended from April 15 because that fell on a Sunday, and April 16 was Emancipation Day in Washington, D.C.). However, life happens, and you may need to file late or make corrections.

Filing Late

If you missed the 2012 deadline and still haven't filed your 2011 return, you should file it as soon as possible. The IRS generally allows you three years from the original due date to file and still claim a refund—meaning for 2011 returns, you had until April 15, 2015, to file and receive any refund owed. After that, you forfeit your refund, though you should still file if you owed taxes, as penalties continue to accumulate. If you're filing a very late 2011 return now, you won't receive a refund, but filing eliminates ongoing penalties.

Filing an Amended Return

Perhaps you filed your 2011 return on time but later discovered mistakes on your Schedule D—maybe you forgot to report a stock sale, miscalculated your cost basis, or overlooked a wash sale adjustment. You would use Form 1040X (Amended U.S. Individual Income Tax Return) to correct these errors. Attach a corrected Schedule D and Form 8949 to your Form 1040X.

You don't need to amend for simple math errors—the IRS automatically corrects those. You also don't need to file an amended return if you simply forgot to attach Form 8949 or other supporting schedules; the IRS will request them. However, you must amend if you omitted income (like an unreported 1099-B), claimed incorrect basis, or made errors that change your tax liability. For 2011 returns, you generally had three years from the original filing date (or two years from when you paid the tax, whichever is later) to amend and potentially receive an additional refund. The deadline has passed for most 2011 amendments, but you can still file an amended return to correct errors that resulted in underpayment, avoiding potential penalties and interest.

Key Rules or Details for 2011

The Two-Form System

2011 marked the first year taxpayers had to use Form 8949 alongside Schedule D. You must complete Form 8949 first, listing each transaction with details including description, purchase and sale dates, sales price, cost basis, and any adjustments. Then you transfer the totals from Form 8949 to the appropriate lines on Schedule D. This represents the IRS's enhanced effort to match taxpayer reporting with broker-provided information.

Holding Period Matters

The IRS taxes your gains differently based on how long you held an asset. Assets held one year or less generate short-term capital gains, taxed at your ordinary income tax rates (which in 2011 ranged from 10% to 35%). Assets held more than one year generate long-term capital gains, taxed at preferential rates—either 0% or 15% for most taxpayers in 2011, depending on your tax bracket. Taxpayers in the 10% and 15% ordinary income brackets paid 0% on long-term capital gains, while those in higher brackets paid 15%.

The $3,000 Loss Limitation

If your capital losses exceed your capital gains for 2011, you can deduct up to $3,000 of net losses against your other income ($1,500 if married filing separately). Any excess losses carry forward to future years indefinitely.

Wash Sale Rules

If you sold securities at a loss and purchased substantially identical securities within 30 days before or after the sale, the IRS disallows the loss under the “wash sale” rule. The disallowed loss gets added to the basis of the replacement securities, effectively deferring the loss until you sell those securities. For 2011, brokers began reporting some wash sales on Form 1099-B, but you remain responsible for identifying all wash sales, especially those involving purchases across different brokerage accounts or within IRAs.

Qualified Small Business Stock (QSBS) Exclusion

Under Section 1202, you could exclude 50% of gains (60% for certain empowerment zone businesses) from qualifying small business stock held more than five years. The excluded amount was still partially subject to AMT. This favorable rule applied to eligible stock purchased during certain periods, including much of 2011.

Capital Gain Distributions

Mutual funds and REITs report capital gain distributions on Form 1099-DIV. You report these directly on Schedule D, line 13, as long-term capital gains regardless of how long you held the fund shares.

Step-by-Step (High Level)

Here's how to complete Schedule D for 2011, working in conjunction with Form 8949:

Step 1: Gather Your Documents

Collect all Forms 1099-B from brokers showing securities sales, Forms 1099-S for real estate transactions, and your own records showing purchase dates, costs, and selling expenses. You'll need complete information for each transaction: what you sold, when you bought it, when you sold it, the sale price, and your cost basis (what you paid, plus improvements or minus depreciation where applicable).

Step 2: Complete Form 8949 First

The form has two parts—Part I for short-term transactions and Part II for long-term. Within each part, you'll complete separate pages depending on whether your broker reported basis to the IRS (boxes A/D), didn't report basis (boxes B/E), or the transaction wasn't reported to the IRS at all (boxes C/F). List each transaction line by line, including any adjustments in column (g) for items like wash sales, nondeductible losses, or basis adjustments. Total each page and prepare to carry these totals to Schedule D.

Step 3: Transfer Totals to Schedule D

On Schedule D, lines 1–3 receive your short-term totals from Form 8949's three categories. Lines 8–10 receive your long-term totals. Each line requires entering the total sales price, total cost basis, adjustments, and the calculated gain or loss. The form automatically separates short-term and long-term because they're taxed differently.

Step 4: Add Other Capital Items

Beyond Form 8949 transactions, Schedule D captures gains from other forms: installment sale income (Form 6252), casualty gains (Form 4684), capital gain distributions from mutual funds (line 13), and gains or losses from partnerships or S corporations reported on Schedule K-1. Include any capital loss carryovers from 2010 on the designated lines.

Step 5: Calculate Your Net Result

Line 7 shows your net short-term capital gain or loss. Line 15 shows your net long-term capital gain or loss. Line 16 combines them for your total capital gain or loss for 2011. This final number determines your next steps.

Step 6: Follow the Form's Instructions for Tax Calculation

If line 16 is a gain and both lines 15 and 16 are gains, you may benefit from special capital gains tax rates. The form directs you to worksheets that calculate your tax using the preferential 0%/15% rates for long-term gains. If line 16 is a loss, you report up to $3,000 of loss on Form 1040 line 13 and carry forward any excess.

Step 7: Complete Required Worksheets

Depending on your situation, you may need to complete the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet (for certain capital gains situations), the 28% Rate Gain Worksheet (for collectibles), or the Unrecaptured Section 1250 Gain Worksheet (for real estate depreciation recapture). These worksheets ensure you're taxed correctly on different types of capital gains.

Common Mistakes and How to Avoid Them

Mistake #1: Forgetting Form 8949 Entirely

Some taxpayers, remembering the pre-2011 system, try to list transactions directly on Schedule D or forget Form 8949 completely. Starting in 2011, Form 8949 is mandatory for most transactions. Always complete it first, then transfer totals to Schedule D. The IRS computers expect to see Form 8949 matching the 1099-B forms they received.

Mistake #2: Using the Wrong Holding Period

Determining whether a gain is short-term or long-term can be tricky. Remember: the holding period begins the day after you acquire property and includes the day you sell it. A stock bought on March 15, 2010, and sold on March 15, 2011, is short-term (exactly one year, not more than one year). But if sold on March 16, 2011, it's long-term. Double-check your dates, especially for transactions near the one-year mark—the tax difference can be substantial.

Mistake #3: Incorrect Cost Basis

Many taxpayers simply use the purchase price as their basis without adjusting for stock splits, dividend reinvestments, return of capital distributions, or prior gifts/inheritances. If you automatically reinvested dividends for years, each reinvestment created new purchases at different prices. For gifts, you generally use the donor's basis; for inheritances, you typically use the fair market value on the date of death. Keep meticulous records or request “cost basis statements” from your broker. Starting with some 2011 purchases, brokers began tracking basis, but they may not have complete history for older shares.

Mistake #4: Overlooking Wash Sales

While brokers began reporting some wash sales in 2011, they only catch wash sales within the same account. If you sold stock at a loss in one account and bought it back in another account within 30 days—or even in an IRA—the wash sale rule applies, but you must catch it yourself.

Mistake #5: Netting Before Reporting

Some taxpayers combine similar transactions and report net amounts, especially when they have hundreds of trades. This is incorrect. You must report each transaction individually on Form 8949 (or attach a broker statement containing equivalent detailed information). Netting prevents IRS matching and raises red flags.

Mistake #6: Misreporting Home Sales

Not all home sales require reporting. If you sold your primary residence and qualify to exclude the entire gain (up to $250,000, or $500,000 for married couples), and you didn't receive Form 1099-S, you don't report it at all. But if you can't exclude all the gain, or if you received Form 1099-S, you must report it on Form 8949 and Schedule D, even if no tax is ultimately owed after the exclusion.

Mistake #7: Ignoring Capital Loss Carryovers

If you had net capital losses in 2010 exceeding the $3,000 deduction limit, you should carry the excess to 2011. Many taxpayers forget this, losing valuable deductions. Review your 2010 Schedule D or use the Capital Loss Carryover Worksheet in the instructions to calculate the correct amount to report on lines 6 and 14 of your 2011 Schedule D.

What Happens After You File

IRS Processing

The IRS processes your return, typically within 6–8 weeks for paper returns or 3 weeks for e-filed returns (2011 returns would have been processed long ago, but this was the timeline then). During processing, IRS computers match the transactions you reported on Form 8949 with the Forms 1099-B that brokers submitted. Perfect matching reduces audit risk; discrepancies trigger notices.

Automated Matching

The IRS runs matching programs comparing your reported capital gains income with third-party reporting. If your Schedule D omits transactions or shows different amounts than Forms 1099-B, you'll likely receive a CP2000 notice (Underreporter Inquiry). This isn't technically an audit but a proposal to adjust your return based on the IRS's information. You can agree and pay additional tax, or disagree and provide documentation explaining the discrepancy (such as correct cost basis not reflected on the 1099-B).

Refund or Payment

If your Schedule D shows capital losses that reduced your tax, your refund includes that benefit. If you had net gains increasing your tax, you either paid when filing or entered a payment plan. The Schedule D doesn't trigger special payment terms—it simply affects your overall tax calculation on Form 1040, line 44 (2011 version).

Carryover Tracking

If you had net capital losses exceeding $3,000, the unused portion carries forward to 2012 and beyond. The IRS doesn't automatically track this—you must use the Capital Loss Carryover Worksheet to calculate the carryover and remember to claim it on future returns. Keep your 2011 Schedule D and worksheet with your permanent tax records.

Audit Potential

Capital gains transactions can trigger audits, especially when they're large, involve complicated basis calculations, or show patterns inconsistent with other financial information. The IRS typically has three years from your filing date to audit (six years if you understated income by 25% or more). For most 2011 returns filed by the April 2012 deadline, the audit window closed in April 2015, though it remains open if you never filed or filed fraudulently.

State Tax Impact

Your federal Schedule D usually flows to your state tax return. Most states tax capital gains as ordinary income without preferential rates, so even though your federal long-term gains received favorable 0% or 15% rates, your state might tax them at regular rates. Check your state return to see how Schedule D affected your state liability.

FAQs

Do I need Schedule D if I only have capital gain distributions from mutual funds with no actual sales?

It depends. If you have only capital gain distributions (reported on Form 1099-DIV box 2a) and qualified dividends, you can simply report the capital gain distribution directly on Form 1040, line 13, without filing Schedule D. However, if you have any other capital transactions—even one stock sale, a capital loss carryover, or gains from other forms—you must file Schedule D and report the capital gain distributions on Schedule D, line 13.

How do I know if my gain is short-term or long-term when I sold shares from different purchase dates?

When you sell shares acquired at different times (like through dividend reinvestment plans), you must identify which shares you're selling. By default, the IRS uses FIFO (first in, first out)—meaning you sold the oldest shares first. However, you can specify which shares you're selling at the time of sale by instructing your broker (you must do this before the sale settles). Different shares may have different holding periods and basis amounts, so tracking this properly can significantly affect your taxes. Once you've chosen an identification method for a particular security, you generally must continue using it consistently.

What happens if I forgot to report a stock sale on my 2011 return?

The IRS likely received a Form 1099-B showing the sale. You should file an amended return (Form 1040X) with corrected Schedule D and Form 8949 to report the omitted transaction. If the sale resulted in a gain, filing an amended return lets you pay the tax owed before the IRS assesses penalties and interest. If the sale resulted in a loss, amending might reduce your tax, entitling you to a refund—but for 2011, you generally needed to amend by April 2015 to claim that refund. If you haven't amended yet and received an IRS notice, respond promptly with documentation explaining the situation.

Can I deduct the loss from selling my personal car on Schedule D?

No. Losses from selling property held for personal use aren't deductible. Schedule D is only for reporting losses on investment property and business property (with business property also requiring Form 4797). While you must report a gain if you sell your personal car for more than its cost basis, losses on personal-use property aren't deductible (casualty/theft losses are a separate matter on Form 4684).

What's the difference between capital gain distributions and actually selling mutual fund shares?

Capital gain distributions occur when the mutual fund itself sells securities within its portfolio. The fund passes these gains to shareholders as distributions, reported on Form 1099-DIV. You report these on Schedule D, line 13, as long-term capital gains regardless of how long you've owned the fund shares—you didn't sell anything. Separately, when you sell the mutual fund shares themselves, that's a capital transaction requiring Form 8949, with the gain or loss depending on your basis in the shares and your holding period.

I have a capital loss carryover from 2010. Where do I find that amount?

Check your 2010 Schedule D, specifically the Capital Loss Carryover Worksheet in the 2010 instructions. If you completed it properly, it shows how much short-term and long-term loss carries to 2011. Enter the short-term carryover on 2011 Schedule D, line 6, and the long-term carryover on line 14 (both as negative numbers in parentheses).

Do I need a tax professional to complete Schedule D, or can I do it myself?

It depends on your situation's complexity. If you have straightforward stock sales from one broker with basis properly reported on Form 1099-B, and no complications like wash sales, inherited property, or partnerships, you can likely complete Schedule D yourself using tax software that imports your 1099-B data. For complex situations—multiple brokers, missing cost basis, wash sales across accounts, sale of business property, installment sales, or QSBS—consider a tax professional.

Sources

This guide is based on authoritative IRS resources including the 2011 Instructions for Schedule D (Form 1040) and 2011 Form 1040 Schedule D. For additional details, consult IRS Publication 550 (Investment Income and Expenses) and Publication 544 (Sales and Other Dispositions of Assets), available at IRS.gov.