What IRS Schedule D (Form 1040) (2024) Is For
Taxpayers use IRS Schedule D (Form 1040) (2024) to report capital gains and losses from selling or exchanging investments and other property. The form summarizes profits and losses from transactions such as stocks, bonds, real estate, mutual funds, and cryptocurrency.
When an individual sells a capital asset, the result is either a gain or a loss based on the difference between the purchase price and the sale price. These amounts determine whether additional tax is owed or if a deduction can be applied to reduce overall taxable income. Schedule D works with Form 8949, where each transaction is listed in detail before totals are transferred for final reporting.
When You’d Use Schedule D
Taxpayers must file Schedule D when they sell or exchange capital assets such as stocks, bonds, mutual funds, cryptocurrency, or real estate and need to report capital gains and losses. It is also required when claiming capital loss carryovers, receiving capital gain distributions, or selling collectibles and other investments during the tax year.
Schedule D is filed with Form 1040 by April 15, 2025, or October 15, 2025, if an extension is granted. If errors or omissions occur—such as missing transactions or incorrect cost basis—an amended return must be submitted using Form 1040-X with a corrected Schedule D and Form 8949.
Key Rules or Details for 2024
Short-term capital gains from assets held one year or less are taxed as ordinary income, while long-term capital gains from assets held for more than a year qualify for reduced rates of 0%, 15%, or 20%, depending on taxable income and filing status. The Internal Revenue Service also applies special rates to collectibles and certain types of real estate gains.
Taxpayers may deduct up to $3,000 ($1,500 if married filing separately) of capital losses against ordinary income, with any remaining losses carried forward to future years. Accurate cost basis calculations and compliance with wash sale and related-party transaction rules are essential to avoid disallowed deductions.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide to Individual Schedules.
Step-by-Step (High Level)
Step 1: Gather Required Documents
Taxpayers must collect Forms 1099-B from brokers, closing statements from real estate sales, and all records showing purchase prices, sale proceeds, and holding periods.
Step 2: Complete Form 8949
Each transaction should be reported on Form 8949 with a full description, dates, cost basis, and proceeds. Transactions are divided into short-term and long-term sections before being transferred to Schedule D.
Step 3: Transfer Totals to Schedule D
Totals from Form 8949 are entered into Schedule D, Part I for short-term and Part II for long-term transactions. Certain simple transactions may be reported directly if the broker reported the correct cost basis to the IRS.
Step 4: Calculate Net Gain or Loss
Schedule D combines short-term and long-term totals in Part III to calculate the overall net capital gain or loss. The $3,000 limitation applies here if losses exceed gains.
Step 5: Determine Applicable Tax Rate
If there is a net capital gain, the taxpayer uses either the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet to determine the correct capital gains tax rate.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
Failing to Use Form 8949 When Required
Failing to report transactions on Form 8949 can lead to mismatched data with IRS records. Every sale must be reported unless specific exceptions apply.
Misclassifying Holding Periods
Incorrectly identifying short-term or long-term gains can result in higher tax rates. Long-term treatment requires holding an asset for more than one year.
Ignoring Wash Sale Rules
Disallowed losses occur when taxpayers repurchase the same or similar security within 30 days. Brokers may identify these on Form 1099-B, but it is the taxpayer’s responsibility to track wash sales across all accounts.
Using the Wrong Cost Basis
Incorrect cost basis calculations can trigger additional taxes. Taxpayers should review broker statements and adjust for stock splits, reinvested dividends, and inherited property valuations.
Exceeding the $3,000 Loss Deduction Limit
Some filers attempt to deduct all losses in one year, but only $3,000 can offset ordinary income. The remaining loss must be carried forward using the Capital Loss Carryover Worksheet.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After filing Schedule D, the totals are transferred to Form 1040 and directly affect taxable income. Net capital gains increase total income and may trigger the net investment income tax for high-income earners. In contrast, capital losses reduce taxable income and may lower the overall tax liability. The Internal Revenue Service reviews Schedule D data, along with Forms 1099-B submitted by brokers, to verify that all transactions have been reported accurately and correctly.
If the IRS identifies differences between reported and broker-provided data, it may issue a notice requesting clarification or additional payment. Taxpayers should retain supporting documentation—such as cost basis records, 1099-B forms, and carryover worksheets—for a minimum of three years. Any unused capital losses can be carried forward indefinitely and applied to future tax years until they are fully utilized.
FAQs
Who needs to file IRS Schedule D (Form 1040) (2024)?
Any taxpayer who sells capital assets such as stocks, mutual funds, or cryptocurrency must file this tax form. It reports capital gains and losses for the tax year and determines the amount of capital gains tax owed or refunded.
How are short-term capital gains and long-term capital gains taxed?
Short-term capital gains are taxed as ordinary income based on the filer’s tax bracket, while long-term gains held for more than a year are taxed at preferential capital gains tax rates of 0%, 15%, or 20%.
Can capital losses offset capital gains or ordinary income?
Yes, capital losses first offset capital gains dollar-for-dollar. If total losses exceed gains, up to $3,000 ($1,500 if married filing separately) can be used to offset ordinary income. Remaining losses are carried forward to future tax years.
How do married filing jointly taxpayers pay capital gains taxes?
Married filing jointly taxpayers combine their gains and losses on one tax return. Their income and filing status determine the applicable capital gains rate, which is typically lower than the rate for filing separately or as single filers.
What is the difference between a capital gain and a capital asset?
A capital asset includes property such as investments, real estate, or collectibles. A capital gain occurs when a taxpayer sells that asset for more than its purchase price, creating taxable income that must be reported to the IRS.
How can a taxpayer reduce or minimize capital gains taxes?
Taxpayers can minimize capital gains taxes by holding assets for more than a year, utilizing tax-advantaged accounts, employing tax-loss harvesting strategies, or consulting a qualified tax professional or advisor for personalized tax advice.
What happens if capital gains or investment income are not reported to the IRS?
The Internal Revenue Service automatically compares reported gains to Forms 1099-B from brokers. If discrepancies are found, notices or adjustments may be issued. Failing to report gains can result in increased tax liability and may trigger penalties or interest.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library.
