Filing a Schedule D With Your Form 1040

Gains and certain losses resulting from the sale of capital assets, as well as certain other items, are reported on Form 1040 Schedule D. It is generally used to report:

  • The sale or exchange of a capital asset not reported on another form or schedule
  • Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit
  • Capital gain distributions not reported on Form 1040 itself
  • Effectively connected distributions not reported on Form 1040NR
  • Nonbusiness bad debts

Most assets that a taxpayer owns and uses for personal purposes or investment are capital assets. Houses, furniture, cars, stocks, and bonds are generally capital assets. When selling these at a profit, except when exempt (such as the tax break on the sale of a primary residence, more here), a taxpayer is responsible for the capital gains tax.

A capital loss (selling at a loss) may be used to offset a gain in another other sale. When losses exceed gains in a calendar year they are deductible up to $3,000 ($1,500 if married filing separately). Excess capital losses may be carried over to future years.

The following are not capital assets:

  • Stock in trade and other property included in inventory or held primarily for sale to customers
  • Accounts and notes receivable for services rendered in the ordinary course of the taxpayer's trade or business, for services rendered as an employee, or from the sale of stock in trade or other property included in inventory or held primarily for sale to customers
  • Depreciable property used in the taxpayer's trade or business
  • Real estate used in the taxpayer's trade or business
  • Copyrights and literary, musical, or artistic compositions that have been created by the taxpayer's personal efforts, prepared or produced by the taxpayer, or received with a carryover basis
  • U.S. government publications that the taxpayer received from the government for less than the normal sales price
  • Certain derivative financial instruments held by a dealer
  • Certain hedging transactions entered into in the normal course of the taxpayer's trade or business
  • Supplies regularly used in the taxpayer's trade or business

Short-Term and Long-Term Gains and Losses

Short-term capital gains and losses are reported in Part I of the Schedule D. A gain or loss is short-term if it resulted from the sale of an asset that the taxpayer held for one year or less. If short-term gains exceed short-term losses, the taxpayer pays tax on the net gain at ordinary income rates.

Long-term capital gains and losses, which result from the sale of assets held by the taxpayer for more than one year, are reported on Part II. The tax rates on long-term gains are generally much lower than those of ordinary income tax.

You can find more on understanding and calculating capital gains tax, here.

Ready to start your tax filing now?

Start Now