What is IRS Form 8949?
IRS Form 8949: Sales and Other Dispositions of Capital Assets is an essential document used to report capital gains and losses from various investments. This form is utilized by individual taxpayers as well as partnerships, corporations, trusts, and estates.
Taxpayers are mandated to report both short-term and long-term capital gains and losses from the sale of investments. Form 8949 is vital in reconciling the differences between amounts reported to taxpayers and the IRS on Form 1099-B, which brokerages send out annually to their account holders.
Key Takeaways
- IRS Form 8949 is crucial for reporting capital gains and losses from investments for accurate tax filing.
- The form is divided into Part I and Part II to differentiate between short-term and long-term capital gains and losses, subjecting them to unique tax rates.
- Form 8949 must be accompanied by Schedule D and Form 1099-B, which is provided by brokerages to individual taxpayers.
Who Can File Form 8949?
According to the IRS, several categories of filers including individuals, partnerships, corporations, trusts, and estates can utilize Form 8949 to report the following:
- The sale or exchange of a capital asset not reported on another form or schedule
- Gains from involuntary conversions of capital assets not used in your trade or business (excluding cases of casualty or theft)
- Non-business bad debts
- The worthlessness of a security
- Deferral of capital gains when invested in a Qualified Opportunity Fund
- Disposition of interests in Qualified Opportunity Funds
Taxpayers who file a joint return must prepare as many Form 8949 pages as necessary to comprehensively report their transactions. All completed pages are consolidated into Schedule D for reporting.
How to File Form 8949
The generation of a capital gain or loss necessitates IRS reporting when a capital asset is sold. To begin, most capital gain or loss transactions should be listed on Schedule D: Capital Gains and Losses of IRS Form 1040. For precise reporting, Form 8949 must be leveraged to calculate the net gain or loss, which is then transferred to Schedule D.
Form 8949 requires the filer’s name and taxpayer identification number, alongside two critical sections:
- Part I: Short-term assets held for one year or less.
- Part II: Long-term transactions involving assets held for over one year.
All assets sold must be clearly identified, detailing purchase and sale dates as well as prices.
Transactions reported on Form 8949 often correlate with data found in Form 1099-B, which brokerages furnish annually to account holders and the IRS. This form outlines the cost basis of the investor’s buy and sell transactions.
In scenarios where Form 1099-B doesn’t include the cost basis of an asset, taxpayers must manually determine the base amount utilizing a separate Form 8949. Such transactions with no Form 1099-B must be recorded on distinct Form 8949 pages.
Moreover, Form 8949 is used to rectify inaccuracies reported on Form 1099-B. When capital losses or gains for the year are accurately reported with the correct basis on Form 1099-B, the use of Form 8949 is not mandatory, though Schedule D should always be filed.
Where to Find Form 8949
Form 8949: Sales and Other Dispositions of Capital Assets can be readily accessed and downloaded via the IRS website.
Can Schedule D Be Completed Without Form 8949?
No, taxpayers with capital gains or losses must file both Form 8949 and Schedule D. Form 8949 lists each transaction including its cost basis, sale date, and total gain or loss. These transactions on Form 8949 are crucial for calculating the final tax due, which is recorded on Schedule D.
What Information Is Required on Form 8949?
Each asset listed on Form 8949 must provide details including:
- Description of the stock or asset
- Purchase price
- Purchase date
- Selling price
- Selling date
Is Form 8949 Required for Reporting Cryptocurrency Transactions?
Yes, Form 8949 may be essential if you gain profit from buying and selling cryptocurrency or exchanging crypto for goods and services in a taxable account. Such transactions that realize a gain in value must be reported.
The Bottom Line
Form 8949: Sales and Other Dispositions of Capital Assets is indispensable for both individuals and businesses in reporting capital gains and losses from investments. Always remember that both Form 8949 and Schedule D are crucial components of your tax return whenever you’ve sold a capital asset such as stock within the fiscal year.
For stock investors, most of the essential information needed to complete Form 8949 is found on Form 1099-B which is provided by brokerages annually to account holders.
Related Terms: Form 1099-B, Schedule D, capital gains, Qualified Opportunity Fund.
References
- Internal Revenue Service. “Topic No. 409, Capital Gains and Losses”.
- Internal Revenue Service. “Instructions for Form 8949 (2022)”.
- Internal Revenue Service. “2022 Instructions for Schedule D (2022)”.
- Internal Revenue Service. “2022 Form 8949”,
- Internal Revenue Service. “About Form 1099-B, Proceeds from Broker and Barter Exchange Transactions”.
- Internal Revenue Service. “About Form 8949, Sales and other Dispositions of Capital Assets”.
- Internal Revenue Service. “Frequently Asked Questions on Virtual Currency Transactions”.
