The Purpose of IRS Form 8949
The Purpose of IRS Form 8949 Anytime you sell or exchange capital assets, such as stocks, land and artworks, you must report the transaction on your federal income tax return. You may have gains, you may have losses, the transactions may be short-term or long-term, and this information must be broken down in order to apply the correct tax treatment for the net results.
The Purpose of IRS Form 8949 Schedule D of Form 1040 is used to report most capital gain (or loss) transactions. However, before you can enter your net gain or loss on Schedule D, you have to complete Form 8949, Sales and Other Dispositions of Capital Assets.
Overview of the Form The two-page form consists of two parts: Part I for short-term transactions and Part II for long-term transactions. A sale or taxable exchange that occurs more than 12 months from the date the asset was acquired is long term; a sale within 12 months or less is short term.
Reporting Short-term Transactions There are three boxes used to denote whether the transaction was reported to the IRS and how you derived the tax basis for your asset.
Reporting Short-term Transactions Tax basis typically is your cost, but may be something else if you received property by gift, inheritance or in some other fashion. The three boxes are:
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Reporting Long-term Transactions Part II for long-term transactions is a mirror image of Part I for short-term transactions. Again, you need to use a separate Form 8949 for each box checked regarding transactions and basis reported to the IRS.
Completing the Electronic Form If you use software to prepare Form 1040 (or you use a paid preparer), information from brokerage firms, mutual funds and other financial institutions may be transferred to your tax return, saving you the time entering the information and avoiding the possibility of making errors when you input the information
Completing the Electronic Form The software prompts you for the necessary information in order for the transactions to be retrieved and reported on your form(s).
The Bottom Line Reporting capital gains and losses on Form 8949 is not necessarily straightforward. Find more information about capital gains and losses in IRS Publication 544, Sales and Other Dispositions of Assets. When in doubt, consult with a tax advisor.
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