IRS Form 8949: Definition & Overview

KEY TAKEAWAYS

• To record capital gains and losses from sales and exchanges of capital assets for tax purposes, use IRS Form 8949.
• The form distinguishes between short-term and long-term capital gains and losses.
• A Schedule D and a Form 1099-B, which are sent to taxpayers by brokerages, are also necessary for filing this form.

What Is IRS Form 8949?

Form 8949: Sales and Other Dispositions of Capital Assets is a form used by individuals, partnerships, companies, trusts, and estates. It is used to report capital gains and losses from sales and exchanges of capital assets to the Internal Revenue Service (IRS).

To record short- and long-term capital gains as well as losses from sales or asset exchanges, taxpayers must utilize the form.

Form 8949 is also used to reconcile amounts reported to you on Form 1099-B (Proceeds From Broker and Barter Exchange Transactions) and 1099-S (Proceeds from Real Estate Transactions) with amounts reported on your tax return. The subtotals from Form 8949 are carried over to Schedule D (Form 1040), where gain or loss will be calculated in aggregate. 

Prior to 2011, taxpayers could only disclose these transactions using Schedule D.

What Are the Requirements of IRS Form 8949?

The IRS must be informed of the following transactions using Form 8949, Sales and Other Dispositions of Capital Assets:

• Any capital asset sale or exchange that is not disclosed on another form or schedule
• Gains from capital assets that are not employed in your trade or business that are converted involuntarily (other than through theft or accidents)
• Uncommercial bad debts
• Ineffectiveness of a security
• The choice to put a capital gain into a qualified opportunity fund on hold (QOF), which is a form of a capital gain deferral.
• The selling of shares in a QOF1
• Corporations also use the form to report their share of gain (or loss) from a partnership, estate, or trust.

When a qualified opportunity fund (QOF) is established with the goal of investing in QOZ real estate, it files either a partnership or corporation federal income tax return. A QOZ is a neighborhood that is experiencing economic hardship, therefore new investments there may be eligible for advantageous tax treatment.

The IRS urges married individuals filing joint returns to complete as many copies of Form 8949 as necessary in order to list all transactions made by both the taxpayer and the taxpayer’s spouse. Depending on who carried out the transaction, the transactions may be entered separately or together.

In any case, you must total all of your Forms 8949 as well as those of your spouse and record that amount on your Schedule D. Schedule D is used to calculate the overall gain (or loss) from transactions reported on Form 8949.

Who Uses IRS Form 8949?

A Form 8949 should be submitted by anybody who has obtained one or more Forms 1099-B, Proceeds From Broker and Barter Exchange Transactions, Forms 1099-S, Proceeds From Real Estate Transactions, and/or IRS-allowed substitutes for those forms. These Forms 1099 or equivalents would have also been delivered to the IRS.

You need to carefully review the Forms 1099 that your broker has given you. If the cost or other basis for all of your transactions was disclosed to the IRS and you don’t need to make any adjustments, you might not need to file Form 8949.

You must know the basis of your property in order to determine whether you have a gain or loss from its sale or exchange.

You need to separate your gains and losses according to the property holding period (short-term for assets held less than 1 year, and long-term for assets held for more than a year).

For a specific transaction or series of transactions, your Forms 1099 should indicate whether you should tick Box A, B, or C (on page 1) for short-term transactions or Box D, E, or F (on page 2) for long-term transactions.

However, if Box 2 of Form 1099 is left blank and code X is in the “Applicable checkbox on Form 8949” box, then you will need to decide from your own records. This is whether the transaction resulted in a short-term or long-term gain or loss.

Assets held for a year or less are typically involved in short-term transactions. Assets held for longer than a year are typically included in long-term transactions. But this generalization is not always true. Selling a property that you inherited or received as a gift, even if you only possessed it for a year or less, is always seen as a long-term transaction.

Transactions that are reported on Forms 1099 and indicate that basis was disclosed to the IRS go in Boxes A and D. Transactions reported on Forms 1099 that reveal any basis that wasn’t disclosed to the IRS go in Boxes B and E. Transactions that weren’t disclosed to you on Form 1099 should go in Boxes C and F.

Who Can File IRS Form 8949?

Individuals, partnerships, companies, trusts, and estates can all file this form, according to the IRS.

The following must be reported using the form by individuals:

• A capital asset’s sale or exchange that is not disclosed on another form or schedule.
• Gains from capital assets that are not employed in your trade or business that are converted involuntarily (other than through theft or accidents).
• Uncommercial bad debts.
• Ineffectiveness of a security.
• The decision to put money into a qualified opportunity fund to postpone capital gains.
• The sale of Qualified Opportunity Funds investments.

Each copy of the joint tax return form that is submitted by a person must be filled out in order to reflect both their own transactions and those of their spouse. The totals from each form must be transferred for each spouse to Schedule D, regardless of whether the forms are combined or filed separately.

In addition to the items on the list above, corporations can declare on Form 8949 the sale of shares of a designated 10 percent-owned foreign corporation, adjusted for the dividends-received deduction under section 245A, but only if the transaction would be a loss-making one otherwise.

How to File IRS Form 8949?

When a capital asset is sold, a capital gain or loss is created, and this must be reported to the IRS for tax purposes. The majority of capital gain (or loss) transactions are reported on Schedule D: Capital Gains and Losses of tax Form 1040. But Form 8949 must be completed  before a person may submit the net gain or loss on Schedule D.

Brokerages annually report the transactions that taxpayers must disclose on Form 8949 to the IRS and to taxpayers using Form 1099-B: Proceeds from Broker and Barter Exchange Transactions.

The cost basis of the assets may not always be reported on Form 1099-B. If so, the taxpayer must complete a different Form 8949 to determine the basic amount needed to calculate the gain or loss from a capital asset.

Another Form 8949 must be used to list any capital asset transactions for which no Form 1099-B (or equivalent statement) was provided.

If the capital losses or profits for the year are reported for all assets on 1099-B on the proper basis, Form 8949 is not required; however, Schedule D must still be submitted if there are any errors in the information provided on Form 1099-B.

Two components of the form, together with the filer’s name and taxpayer identification number, must be completed. The short-term holding periods are covered in Part I. Usually, this time frame is one year or less. Long-term transactions, or those held for more than a year, are handled in Part II.

Summary

Sales and exchanges of capital assets, including cryptocurrencies, are reported to the Internal Revenue Service on IRS Form 8949. The form must be submitted with your federal income tax return together with Schedule D.

Corporations, partnerships, estates, and trusts would also use Form 8949 to report sales and exchanges of capital assets.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.