Instructions for Schedule D (Form 1040), Capital Gains and Losses

Instructions for Schedule D (Form 1040)

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taxmap/instr/i1040sd-001.htm#TXMP1f98b73a

taxmap/instr/i1040sd-001.htm#TXMP555be1c6

Use Form 4797 to report the following.

The sale or exchange of:
1. Property used in a trade or business;
2. Depreciable and amortizable property;
3. Oil, gas, geothermal, or other mineral property; and
4. Section 126 property.
The involuntary conversion (other than from casualty or theft) of property used in a trade or business and capital assets held for business or profit.
The disposition of noncapital assets other than inventory or property held primarily for sale to customers in the ordinary course of your trade or business.
Ordinary loss on the sale, exchange, or worthlessness of small business investment company (section 1242) stock.
Ordinary loss on the sale, exchange, or worthlessness of small business (section 1244) stock.
Ordinary gain or loss on securities held in connection with your trading business, if you previously made a mark-to-market election. See Traders in Securities on page D-3.

Use Form 4684 to report involuntary conversions of property due to casualty or theft.

Use Form 6781 to report gains and losses from section 1256 contracts and straddles.

Use Form 8824 to report like-kind exchanges. A like-kind exchange occurs when you exchange business or investment property for property of a like kind.

taxmap/instr/i1040sd-001.htm#TXMP37fcf064

Most property you own and use for personal purposes, pleasure, or investment is a capital asset. For example, your house, furniture, car, stocks, and bonds are capital assets. A capital asset is any property held by you except the following.

Stock in trade or other property included in inventory or held mainly for sale to customers. But see the Tip on this page.
Accounts or notes receivable for services performed in the ordinary course of your trade or business or as an employee, or from the sale of stock in trade or other property held mainly for sale to customers.
Depreciable property used in your trade or business, even if it is fully depreciated.
Real estate used in your trade or business.
Copyrights, literary, musical, or artistic compositions, letters or memoranda, or similar property (a) created by your personal efforts; (b) prepared or produced for you (in the case of letters, memoranda, or similar property); or (c) that you received from someone who created them or for whom they were created, as mentioned in (a) or (b), in a way (such as by gift) that entitled you to the basis of the previous owner. But see the Tip on this page.
U.S. Government publications, including the Congressional Record, that you received from the Government, other than by purchase at the normal sales price, or that you got from someone who had received it in a similar way, if your basis is determined by reference to the previous owner's basis.
Certain commodities derivative financial instruments held by a dealer and not connected to the dealer's activities as a dealer. See section 1221(a)(6).
Certain hedging transactions entered into in the normal course of your trade or business. See section 1221(a)(7).
Supplies regularly used in your trade or business.
You can elect to treat as capital assets certain musical compositions or copyrights you sold or exchanged. See Pub. 550 for details.

taxmap/instr/i1040sd-001.htm#TXMP79c2210e

Basis is the amount of your investment in property for tax purposes. The basis of property you buy is usually its cost. You need to know your basis to figure any gain or loss on the sale or other disposition of the property. You must keep accurate records that show the basis and adjusted basis of your property. Your records should show the purchase price, including commissions; increases to basis, such as the cost of improvements; and decreases to basis, such as depreciation, nondividend distributions on stock, and stock splits.

For more information on basis, see page D-7 and these publications.

Pub. 551, Basis of Assets.
Pub. 550, Investment Income and
Expenses (Including Capital Gains and Losses).

If you lost or did not keep records to determine your basis in securities, contact your broker for help.

The IRS partners with companies that offer Schedule D software that can import trades from many brokerage firms and accounting software to help you keep track of your adjusted basis in securities. To find out more, go to www.irs.gov/efile.

taxmap/instr/i1040sd-001.htm#TXMP14420c25

Separate your capital gains and losses according to how long you held or owned the property. The holding period for short-term capital gains and losses is 1 year or less. The holding period for long-term capital gains and losses is more than 1 year. To figure the holding period, begin counting on the day after you received the property and include the day you disposed of it.

If you disposed of property that you acquired by inheritance from someone who died before 2010, report the disposition as a long-term gain or loss, regardless of how long you held the property. If you acquired the property from someone who died after 2009, see Pub. 4895.

A nonbusiness bad debt must be treated as a short-term capital loss. See Pub. 550 for what qualifies as a nonbusiness bad debt and how to enter it on Schedule D.

taxmap/instr/i1040sd-001.htm#TXMP275366c1

These distributions are paid by a mutual fund (or other regulated investment company) or real estate investment trust from its net realized long-term capital gains. Distributions of net realized short-term capital gains are not treated as capital gains. Instead, they are included on Form 1099-DIV as ordinary dividends.

Enter on line 13 the total capital gain distributions paid to you during the year, regardless of how long you held your investment. This amount is shown in box 2a of Form 1099-DIV.

If there is an amount in box 2b, include that amount on line 11 of the Unrecaptured Section 1250 Gain Worksheet on page D-9 if you complete line 19 of Schedule D.

If there is an amount in box 2c, see Exclusion of Gain on Qualified Small Business (QSB) Stock on page D-4.

If there is an amount in box 2d, include that amount on line 4 of the 28% Rate Gain Worksheet on page D-8 if you complete line 18 of Schedule D.

If you received capital gain distributions as a nominee (that is, they were paid to you but actually belong to someone else), report on line 13 only the amount that belongs to you. Attach a statement showing the full amount you received and the amount you received as a nominee. See the Instructions for Schedule B for filing requirements for Forms 1099-DIV and 1096.

taxmap/instr/i1040sd-001.htm#TXMP56435457

If you sold or exchanged your main home, do not report it on your tax return unless you cannot exclude all of your gain from income. Any gain you cannot exclude is taxable. Generally, if you meet the two following tests, you can exclude up to $250,000 of gain. If both you and your spouse meet these tests and you file a joint return, you can exclude up to $500,000 of gain (but only one spouse needs to meet the ownership requirement in Test 1).

taxmap/instr/i1040sd-001.htm#TXMP1a4e2416

You owned and used the home as your main home for 2 years or more during the 5-year period ending on the date you sold or exchanged your home.

taxmap/instr/i1040sd-001.htm#TXMP1f175ce2

You have not excluded gain on the sale or exchange of another main home during the 2-year period ending on the date of the sale or exchange of your home.

Even if you do not meet one or both of the above two tests, you still can claim an exclusion if you sold or exchanged the home because of a change in place of employment, health, or certain unforeseen circumstances. In this case, the maximum amount of gain you can exclude is reduced.

If your spouse died before the sale or exchange, you can exclude up to $500,000 of gain if:

The sale or exchange is no later than 2 years after your spouse's death,
Just before your spouse's death, both spouses met the use requirement of Test 1, at least one spouse met the ownership requirement of Test 1, and both spouses met Test 2, and
You did not remarry before the sale or exchange.

You can choose to have the 5-year test period for ownership and use in Test 1 suspended during any period you or your spouse serve outside the United States as a Peace Corps volunteer or serve on qualified official extended duty as a member of the uniformed services or Foreign Service of the United States, as an employee of the intelligence community, or outside the United States as an employee of the Peace Corps. This means you may be able to meet Test 1 even if, because of your service, you did not actually use the home as your main home for at least the required 2 years during the 5-year period ending on the date of sale.

You cannot exclude any gain if:

You acquired your home in a like-kind exchange in which all or part of the gain was not recognized, and
You sold or exchanged the home during the 5-year period beginning on the date you acquired it.

See Pub. 523 for details, including how to report any taxable gain if:

You (or your spouse if married) used any part of the home for business or rental purposes after May 6, 1997,
There was a period of time after 2008 when the home was not your main home, or
You cannot exclude all of your gain.

taxmap/instr/i1040sd-001.htm#TXMP00a431a5

A sale or other disposition of an interest in a partnership may result in ordinary income, collectibles gain (28% rate gain), or unrecaptured section 1250 gain. For details on 28% rate gain, see the instructions for line 18 on page D-8. For details on unrecaptured section 1250 gain, see the instructions for line 19 that begin on page D-8.

taxmap/instr/i1040sd-001.htm#TXMP349e21e7

Generally, gain from the sale or exchange of a capital asset held for personal use is a capital gain. Report it on Schedule D, Part I or Part II. However, if you converted depreciable property to personal use, all or part of the gain on the sale or exchange of that property may have to be recaptured as ordinary income. Use Part III of Form 4797 to figure the amount of ordinary income recapture. The recapture amount is included on line 31 (and line 13) of Form 4797. Do not enter any gain from this property on line 32 of Form 4797. If you are not completing Part III for any other properties, enter N/A on line 32. If the total gain is more than the recapture amount, enter From Form 4797 in column (a) of line 1 or line 8 of Schedule D, skip columns (b) through (e), and in column (f) enter the excess of the total gain over the recapture amount.

Loss from the sale or exchange of a capital asset held for personal use is not deductible. But if you had a loss from the sale or exchange of real estate held for personal use for which you received a Form 1099-S, you must report the transaction on Schedule D even though the loss is not deductible. For example, you have a loss on the sale of a vacation home that is not your main home and you received a Form 1099-S for the transaction. Report the transaction on line 1 or 8, depending on how long you owned the home. Complete columns (a) through (e). Because the loss is not deductible, enter -0- in column (f).

taxmap/instr/i1040sd-001.htm#TXMP68295cd9

You can deduct capital losses up to the amount of your capital gains plus $3,000 ($1,500 if married filing separately). You may be able to use capital losses that exceed this limit in future years. For details, see the instructions for line 21 on page D-9. Be sure to report all of your capital gains and losses (except nondeductible losses) even if you cannot use all of your losses in 2010.

taxmap/instr/i1040sd-001.htm#TXMP3c78604c

Do not deduct a loss from the direct or indirect sale or exchange of property between any of the following.

Members of a family.
A corporation and an individual owning more than 50% of the corporation's stock (unless the loss is from a distribution in complete liquidation of a corporation).
A grantor and a fiduciary of a trust.
A fiduciary and a beneficiary of the same trust.
A fiduciary and a beneficiary of another trust created by the same grantor.
An executor of an estate and a beneficiary of that estate, unless the sale or exchange was to satisfy a pecuniary bequest (that is, a bequest of a sum of money).
An individual and a tax-exempt organization controlled by the individual or the individual's family.

See Pub. 544 for more details on sales and exchanges between related parties.

If you disposed of (a) an asset used in an activity to which the at-risk rules apply or (b) any part of your interest in an activity to which the at-risk rules apply, and you have amounts in the activity for which you are not at risk, see the Instructions for Form 6198.

If the loss is allowable under the at-risk rules, it then may be subject to the passive activity rules. See Form 8582 and its instructions for details on reporting capital gains and losses from a passive activity.

taxmap/instr/i1040sd-001.htm#TXMP230cad84

Transactions by a securities dealer. See section 1236.
Bonds and other debt instruments. See Pub. 550.
Certain real estate subdivided for sale that may be considered a capital asset. See section 1237.
Gain on the sale of depreciable property to a more than 50% owned entity or to a trust of which you are a beneficiary. See Pub. 544.
Gain on the disposition of stock in an interest charge domestic international sales corporation. See section 995(c).
Gain on the sale or exchange of stock in certain foreign corporations. See section 1248.
Transfer of property to a partnership that would be treated as an investment company if it were incorporated. See Pub. 541.
Sales of stock received under a qualified public utility dividend reinvestment plan. See Pub. 550.
Transfer of appreciated property to a political organization. See section 684.
Transfer of property by a U.S. person to a foreign estate or trust. See section 684.
If you give up your U.S. citizenship after June 16, 2008, you may be treated as having sold all your property for its fair market value on the day before you gave up your citizenship. This also applies to long-term U.S. residents who cease to be lawful permanent residents after June 16, 2008. For details, exceptions, and rules for reporting these deemed sales, see Pub. 519 and Form 8854.
In general, no gain or loss is recognized on the transfer of property from an individual to a spouse or a former spouse if the transfer is incident to a divorce. See Pub. 504.
Amounts received on the retirement of a debt instrument generally are treated as received in exchange for the debt instrument. See Pub. 550.
Any loss on the disposition of converted wetland or highly erodible cropland that is first used for farming after March 1, 1986, is reported as a long-term capital loss on Schedule D, but any gain is reported as ordinary income on Form 4797.
If qualified dividends that you reported on Form 1040, line 9b, or Form 1040NR, line 10b, include extraordinary dividends, any loss on the sale or exchange of the stock is a long-term capital loss to the extent of the extraordinary dividends. An extraordinary dividend is a dividend that equals or exceeds 10% (5% in the case of preferred stock) of your basis in the stock.
Amounts received by shareholders in corporate liquidations. See Pub. 550.
Cash received in lieu of fractional shares of stock as a result of a stock split or stock dividend. See Pub. 550.
Load charges to acquire stock in a regulated investment company (including a mutual fund), which may not be taken into account in determining gain or loss on certain dispositions of the stock if reinvestment rights were exercised. See Pub. 550.
The sale or exchange of S corporation stock or an interest in a trust held for more than 1 year, which may result in collectibles gain (28% rate gain). See the instructions for line 18 on page D-8.
Gain or loss on the disposition of securities futures contracts. See Pub. 550.
Gain on the constructive sale of certain appreciated financial positions. See Pub. 550.
Certain constructive ownership transactions. Gain in excess of the gain you would have recognized if you had held a financial asset directly during the term of a derivative contract must be treated as ordinary income. See section 1260. If any portion of the constructive ownership transaction was open in any prior year, you may have to pay interest. See section 1260(b) for details, including how to figure the interest. Include the interest as an additional tax on Form 1040, line 60 (or Form 1040NR, line 59). Write Section 1260(b) interest and the amount of the interest to the left of line 60 (or Form 1040NR, line 59). This interest is not deductible.
The sale of publicly traded securities, if you elect to postpone gain by purchasing common stock or a partnership interest in a specialized small business investment company during the 60-day period that began on the date of the sale. See Pub. 550.
The sale of qualified securities, held for at least 3 years, to an employee stock ownership plan or eligible worker-owned cooperative, if you elect to postpone gain by purchasing qualified replacement property. See Pub. 550.
Gain or loss from the disposition of stock or other securities in an investment club. See Pub. 550.

taxmap/instr/i1040sd-001.htm#TXMP132588f2

A wash sale occurs when you sell or otherwise dispose of stock or securities (including a contract or option to acquire or sell stock or securities) at a loss and, within 30 days before or after the sale or disposition, you:

Buy substantially identical stock or securities,
Acquire substantially identical stock or securities in a fully taxable trade,
Enter into a contract or option to acquire substantially identical stock or securities, or
Acquire substantially identical stock or securities for your individual retirement arrangement (IRA) or Roth IRA.

You cannot deduct losses from wash sales unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities. The basis of the substantially identical property (or contract or option to acquire such property) is its cost increased by the disallowed loss (except in the case of (4) above). For more details on wash sales, see Pub. 550.

Report a wash sale transaction on line 1 or 8. Enter the full amount of the (loss) in column (f). Directly below the line on which you reported the loss, enter Wash Sale in column (a), and enter as a positive amount in column (f) the amount of the loss not allowed.

taxmap/instr/i1040sd-001.htm#TXMP713d517a

You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. To be engaged in business as a trader in securities, all of the following statements must be true.

You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.
Your activity must be substantial.
You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a business.

Typical holding periods for securities bought and sold.
The frequency and dollar amount of your trades during the year.
The extent to which you pursue the activity to produce income for a livelihood.
The amount of time you devote to the activity.

You are considered an investor, and not a trader, if your activity does not meet the above definition of a business. It does not matter whether you call yourself a trader or a day trader.

Like an investor, a trader must report each sale of securities (taking into account commissions and any other costs of acquiring or disposing of the securities) on Schedule D or D-1 or on an attached statement containing all the same information for each sale in a similar format. However, if a trader previously made the mark-to-market election (see below), each transaction is reported in Part II of Form 4797 instead of on Schedules D and D-1. Regardless of whether a trader reports his or her gains and losses on Schedules D and D-1 or Form 4797, the gain or loss from the disposition of securities is not taken into account when figuring net earnings from self-employment on Schedule SE. See the Instructions for Schedule SE for an exception that applies to section 1256 contracts.

The limitation on investment interest expense that applies to investors does not apply to interest paid or incurred in a trading business. A trader reports interest expense and other expenses (excluding commissions and other costs of acquiring or disposing of securities) from a trading business on Schedule C (instead of Schedule A).

A trader also may hold securities for investment. The rules for investors generally will apply to those securities. Allocate interest and other expenses between your trading business and your investment securities.

taxmap/instr/i1040sd-001.htm#TXMP6b9cca2a

A trader may make an election under section 475(f) to report all gains and losses from securities held in connection with a trading business as ordinary income (or loss), including those from securities held at the end of the year. Securities held at the end of the year are marked to market by treating them as if they were sold (and reacquired) for fair market value on the last business day of the year. Generally, the election must be made by the due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. To be effective for 2010, the election must have been made by April 15, 2010.

Starting with the year the election becomes effective, a trader reports all gains and losses from securities held in connection with the trading business, including securities held at the end of the year, in Part II of Form 4797. If you previously made the election, see the Instructions for Form 4797. For details on making the mark-to-market election for 2011, see Pub. 550 or Rev. Proc. 99-17, 1999-1 C.B. 503. You can find Rev. Proc. 99-17 starting on the bottom of page 52 of Internal Revenue Bulletin 1999-7 at www.irs.gov/pub/irs-irbs/irb99-07.pdf.

If you hold securities for investment, you must identify them as such in your records on the day you acquired them (for example, by holding the securities in a separate brokerage account). Securities held for investment are not marked-to-market.

taxmap/instr/i1040sd-001.htm#TXMP49a68ea1

A short sale is a contract to sell property you borrowed for delivery to a buyer. At a later date, you either buy substantially identical property and deliver it to the lender or deliver property that you held but did not want to transfer at the time of the sale. Usually, your holding period is the amount of time you actually held the property eventually delivered to the lender to close the short sale. However, your gain when closing a short sale is short term if you (a) held substantially identical property for 1 year or less on the date of the short sale, or (b) acquired property substantially identical to the property sold short after the short sale but on or before the date you close the short sale. If you held substantially identical property for more than 1 year on the date of a short sale, any loss realized on the short sale is a long-term capital loss, even if the property used to close the short sale was held 1 year or less.

If you received a Form 1099-B for a short sale you entered into in 2010 but that did not close in 2010, report it on line 1 or line 8. Enter the sales price in column (d). If the short sale did not close in 2010, enter Open Short Sale in column (e) and -0- in column (f). When the short sale is closed in a later year, report any gain or loss on your return for that year.

taxmap/instr/i1040sd-001.htm#TXMP1fa34cf0

Report on Schedule D gain or loss from the closing or expiration of an option that is not a section 1256 contract but is a capital asset in your hands. If an option you purchased expired, enter the expiration date in column (c) and enter EXPIRED in column (d). If an option that was granted (written) expired, enter the expiration date in column (b) and enter EXPIRED in column (e). Fill in the other columns as appropriate. See Pub. 550 for details.

taxmap/instr/i1040sd-001.htm#TXMP20f2b260

Include on line 11 the amount from box 1a of Form 2439. This represents your share of the undistributed long-term capital gains of the regulated investment company (including a mutual fund) or real estate investment trust.

If there is an amount in box 1b, include that amount on line 11 of the Unrecaptured Section 1250 Gain Worksheet on page D-9 if you complete line 19 of Schedule D.

If there is an amount in box 1c, see Exclusion of Gain on Qualified Small Business (QSB) Stock on this page.

If there is an amount in box 1d, include that amount on line 4 of the 28% Rate Gain Worksheet on page D-8 if you complete line 18 of Schedule D.

Include on Form 1040, line 71, or Form 1040NR, line 66, the tax paid as shown in box 2 of Form 2439. Also check the box for Form 2439. Add to the basis of your stock the excess of the amount included in income over the amount of the credit for the tax paid. See Pub. 550 for details.

taxmap/instr/i1040sd-001.htm#TXMP1748fae7

If you sold property (other than publicly traded stocks or securities) at a gain and you will receive a payment in a tax year after the year of sale, you generally must report the sale on the installment method unless you elect not to. Use Form 6252 to report the sale on the installment method. Also use Form 6252 to report any payment received in 2010 from a sale made in an earlier year that you reported on the installment method.

To elect out of the installment method, report the full amount of the gain on Schedule D on a timely filed return (including extensions) for the year of the sale. If your original return was filed on time, you can make the election on an amended return filed no later than 6 months after the due date of your return (excluding extensions). Write Filed pursuant to section 301.9100-2 at the top of the amended return.

taxmap/instr/i1040sd-001.htm#TXMP52a5f071

Demutualization of a life insurance company occurs when a mutual life insurance company changes to a stock company. If you were a policyholder or annuitant of the mutual company, you may have received either stock in the stock company or cash in exchange for your equity interest in the mutual company. The basis of your equity interest in the mutual company is considered to be zero.

If the demutualization transaction qualifies as a tax-free reorganization, no gain is recognized on the exchange of your equity interest in the mutual company for stock. The company can advise you if the transaction is a tax-free reorganization. Because the basis of your equity interest in the mutual company is considered to be zero, your basis in the stock received is zero. Your holding period for the new stock includes the period you held an equity interest in the mutual company. If you received cash in exchange for your equity interest, you must recognize a capital gain in an amount equal to the cash received. If you held the equity interest for more than 1 year, report the gain as a long-term capital gain on line 8. If you held the equity interest for 1 year or less, report the gain as a short-term capital gain on line 1.

If the demutualization transaction does not qualify as a tax-free reorganization, you must recognize a capital gain in an amount equal to the cash and fair market value of the stock received. If you held the equity interest for more than 1 year, report the gain as a long-term capital gain on line 8. If you held the equity interest for 1 year or less, report the gain as a short-term capital gain on line 1. Your holding period for the new stock begins on the day after you received the stock.

taxmap/instr/i1040sd-001.htm#TXMP36080333

Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of QSB stock. The section 1202 exclusion applies only to QSB stock held for more than 5 years. The exclusion can be up to 60% for certain empowerment zone business stock. See Empowerment Zone Business Stock on page D-5.

To be QSB stock, the stock must meet all of the following tests.

It must be stock in a C corporation (that is, not S corporation stock).
It must have been originally issued after August 10, 1993.
As of the date the stock was issued, the corporation was a domestic C corporation with total gross assets of $50 million or less (a) at all times after August 9, 1993, and before the stock was issued, and (b) immediately after the stock was issued. Gross assets include those of any predecessor of the corporation. All corporations that are members of the same parent-subsidiary controlled group are treated as one corporation.
You must have acquired the stock at its original issue (either directly or through an underwriter), either in exchange for money or other property or as pay for services (other than as an underwriter) to the corporation. In certain cases, you may meet this test if you acquired the stock from another person who met the test (such as by gift or inheritance) or through a conversion or exchange of QSB stock you held.
During substantially all the time you held the stock:
1. The corporation was a C corporation,
2. At least 80% of the value of the corporation's assets were used in the active conduct of one or more qualified businesses (defined below), and
3. The corporation was not a foreign corporation, DISC, former DISC, regulated investment company, real estate investment trust, REMIC, FASIT, cooperative, or a corporation that has made (or that has a subsidiary that has made) a section 936 election.

SSBIC. A specialized small business investment company (SSBIC) is treated as having met test 5b.

taxmap/instr/i1040sd-001.htm#TXMP0ff1f4d9

A qualified business is any business that is not one of the following.

A business involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services.
A business whose principal asset is the reputation or skill of one or more employees.
A banking, insurance, financing, leasing, investing, or similar business.
A farming business (including the raising or harvesting of trees).
A business involving the production of products for which percentage depletion can be claimed.
A business of operating a hotel, motel, restaurant, or similar business.

For more details about limits and additional requirements that may apply, see Pub. 550 or section 1202.

taxmap/instr/i1040sd-001.htm#TXMP05a2fa88

You generally can exclude up to 60% of your gain if you meet the following additional requirements.

The stock you sold or exchanged was stock in a corporation that qualified as an empowerment zone business during substantially all of the time you held the stock.
You acquired the stock after December 21, 2000.

Requirement 1 will still be met if the corporation ceased to qualify after the 5-year period that began on the date you acquired the stock. However, the gain that qualifies for the 60% exclusion cannot be more than the gain you would have had if you had sold the stock on the date the corporation ceased to qualify.

For more information about empowerment zone businesses, see section 1397C.

taxmap/instr/i1040sd-001.htm#TXMP3c0f6522

If you held an interest in a pass-through entity (a partnership, S corporation, or mutual fund or other regulated investment company) that sold QSB stock, to qualify for the exclusion you must have held the interest on the date the pass-through entity acquired the QSB stock and at all times thereafter until the stock was sold.

taxmap/instr/i1040sd-001.htm#TXMP2d21ee81

Report on line 8 the entire gain realized on the sale of QSB stock. Complete all columns as indicated. Directly below the line on which you reported the gain, enter in column (a) Section 1202 exclusion and enter as a loss in column (f) the amount of the allowable exclusion. If you are completing line 18 of Schedule D, enter as a positive number the amount of your allowable exclusion on line 2 of the 28% Rate Gain Worksheet on page D-8; if you excluded 60% of the gain, enter 2/3 of the exclusion.

taxmap/instr/i1040sd-001.htm#TXMP0ad7d210

If you received a Form 1099-DIV with a gain in box 2c, part or all of that gain (which is also included in box 2a) may be eligible for the section 1202 exclusion. In column (a) of line 8, enter the name of the corporation whose stock was sold. In column (f), enter the amount of your allowable exclusion as a loss. If you are completing line 18 of Schedule D, enter as a positive number the amount of your allowable exclusion on line 2 of the 28% Rate Gain Worksheet on page D-8; if you excluded 60% of the gain, enter 2/3 of the exclusion.

taxmap/instr/i1040sd-001.htm#TXMP13157517

If you received a Form 2439 with a gain in box 1c, part or all of that gain (which is also included in box 1a) may be eligible for the section 1202 exclusion. In column (a) of line 8, enter the name of the corporation whose stock was sold. In column (f), enter the amount of your allowable exclusion as a loss. If you are completing line 18 of Schedule D, enter as a positive number the amount of your allowable exclusion on line 2 of the 28% Rate Gain Worksheet on page D-8; if you excluded 60% of the gain, enter 2/3 of the exclusion.

taxmap/instr/i1040sd-001.htm#TXMP6c753d88

If all payments are not received in the year of sale, a sale of QSB stock that is not traded on an established securities market generally is treated as an installment sale and is reported on Form 6252. Figure the allowable section 1202 exclusion for the year by multiplying the total amount of the exclusion by a fraction, the numerator of which is the amount of eligible gain to be recognized for the tax year and the denominator of which is the total amount of eligible gain. In column (a) of line 8, enter the name of the corporation whose stock was sold. In column (f), enter the amount of your allowable exclusion as a loss. If you are completing line 18 of Schedule D, enter as a positive number the amount of your allowable exclusion on line 2 of the 28% Rate Gain Worksheet on page D-8; if you excluded 60% of the gain, enter 2/3 of the exclusion.

taxmap/instr/i1040sd-001.htm#TXMP78b55d90

You must enter 7% of your allowable exclusion for the year on line 13 of Form 6251.

taxmap/instr/i1040sd-001.htm#TXMP0e848798

If you sold QSB stock (defined on page D-4) that you held for more than 6 months, you can elect to postpone gain if you purchase other QSB stock during the 60-day period that began on the date of the sale. A pass-through entity also can make the election to postpone gain. The benefit of the postponed gain applies to your share of the entity's postponed gain if you held an interest in the entity for the entire period the entity held the QSB stock. If a pass-through entity sold QSB stock held for more than 6 months and you held an interest in the entity for the entire period the entity held the stock, you also can elect to postpone gain if you, rather than the pass-through entity, purchase the replacement QSB stock within the 60-day period. If you were a partner in a partnership that sold or bought QSB stock, see box 11 of the Schedule K-1 (Form 1065) sent to you by the partnership and Regulations section 1.1045-1.

You must recognize gain to the extent the sale proceeds exceed the cost of the replacement stock. Reduce the basis of the replacement stock by any postponed gain.

You must make the election no later than the due date (including extensions) for filing your tax return for the tax year in which the QSB stock was sold. If your original return was filed on time, you can make the election on an amended return filed no later than 6 months after the due date of your return (excluding extensions). Write Filed pursuant to section 301.9100-2 at the top of the amended return.

To make the election, report the entire gain realized on the sale on line 1 or 8. Directly below the line on which you reported the gain, enter in column (a) Section 1045 rollover, and enter the amount of the postponed gain as a (loss) in column (f).

taxmap/instr/i1040sd-001.htm#TXMP2bdd1976

If you sold a qualified empowerment zone asset that you held for more than 1 year, you may be able to elect to postpone part or all of the gain that you would otherwise include on Schedule D. If you make the election, the gain on the sale generally is recognized only to the extent, if any, that the amount realized on the sale exceeds the cost of qualified empowerment zone assets (replacement property) you purchased during the 60-day period beginning on the date of the sale. The following rules apply.

No portion of the cost of the replacement property may be taken into account to the extent the cost is taken into account to exclude gain on a different empowerment zone asset.
The replacement property must qualify as an empowerment zone asset with respect to the same empowerment zone as the asset sold.
You must reduce the basis of the replacement property by the amount of postponed gain.
This election does not apply to any gain (a) treated as ordinary income or (b) attributable to real property, or an intangible asset, that is not an integral part of an enterprise zone business.
The District of Columbia enterprise zone is not treated as an empowerment zone for this purpose.
The election is irrevocable without IRS consent.

See section 1397C for the definition of empowerment zone and enterprise zone business. You can find out if your business is located within an empowerment zone by using the RC/EZ/EC Address Locator at www.hud.gov/crlocator.

Qualified empowerment zone assets are:

Tangible property, if:
1. You acquired the property after December 21, 2000,
2. The original use of the property in the empowerment zone began with you, and
3. Substantially all of the use of the property, during substantially all of the time that you held it, was in your enterprise zone business; and
Stock in a domestic corporation or a capital or profits interest in a domestic partnership, if:
1. You acquired the stock or partnership interest after December 21, 2000, solely in exchange for cash, from the corporation at its original issue (directly or through an underwriter) or from the partnership;
2. The business was an enterprise zone business (or a new business being organized as an enterprise zone business) as of the time you acquired the stock or partnership interest; and
3. The business qualified as an enterprise zone business during substantially all of the time you held the stock or partnership interest.

taxmap/instr/i1040sd-001.htm#TXMP142aaa3d

Report the entire gain realized from the sale as you otherwise would without regard to the election. On Schedule D, line 8, enter Section 1397B Rollover in column (a) and enter as a loss in column (f) the amount of gain included on Schedule D that you are electing to postpone. If you are reporting the sale directly on Schedule D, line 8, use the line directly below the line on which you are reporting the sale.

See section 1397B for more details.

taxmap/instr/i1040sd-001.htm#TXMP012d6c10

If you sold or exchanged a District of Columbia Enterprise Zone (DC Zone) asset that you acquired after 1997 and held for more than 5 years, you may be able to exclude the amount of qualified capital gain that you would otherwise include on Schedule D. The exclusion applies to an interest in, or property of, certain businesses operating in the District of Columbia.

taxmap/instr/i1040sd-001.htm#TXMP076108a7

A DC Zone asset is any of the following.

DC Zone business stock.
DC Zone partnership interest.
DC Zone business property.

taxmap/instr/i1040sd-001.htm#TXMP1042adb4

Qualified capital gain is any gain recognized on the sale or exchange of a DC Zone asset that is a capital asset or property used in a trade or business. It does not include any of the following gains.

Gain treated as ordinary income under section 1245.
Section 1250 gain figured as if section 1250 applied to all depreciation rather than the additional depreciation.
Gain attributable to real property, or an intangible asset, that is not an integral part of a DC Zone business.
Gain from a related-party transaction. See Sales and Exchanges Between Related Persons in chapter 2 of Pub. 544.

See section 1400B for more details.

taxmap/instr/i1040sd-001.htm#TXMP22446788

Report the entire gain realized from the sale or exchange as you otherwise would without regard to the exclusion. On Schedule D, line 8, enter DC Zone Asset in column (a) and enter as a loss in column (f) the amount of the allowable exclusion. If you are reporting the sale directly on Schedule D, line 8, use the line directly below the line on which you are reporting the sale.

taxmap/instr/i1040sd-001.htm#TXMP553643cc

If you sold or exchanged a qualified community asset that you acquired after 2001 and held for more than 5 years, you may be able to exclude the qualified capital gain that you would otherwise include on Schedule D. The exclusion applies to an interest in, or property of, certain renewal community businesses.

taxmap/instr/i1040sd-001.htm#TXMP76fc420a

A qualified community asset is any of the following.

Qualified community stock.
Qualified community partnership interest.
Qualified community business property.

taxmap/instr/i1040sd-001.htm#TXMP27a9bd35

Qualified capital gain is any gain recognized on the sale or exchange of a qualified community asset but does not include any of the following.

Gain treated as ordinary income under section 1245.
Section 1250 gain figured as if section 1250 applied to all depreciation rather than the additional depreciation.
Gain attributable to real property, or an intangible asset, that is not an integral part of a qualified community business.
Gain from a related-party transaction. See Sales and Exchanges Between Related Persons in chapter 2 of Pub. 544.

See section 1400F for more details and special rules.

taxmap/instr/i1040sd-001.htm#TXMP75b9ed93

Report the entire gain realized from the sale or exchange as you otherwise would without regard to the exclusion. On Schedule D, line 8, enter Qualified Community Asset in column (a) and enter as a loss in column (f) the amount of the allowable exclusion. If you are reporting the sale directly on Schedule D, line 8, use the line directly below the line on which you are reporting the sale.

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General Instructions(p1)

Other Forms You May Have To File(p1)

Capital Asset(p1)

Basis and Recordkeeping(p1)

Short Term or Long Term(p1)

Capital Gain Distributions(p2)

Sale of Your Home(p2)

Test 1.(p2)

Test 2.(p2)

Partnership Interests(p2)

Capital Assets Held for Personal Use(p2)

Capital Losses(p2)

Nondeductible Losses(p2)

Items for Special Treatment(p2)

Wash Sales(p3)

Traders in Securities(p3)

Mark-To-Market Election for Traders(p3)

Short Sales(p4)

Gain or Loss From Options(p4)

Undistributed Capital Gains(p4)

Installment Sales(p4)

Demutualization of Life Insurance Companies(p4)

Exclusion of Gain on Qualified Small Business (QSB) Stock(p4)

Qualified Business(p4)

Empowerment Zone Business Stock(p5)

Pass-Through Entities(p5)

How To Report(p5)

Gain from Form 1099-DIV.(p5)

Gain from Form 2439.(p5)

Gain from an installment sale of QSB stock.(p5)

Alternative minimum tax.(p5)

Rollover of Gain From QSB Stock(p5)

Rollover of Gain From Empowerment Zone Assets(p5)

How to report.(p6)

Exclusion of Gain From DC Zone Assets(p6)

DC Zone asset.(p6)

Qualified capital gain.(p6)

How to report.(p6)

Exclusion of Gain From Qualified Community Assets(p6)

Qualified community asset.(p6)

Qualified capital gain.(p6)

How to report.(p6)