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IRS.gov Website
Publication 550
taxmap/pubs/p550-027.htm#en_us_publink100010713

Reporting Capital 
Gains and Losses(p67)

rule
This section discusses how to report your capital gains and losses on Schedule D (Form 1040). Enter your sales and trades of stocks, bonds, etc., and real estate (if not reported on Form 4684, 4797, 6252, 6781, or 8824) on line 1 of Part I or line 8 of Part II, as appropriate. Include all these transactions even if you did not receive a Form 1099-B or 1099-S (or substitute statement). You can use Schedule D-1 as a continuation schedule to report more transactions.
Be sure to add all sales price entries in column (d) of lines 1 and 2 and enter the total on line 3. Also add all sales price entries in column (d) of lines 8 and 9 and enter the total on line 10. Then add the following amounts reported to you for 2010 on Forms 1099-B and Forms 1099-S (or on substitute statements):  
If this total is more than the total of lines 3 and 10, attach a statement to your return explaining the difference.
taxmap/pubs/p550-027.htm#en_us_publink100010714

Installment sales.(p67)

rule
You cannot use the installment method to report a gain from the sale of stock or securities traded on an established securities market. You must report the entire gain in the year of sale (the year in which the trade date occurs).
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At-risk rules.(p67)

rule
Special at-risk rules apply to most income-producing activities. These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. The at-risk rules also apply to a loss from the sale or trade of an asset used in an activity to which the at-risk rules apply. For more information, see Publication 925, Passive Activity and At-Risk Rules. Use Form 6198, At-Risk Limitations, to figure the amount of loss you can deduct.
taxmap/pubs/p550-027.htm#en_us_publink100010716

Passive activity gains and losses.(p67)

rule
If you have gains or losses from a passive activity, you may also have to report them on Form 8582. In some cases, the loss may be limited under the passive activity rules. Refer to Form 8582 and its separate instructions for more information about reporting capital gains and losses from a passive activity.
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Form 1099-B transactions.(p67)

rule
If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Use the Form 1099-B or equivalent statement to complete Schedule D.
Report the gross proceeds shown in box 2 of Form 1099-B as the gross sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies. However, if the broker advises you, in box 2 of Form 1099-B, that gross proceeds (gross sales price) less commissions and option premiums were reported to the IRS, enter that net sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies.
If the net sales price is entered in column (d), do not include the commissions and option premiums in column (e).
taxmap/pubs/p550-027.htm#en_us_publink1000250042

Example 1.(p67)

You sold 100 shares of Fund HIJ for $2,500. You paid a $75 commission to the broker for handling the sale. Your Form 1099-B shows that the net sales proceeds, $2,425 ($2,500 − $75), were reported to the IRS. Report $2,425 in column (d) of Schedule D (Form 1040).
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Example 2.(p67)

You sold 200 shares of Fund KLM for $10,000. You paid a $100 commission at the time of the sale. You bought the shares for $5,000. The broker reported the gross proceeds to the IRS on Form 1099-B, so you enter $10,000 in column (d) of Schedule D (Form 1040) and increase your basis in column (e) to $5,100.
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Section 1256 contracts and straddles.(p67)
Use Form 6781 to report gains and losses from section 1256 contracts and straddles before entering these amounts on Schedule D. Include a copy of Form 6781 with your income tax return.
taxmap/pubs/p550-027.htm#en_us_publink100010719
Market discount bonds.(p67)
Report the sale or trade of a market discount bond on Schedule D (Form 1040), line 1 or line 8. If the sale or trade results in a gain and you did not choose to include market discount in income currently, enter "Accrued Market Discount" on the next line in column (a) and the amount of the accrued market discount as a loss in column (f). Also report the amount of accrued market discount as interest income on Schedule B (Form 1040A or 1040), line 1, and identify it as "Accrued Market Discount."
taxmap/pubs/p550-027.htm#en_us_publink1000108662

Form 1099-CAP transactions.(p67)

rule
If a corporation in which you own stock has had a change in control or a substantial change in capital structure, you should receive Form 1099-CAP or an equivalent statement from the corporation. Use the Form 1099-CAP or equivalent statement to figure the gain to report on Schedule D (Form 1040). You cannot claim a loss on Schedule D (Form 1040) as a result of this transaction.
Report the aggregate amount received shown in box 2 of Form 1099-CAP as the gross sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies.
taxmap/pubs/p550-027.htm#en_us_publink100010720

Form 1099-S transactions.(p67)

rule
If you sold or traded reportable real estate, you generally should receive from the real estate reporting person a Form 1099-S, Proceeds From Real Estate Transactions, showing the gross proceeds.
"Reportable real estate" is defined as any present or future ownership interest in any of the following:
A "real estate reporting person" could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property.
Your Form 1099-S will show the gross proceeds from the sale or exchange in box 2. Follow the instructions for Schedule D to report these transactions and include them on line 1 or 8 as appropriate. However, report like-kind exchanges on Form 8824 instead.
It is unlawful for any real estate reporting person to separately charge you for complying with the requirement to file Form 1099-S.
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Nominees.(p68)

rule
If you receive gross proceeds as a nominee (that is, the gross proceeds are in your name but actually belong to someone else), report on Schedule D, lines 3 and 10, only the proceeds that belong to you. Then add the following amounts reported to you for 2010 on Forms 1099-B and 1099-S (or substitute statements) that you are not reporting on another form or schedule included with your return:
  1. Proceeds from transactions involving stocks, bonds, and other securities, and
  2. Gross proceeds from real estate transactions (other than the sale of your main home if you are not required to report it).
If the total of (1) and (2) is more than the total of lines 3 and 10, attach a statement to your return explaining the reason for the difference.
taxmap/pubs/p550-027.htm#en_us_publink100010722
File Form 1099-B or Form 1099-S with the IRS.(p68)
If you received gross proceeds as a nominee in 2010, you must file a Form 1099-B or Form 1099-S for those proceeds with the IRS. Send the Form 1099-B or Form 1099-S with a Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to your Internal Revenue Service Center by February 28, 2011 (March 31, 2011, if you file Form 1099-B or Form 1099-S electronically). Give the actual owner of the proceeds Copy B of the Form 1099-B or Form 1099-S by February 15, 2011. On Form 1099-B, you should be listed as the "Payer." The other owner should be listed as the "Recipient." On Form 1099-S, you should be listed as the "Filer." The other owner should be listed as the "Transferor." You do not, however, have to file a Form 1099-B or Form 1099-S to show proceeds for your spouse. For more information about the reporting requirements and the penalties for failure to file (or furnish) certain information returns, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G).
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Sale of property bought at various times.(p68)

rule
If you sell a block of stock or other property that you bought at various times, report the short-term gain or loss from the sale on one line in Part I of Schedule D and the long-term gain or loss on one line in Part II. Enter "Various" in column (b) for the "Date acquired." See the Comprehensive Example later in this chapter.
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Sale expenses.(p68)

rule
Add to your cost or other basis any expense of sale such as broker's fees, commissions, state and local transfer taxes, and option premiums. Enter this adjusted amount in column (e) of either Part I or Part II of Schedule D, whichever applies, unless you reported the net sales price amount in column (d).
taxmap/pubs/p550-027.htm#en_us_publink100010725

Short-term gains and losses.(p68)

rule
Capital gain or loss on the sale or trade of investment property held 1 year or less is a short-term capital gain or loss. You report it in Part I of Schedule D. If the amount you report in column (f) is a loss, show it in parentheses.
You combine your share of short-term capital gain or loss from partnerships, S corporations, and fiduciaries, and any short-term capital loss carryover, with your other short-term capital gains and losses to figure your net short-term capital gain or loss on line 7 of Schedule D.
taxmap/pubs/p550-027.htm#en_us_publink100010726

Long-term gains and losses.(p68)

rule
A capital gain or loss on the sale or trade of investment property held more than 1 year is a long-term capital gain or loss. You report it in Part II of Schedule D. If the amount you report in column (f) is a loss, show it in parentheses.
You also report the following in Part II of Schedule D:
The result after combining these items with your other long-term capital gains and losses is your net long-term capital gain or loss (line 15 of Schedule D).
taxmap/pubs/p550-027.htm#en_us_publink100010727
Capital gain distributions only.(p68)
You do not have to file Schedule D if both the following are true.  
If both the above statements are true, report your capital gain distributions directly on line 13 of Form 1040 and check the box on line 13. Also use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax.
You can report your capital gain distributions on line 10 of Form 1040A, instead of on Form 1040, if both the following are true.
taxmap/pubs/p550-027.htm#en_us_publink100010728

Total net gain or loss.(p69)

rule
To figure your total net gain or loss, combine your net short-term capital gain or loss (line 7) with your net long-term capital gain or loss (line 15). Enter the result on Schedule D, Part III, line 16. If your losses are more than your gains, see Capital Losses, next. If both lines 15 and 16 are gains and line 43 of Form 1040 is more than zero, see Capital Gain Tax Rates, later.
taxmap/pubs/p550-027.htm#en_us_publink100010729

Capital Losses(p69)

rule
If your capital losses are more than your capital gains, you can claim a capital loss deduction. Report the deduction on line 13 of Form 1040, enclosed in parentheses.
taxmap/pubs/p550-027.htm#en_us_publink100010730

Limit on deduction.(p69)

rule
Your allowable capital loss deduction, figured on Schedule D, is the lesser of: You can use your total net loss to reduce your income dollar for dollar, up to the $3,000 limit.
taxmap/pubs/p550-027.htm#en_us_publink100010731

Capital loss carryover.(p69)

rule
If you have a total net loss on line 16 of Schedule D that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year. If part of the loss is still unused, you can carry it over to later years until it is completely used up.
When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year.
When you carry over a loss, it remains long term or short term. A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains.
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Figuring your carryover.(p69)
The amount of your capital loss carryover is the amount of your total net loss that is more than the lesser of:
  1. Your allowable capital loss deduction for the year, or
  2. Your taxable income increased by your allowable capital loss deduction for the year and your deduction for personal exemptions.
If your deductions are more than your gross income for the tax year, use your negative taxable income in computing the amount in item (2).
Complete Worksheet 4-1 to determine the part of your capital loss for 2010 that you can carry over to 2011.
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Example.(p69)

Bob and Gloria sold securities in 2010. The sales resulted in a capital loss of $7,000. They had no other capital transactions. Their taxable income was $26,000. On their joint 2010 return, they can deduct $3,000. The unused part of the loss, $4,000 ($7,000 − $3,000), can be carried over to 2011.
If their capital loss had been $2,000, their capital loss deduction would have been $2,000. They would have no carryover.
taxmap/pubs/p550-027.htm#id2010_w24331i01
Pencil

Worksheet 4-1. Capital Loss Carryover Worksheet

Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on Schedule D, line 16, or (b) Form 1040, line 41, is less than zero. Otherwise, you do not have any carryovers.

1.Enter the amount from Form 1040, line 41. If a loss, enclose the amount in parentheses1.
2.Enter the loss from Schedule D, line 21, as a positive amount2.
3.Combine lines 1 and 2. If zero or less, enter -0-3.
4.Enter the smaller of line 2 or line 34.
 If line 7 of Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9.  
5.Enter the loss from Schedule D, line 7, as a positive amount5.
6.Enter any gain from Schedule D, line 15. If a loss, enter -0-6.  
7.Add lines 4 and 67.
8.Short-term capital loss carryover to 2011. Subtract line 7 from line 5. If zero or less, enter -0- 8.
 If line 15 of Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13.  
9.Enter the loss from Schedule D, line 15, as a positive amount9.
10.Enter any gain from Schedule D, line 710.  
11.Subtract line 5 from line 4. If zero or less, enter -0-11.  
12.Add lines 10 and 1112.
13.Long-term capital loss carryover to 2011. Subtract line 12 from line 9. If zero or less, enter -0- 13.
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Use short-term losses first.(p69)
When you figure your capital loss carryover, use your short-term capital losses first, even if you incurred them after a long-term capital loss. If you have not reached the limit on the capital loss deduction after using the short-term capital losses, use the long-term capital losses until you reach the limit.
taxmap/pubs/p550-027.htm#en_us_publink100010735
Decedent's capital loss.(p69)
A capital loss sustained by a decedent during his or her last tax year (or carried over to that year from an earlier year) can be deducted only on the final income tax return filed for the decedent. The capital loss limits discussed earlier still apply in this situation. The decedent's estate cannot deduct any of the loss or carry it over to following years.
taxmap/pubs/p550-027.htm#en_us_publink100010736
Joint and separate returns.(p69)
If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. However, if you and your spouse once filed a joint return and are now filing separate returns, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss.
taxmap/pubs/p550-027.htm#en_us_publink100010737

Capital Gain Tax Rates(p69)

rule
The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates.
The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.
For 2010, the maximum capital gain rates are 0%, 15%, 25%, and 28%. See Table 4-4 for details.
Deposit
If you figure your tax using the maximum capital gain rate and the regular tax computation results in a lower tax, the regular tax computation applies.
taxmap/pubs/p550-027.htm#en_us_publink100010739

Example.(p69)

All of your net capital gain is from selling collectibles, so the capital gain rate would be 28%. Because you are single and your taxable income is $25,000, none of your taxable income will be taxed above the 15% rate. The 28% rate does not apply.
taxmap/pubs/p550-027.htm#en_us_publink100010740

Investment interest deducted.(p69)

rule
If you claim a deduction for investment interest, you may have to reduce the amount of your net capital gain that is eligible for the capital gain tax rates. Reduce it by the amount of the net capital gain you choose to include in investment income when figuring the limit on your investment interest deduction. This is done on the Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet. For more information about the limit on investment interest, see Interest Expenses in chapter 3.
taxmap/pubs/p550-027.htm#en_us_publink100010741

28% rate gain.(p69)

rule
This gain includes gain or loss from the sale of collectibles and the eligible gain from the sale of qualified small business stock minus the section 1202 exclusion.
taxmap/pubs/p550-027.htm#en_us_publink100010742
Collectibles gain or loss.(p69)
This is gain or loss from the sale or trade of a work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage held more than 1 year.
Collectibles gain includes gain from the sale of an interest in a partnership, S corporation, or trust due to unrealized appreciation of collectibles.
taxmap/pubs/p550-027.htm#en_us_publink100010743
Gain on qualified small business stock.(p69)
If you realized a gain from qualified small business stock that you held more than 5 years, you generally can exclude up to 50% of your gain from your income. The exclusion can be up to 75% for stock acquired after February 17, 2009 (100% for stock acquired after September 27, 2010), and before January 1, 2011. The exclusion can be up to 60% for certain empowerment zone business stock. The eligible gain minus your section 1202 exclusion is a 28% rate gain. See Gains on Qualified Small Business Stock, earlier in this chapter.
taxmap/pubs/p550-027.htm#en_us_publink100010744

Unrecaptured section 1250 gain.(p70)

rule
Generally, this is any part of your capital gain from selling section 1250 property (real property) that is due to depreciation (but not more than your net section 1231 gain), reduced by any net loss in the 28% group. Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions to figure your unrecaptured section 1250 gain. For more information about section 1250 property and section 1231 gain, see chapter 3 of Publication 544.
taxmap/pubs/p550-027.htm#id2010_w15093r04

Table 4-4. What Is Your Maximum Capital Gain Rate?

IF your net capital gain is from ...THEN your maximum
capital gain rate is ...
collectibles gain28%
eligible gain on qualified small business stock minus the section 1202 exclusion28%
unrecaptured section 1250 gain25%
other gain1 and the regular tax rate that would apply is 25% or higher
15%
other gain1 and the regular tax rate that would apply is lower than 25%
0%
1"Other gain" means any gain that is not collectibles gain, gain on small business stock, or unrecaptured section 1250 gain.
 


taxmap/pubs/p550-027.htm#en_us_publink100010745

Tax computation using maximum capital gains rates.(p70)

rule
Use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet (whichever applies) to figure your tax if you have qualified dividends or net capital gain. You have net capital gain if Schedule D, lines 15 and 16, are both gains.
taxmap/pubs/p550-027.htm#en_us_publink100010746
Schedule D Tax Worksheet.(p70)
You must use the Schedule D Tax Worksheet in the Schedule D instructions to figure your tax if: See the Comprehensive Example later for an example of how to figure your tax using the Schedule D Tax Worksheet.
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Qualified Dividends and Capital Gain Tax Worksheet.(p70)
If you do not have to use the Schedule D Tax Worksheet (as explained above) and any of the following apply, use the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Form 1040 or Form 1040A (whichever you file) to figure your tax.
taxmap/pubs/p550-027.htm#en_us_publink100010748

Alternative minimum tax.(p70)

rule
These capital gain rates are also used in figuring alternative minimum tax.