Comprehensive Example(p71)

Emily Jones is single and, in addition to wages from her job, she has income from stocks and other securities. For the 2011 tax year, she had the following capital gains and losses, which she reports on Form 8949 and Schedule D. Her filled-in Form 8949 and Schedule D are shown at the end of this example. She keeps track of all her basis adjustments to her mutual funds on her Mutual Fund Record, shown later.

She shows the nondividend distributions and the undistributed capital gains from Mutual Fund S and the reinvested dividends from Mutual Fund R. She does not show the exempt-interest dividends from Mutual Fund X because those dividends do not change her basis in the shares. She keeps this record with her mutual fund documents and uses it to reconcile her 2011 sale of Mutual Fund S.

Emily sold stock in two different companies that she held for less than a year. In June, she sold 100 shares of Trucking Co. stock that she bought in February. She had an adjusted basis of $1,150 in the stock and sold it for $400. In July, she sold 25 shares of Computer Co. stock that she bought in June. She had an adjusted basis in the stock of $2,000 and sold it for $2,500. She reports these short-term transactions on line 1 in Part I of Form 8949.

Emily had other stock sales that she reports as long-term transactions on line 3 in Part II of Form 8949.

In June, she sold 500 shares of Furniture Co. stock for $5,000. She bought 100 of those shares in 1999, for $1,000. She bought 100 more shares in 2001 for $2,200, and an additional 300 shares in 2004 for $1,500. Her total basis in the stock is $4,700. She reports this transaction on line 3 in Part II of Form 8949.

In December, she sold 20 shares of Toy Co. stock for $4,100. This was qualified small business stock that she bought in September 2006. Her basis is $1,100. She enters this information on line 3 in Part II of Form 8949.

In October, Emily sold 200 shares of Mutual Fund S for $3,200. She purchased these shares in 1997 at $10 each. She received some nondividend distributions in 1999, 2000, and 2008 that reduced her basis in the shares. In 2009 and 2010, Emily reported undistributed capital gains that increased her basis in her shares. She received no distributions in 2011 before the sale. She reports the sale in Part II on line 3 of her Form 8949. She uses the information from her Form 1099-B to complete columns (a) and (c) through (f). After adjustment for her nondividend distributions and her undistributed capital gains, her basis is $1,996 ($9.98 per share). This is the same basis shown in her personal records and on her Form 1099-B.

She received a Form 1099-B (not shown) from her broker for each of these transactions. Each Form 1099-B contains the correct information for the transaction, including the basis shown in box 3. She will check box A in Part I of Form 8949 where she reports her short-term transactions. She will also check box A in Part II of Form 8949 where she reports her long-term transactions. The entries shown in box 2 of these forms total $15,200.

Emily held her qualified small business stock for more than 5 years, so she can exclude 50% ($1,500) of the gain. She takes the exclusion by reporting the gain realized on the sale on Form 8949, line 3, as if she were not taking the exclusion. She completes all columns on Form 8949. She enters "S" in column (b) and the amount of the excluded gain as a negative number (in parentheses) in column (g). She also enters the exclusion as a positive number on line 2 of the 28% Rate Gain Worksheet.

Emily completes her Form 8949 and then transfers the amounts from her Form 8949 to Schedule D. She enters the amounts from her short-term transactions from columns (e) and (f) of line 2 of Form 8949, in columns (e) and (f) of line 1 of Schedule D. She has a short-term capital loss of $250 that she enters in column (h) of line 1 of Schedule D. She enters the amounts from her long-term transactions from columns (e), (f), and (g) of line 4 of Form 8949, in columns (e), (f), and (g) of line 8 of Schedule D. She has a long-term capital gain of $3,004 that she enters in column (h) of line 8 of Schedule D.

In June, Emily invested $3,800 in Mutual Fund R and received 153.16 shares that cost $24.81 per share. She requested that all her distributions be reinvested in more shares of the Fund. She then received $265 of ordinary dividends, including $250 of qualified dividends, and $61 of capital gain distributions from the Fund. She received Form 1099-DIV showing these amounts. On December 29, 2011, she acquired an additional 13.03 shares at $25.01 per share from her reinvested dividends. She reports the ordinary dividends on Form 1040, line 9a. She reports the qualified dividends on Form 1040, line 9b. She does not report the ordinary dividends on Schedule B (Form 1040A or Form 1040) because her total ordinary dividends were not over $1,500. She reports the capital gain distributions on Schedule D (Form 1040) because she has other capital transactions. She enters the $61 capital gain distribution on line 13.

In April 2009, Emily invested $2,600 in Mutual Fund X and received 87.54 shares at $29.70 per share. She received exempt-interest dividends of $92 in 2009, $107 in 2010, and $101 in 2011. She chose not to reinvest these and instead received a cash payment. She received Form 1099-INT from Fund X showing this nontaxable amount, which she reports on Form 1040, line 8b.

In 1997, Emily bought 100 shares of common stock in Green Publishing Co. at $10.29 per share. In 2011, she received $237 in ordinary dividends, including $220 of qualified dividends, as a cash payment that was not reinvested. She received Form 1099-DIV showing this amount. She reports the ordinary dividends on Form 1040, line 9a, and the qualified dividends on Form 1040, line 9b.

On June 2, 2011, Emily had a realized loss from a regulated futures contract of $11,000. She also had an unrealized marked-to-market gain on open contracts of $27,000 at the end of 2011. She reported an unrealized marked-to-market gain of $1,000 on her 2010 tax return. (This $1,000 must be subtracted from her 2011 profit.) These amounts are shown in boxes 10, 11, and 12 of the Form 1099-B she received from her broker for these transactions. Box 13 shows her combined profit of $15,000 ($27,000 − $1,000 − $11,000). She reports this gain in Part I of Form 6781 (not shown). She shows 40% ($6,000) as short-term gain on line 4 of Schedule D and 60% ($9,000) as long-term gain on line 11 of Schedule D.

The Form 1099-B that Emily received from her broker, XYZ Trading Co., is shown later.

Emily has a capital loss carryover to 2011 of $800, of which $300 is short-term capital loss, and $500 is long-term capital loss. She enters these amounts on lines 6 and 14 of Schedule D. She also enters the $500 long-term capital loss carryover on line 5 of the 28% Rate Gain Worksheet.

She kept the completed Capital Loss Carryover Worksheet in her 2010 edition of Publication 550 (not shown), so she could properly report her loss carryover for the 2011 tax year without refiguring it.

Because Emily has gains on both lines 15 and 16 of Schedule D, she checks the "Yes" box on line 17 and goes to line 18. On line 18 she enters $1,000 from line 7 of the 28% Rate Gain Worksheet. Because line 18 is greater than zero, she checks the "No" box on line 20 and uses the Schedule D Tax Worksheet to figure her tax.

After entering the gain from line 16 of Schedule D on line 13 of her Form 1040, she completes the rest of Form 1040 through line 43. She enters the amount from that line, $30,000, on line 1 of the Schedule D Tax Worksheet. After filling out the rest of that worksheet, she figures her tax as $2,421. This is less than the tax she would have figured without the capital gain tax rates, $4,079.

Mutual Fund	Acquired1			Adjustment to Basis Per Share					Adjusted2 Basis Per Share	Sold or Redeemed
	Date	Number of Shares	Cost Per Share							Date	Number of Shares
MUTUAL FUND S	7-12-97	200	10.00	12-31-99	12-31-00	12-31-08	12-30-09	8-30-10	9.98	10-5-11	200
				(.05)	(.02)	(.04)	.03	.06
MUTUAL FUND X	4-19-09	87.54	29.70
MUTUAL FUND R	6-12-11	153.16	24.81
	12-29-11	13.03	25.01

1 Include share received from reinvestment of distributions.

2 Cost plus or minus adjustments.