Stock, Bond, and Other Capital Asset Sales

If you sold any stocks, bonds, options, or other securities; a home or other real estate; art, antiques, rugs, jewelry, precious metals, or other collectibles; or property used in a trade or business or used to generate income; or if you had any capital gains distributions from mutual funds or REITs, you will have to complete and file Schedule D, Capital Gains and Losses, and file it with your Form 1040. You won't be able to use either the 1040A or the 1040EZ form.

Some of these items are first reported on another tax form, and then the results computed on that form are transferred to the appropriate line of Schedule D.

Tip Sales of property used in a trade or business, including business real estate, must first be reported on IRS Form 4797. See our discussion of the rules that apply to these kinds of assets. Form 8824 is used to report like-kind exchanges and Form 6252 is used to report installment sales. All of these forms will separate your long-term gains and losses from your short-term gains and losses, and they will generally require you to transfer the amounts to Part I (short-term) and Part II (long-term) of the Schedule D. Short-term gain or loss from Form 4797, however, is transferred directly to Line 14 of Form 1040.

To report your capital gains from investment sales, you need to know about:

• capital gains tax rates
• computing capital gains
• which asset sales are reported
• what counts as a sale
• what is the basis
• what is the holding period
• capital gains distributions
• special situations
• netting short-term and long-term gains and losses

Remember that special, more advantageous rules apply to the sale of your home.

Planning Tools You can download Schedule D, Form 1040, Form 4797 and Form 6252 to aid in your financial planning.