When selling a capital asset, the IRS requires you to fill out Form 8949. While you’ve probably sold plenty of capital assets, you may have never heard of Form 8949. That is likely because your accountant handles all of your tax filings or software fills in this form automatically for you. Either way, let’s go over what Form 8949 is all about.
What Is Form 8949?
Form 8949 is used for the sale of capital assets. The title of this form is Sales and Other Dispositions of Capital Assets.
Capital assets include stocks, cryptocurrencies, art, collectibles, rare coins, and real estate. Basically, these are all tangible assets that you can touch as opposed to intangible assets.
Assets held for one year or less are taxed at the taxpayer’s ordinary income rate. Assets held for over one year are considered long-term gains and taxed at a lower rate.
Real estate is a high-value asset, and gains on a real estate sale can generate a large tax bill, especially if the asset is sold within one year. This is why real estate investors often hold properties for more than a year. Transaction costs vs. returns are another reason.
Filling Out Form 8949
Form 8949 is not complicated and consists of only two parts on two pages, and each part has the same questions. Part I is for ordinary income gains (i.e., short-term), and Part II is for long-term gains.
If you received Form 1099-B, check the appropriate box on each page of Form 8949 indicating if your 1099-B includes the cost basis from your broker. These checkboxes are in both parts of the form.
Parts I and II are mostly blank areas where you add assets that were sold. There are eight columns in each part labeled “a” thru “h”:
(a) — Description of property
(b) — Date acquired
(c) — Date sold or disposed of
(d) — Proceeds
(e) — Cost or other basis
(f) & (g) — Adjustment, if any, to gain or loss
(h) — Gain or (loss)
At the bottom of each section is an area to add all of the entries for a total gain or loss. The column “h” gain at the bottom of each section is transferred to Schedule D of your 1040.
Filling out Form 8949 may take a little time, but it isn’t a complex form to fill out. If you have stocks, your broker’s 1099 should provide all of the necessary information. If you are selling a home, finding the cost basis is a little more involved.
The following is an example basis calculation on a real estate sale:
Purchase price: $250,000
Sale Price: $400,000
Improvements: $15,000
Cost basis: purchase price + improvements = $250,000 + $15,000 = $265,000.
Gain from sale: $400,000 - $265,000 = $135,000
Of course, the above is a simple example. It’s best to work with a tax accountant to determine your property’s cost basis.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Examples shown are hypothetical and for illustrative purposes only.
