In the biggest 2011 tax change, the IRS adds a new capital gains form to fill out along with Schedule D
Starting with 2011 taxes the IRS has all new rules for reporting capital gains, complete with a new Form 8949 [Sales and Other Dispositions of Capital Assets]. Basically you have to list on Form 8949 all the transactions that would previously have been reported on Schedule D [Capital Gains and Losses] or the now defunct Schedule D-1 [Continuation Sheet for Schedule D].
You may be surprised to learn the number of things that are considered capital assets – in fact almost all of your personal and investment property qualifies as a capital asset including your home, household furnishings, stocks, and bonds.
When you sell these assets, the difference between the price you bought them at and the price you sell them for is a capital gain (or loss).
All your income from capital gains you have to report – that’s where Form 8949 comes in.
On Form 8949 you must list
- sales and exchanges of capital assets
- gains from involuntary conversions of capital assets not held for business or profit
- nonbusiness bad debts
If you sold a covered security in 2011 should receive a Form 1099-B [Proceeds from Broker and Barter Exchange Transactions] from your broker, which should help you complete Form 8949.
Know that you could end up having to fill out three separate Form 8949s because the IRS requires a separate form for
- short-term transactions reported on Form 1099-B with basis reported to the IRS
- short-term transactions reported on Form 1099-B but with basis not reported to the IRS
- short-term transactions that do not fit into the first two categories
Even though there’s a whole new form to fill out, you still have to submit the traditional Schedule D, which now functions more as a summary of everything reported on Form 8949.
It’s a good idea to complete Form 8949 first because you will need that information to complete your Schedule D.
So why the new form? It all has to do with new cost basis reporting requirements for brokers. The IRS wants to make sure you are reporting all of your transactions. Form 8949 allows the IRS to more easily compare what you are reporting with what your broker is reporting on Form 1099-B.
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