Capital Gains and Losses

Who Files Schedule D

Every taxpayer who had a sale or other disposition of a capital asset during the year: stocks, bonds, mutual funds, real estate (when not Section 121 excluded), cryptocurrency, NFTs, options, collectibles. Also required when carrying forward a prior-year capital loss, receiving a capital gain distribution from a mutual fund without other transactions, or netting Section 1256 contracts.

What Schedule D Reports

Part I summarizes short-term gains and losses (assets held one year or less) from Form 8949. Part II summarizes long-term gains and losses. Part III nets the totals: net capital gain is taxed at preferential rates (0, 15, 20 percent depending on income, plus 3.8 percent NIIT for high earners); net capital loss offsets up to $3,000 of ordinary income with the remainder carrying forward indefinitely. Section 1250 unrecaptured depreciation gain is taxed at maximum 25 percent. Collectibles gain at maximum 28 percent.

Key Deadlines

• April 15: filed with Form 1040
• October 15: extended deadline with Form 4868

Common Mistakes

• Reporting Schedule D without the underlying Form 8949 detail. Each transaction must be listed individually unless the broker reported all required info and there are no adjustments.
• Missing wash sale adjustments. The disallowed loss adds to the replacement security basis and the holding period rolls over, but brokers commonly miss wash sales across account types.
• Treating crypto-to-crypto trades as nontaxable. Every disposition of one cryptocurrency for another is a taxable event.
• Forgetting capital loss carryforwards from prior years. Up to $3,000 per year of ordinary income offset and unlimited carryforward against future gains.
• Using the wrong cost basis for inherited stock or crypto. Inherited assets generally receive a step-up to date-of-death FMV.

Best Practices

• Run a year-end aggregator import for crypto (CoinTracker, Koinly, ZenLedger) to catch missing trades, transfers, and DeFi events. Reconcile against 1099-DA broker reporting starting 2025.
• Use specific identification (specific lot or HIFO) for sales of appreciated stock instead of FIFO when it produces a better tax result.
• Time gain harvesting in low-income years (sabbatical, early retirement, gap year) to use the 0 percent long-term capital gains bracket.
• Pair gain harvesting with loss harvesting to keep effective tax rate near zero on rebalancing transactions.
• For Section 1256 contracts (futures, broad-based index options), use the 60/40 split (60 percent long-term, 40 percent short-term regardless of holding period). Many tax software defaults miss this.
• For real estate sales, coordinate Section 121 exclusion (up to $250K single, $500K joint) with depreciation recapture and 1031 exchange options.

Source: Official Schedule D information at IRS.gov