If you sold a stock or other property, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks daunting and it certainly can be.
Schedule D –A U.S. income tax form used by taxpayers to report their realized capital gains or losses. Investors are required to report their capital gains (and losses) from the sales of assets, which result in different cash values being received for them than what was originally paid, in order to affix some amount of taxation to the income and wealth that is generated through investment activities.
Calculating Capital Gains and Losses on the Schedule D
A frequently asked question by investors during tax time is how to calculate capital gains and losses on the Schedule D. Unfortunately, the answer is not a simple one.
The basic principle in calculating capital gains or losses is to subtract the cost to purchase a security from the proceeds of selling it. Gains from investments held for more than one year are taxed at the more favorable capital gains rate of no higher than 15%. Investments held less than a year are treated as ordinary income and taxed at the personal income tax rate as high as 35%. If investors have net loss positions for the year, the IRS will allow them to write off a loss of up to $3,000 against their income. All other losses can be carried forward to future years.
Further complicating the task of manually completing the Schedule D is identifying wash sales and corporate actions that have affected securities in an investor’s portfolio and making the necessary cost basis adjustments to these securities.