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Schedule D: Capital Gains and Losses Explained

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Schedule D is the IRS form used to report capital gains and losses from the sale of investments and other capital assets. Whether you sold stocks, bonds, mutual funds, cryptocurrency, real estate, or collectibles, the profit or loss from those transactions is reported on Schedule D and its companion Form 8949. Understanding how this form works is essential because the difference between short-term and long-term gains can mean a tax rate gap of 20 percentage points or more.

This guide explains every section of Schedule D, how capital gains tax rates work, and how losses can offset your other income.

Where to Get Schedule D

Download Schedule D and its instructions at irs.gov/forms-pubs/about-schedule-d-form-1040. Tax preparation software generates Schedule D automatically when you enter investment sales.

What Are Capital Assets?

Almost everything you own for personal use or investment is a capital asset. This includes:

Stocks and bonds
Mutual funds and ETFs
Cryptocurrency and digital assets (see our crypto tax guide)
Real estate (including your primary residence, rental properties, and land)
Collectibles (art, antiques, coins, stamps, precious metals)
Personal-use property (vehicles, furniture, jewelry)
Business assets (subject to special rules and depreciation recapture)

Items that are NOT capital assets include inventory held for sale, accounts receivable, and certain self-created works (though there are exceptions).

Capital Gains Tax Rates (2026)

The tax rate on your capital gain depends on how long you held the asset before selling.

Short-Term Capital Gains (Held 1 Year or Less)

Taxed at your ordinary income tax bracket rate — the same rates as wages, ranging from 10% to 37%.

Long-Term Capital Gains (Held More Than 1 Year)

Taxed at preferential rates:

Filing Status	~0% Rate	~15% Rate	~20% Rate
Single	Up to ~$48,350	~$48,351 — ~$533,400	Over ~$533,400
Married Filing Jointly	Up to ~$96,700	~$96,701 — ~$600,050	Over ~$600,050
Head of Household	Up to ~$64,750	~$64,751 — ~$566,700	Over ~$566,700

Important: These thresholds are based on taxable income, not AGI. Your standard or itemized deductions reduce the income subject to these rates.

Special Rates

Collectibles: Long-term gains on collectibles are taxed at a maximum rate of 28%
Unrecaptured Section 1250 gain: Depreciation recapture on real property is taxed at a maximum rate of 25%
Net Investment Income Tax (NIIT): An additional 3.8% surtax applies to net investment income if your MAGI exceeds ~$200,000 (single) or ~$250,000 (MFJ)

Form 8949: The Detail Behind Schedule D

Before completing Schedule D, you must report individual transactions on Form 8949. Each sale gets its own row with:

Column (a): Description of property (e.g., “100 shares XYZ Corp”)
Column (b): Date acquired
Column (c): Date sold or disposed
Column (d): Proceeds (sale price)
Column (e): Cost or other basis
Column (f): Code for adjustments (wash sale, basis adjustment, etc.)
Column (g): Amount of adjustment
Column (h): Gain or loss (Column d minus Column e, adjusted by Column g)

Form 8949 is divided into two parts:

Part I: Short-term transactions (held one year or less)
Part II: Long-term transactions (held more than one year)

Each part is further split by reporting category:

Box A: Basis reported to the IRS by your broker (Form 1099-B, Box 3 checked)
Box B: Basis NOT reported to the IRS
Box C: No Form 1099-B received

Broker 1099-B forms: Your brokerage provides Form 1099-B showing proceeds and (usually) cost basis for each sale. If the basis was reported to the IRS and you have no adjustments, some taxpayers can report summary totals directly on Schedule D without filing Form 8949.

Part I: Short-Term Capital Gains and Losses (Lines 1-7)

This section captures gains and losses from assets held one year or less.

Line 1a: Totals from Form 8949, Box A (short-term, basis reported to IRS)
Line 1b: Totals from Form 8949, Box B (short-term, basis not reported to IRS)
Line 1c: Totals from Form 8949, Box C (short-term, no 1099-B)
Line 4: Short-term gain or loss from other forms (Form 4797, installment sales, like-kind exchanges, partnerships/S corps via K-1)
Line 5: Net short-term capital gain or loss from partnerships, S corporations, and fiduciaries (from Schedule K-1)
Line 6: Short-term capital loss carryover from prior years (from your prior year Schedule D worksheet)
Line 7: Net short-term capital gain or loss (sum of lines 1 through 6)

Part II: Long-Term Capital Gains and Losses (Lines 8-14)

Same structure as Part I but for assets held more than one year.

Line 8a: Totals from Form 8949, Box A (long-term, basis reported to IRS)
Line 8b: Totals from Form 8949, Box B (long-term, basis not reported to IRS)
Line 8c: Totals from Form 8949, Box C (long-term, no 1099-B)
Line 11: Gain from Form 4797 (business property sales, depreciation recapture)
Line 12: Net long-term gain/loss from partnerships, S corps, and fiduciaries (K-1)
Line 13: Capital gain distributions from mutual funds (from 1099-DIV, Box 2a — these are always treated as long-term regardless of how long you held the fund)
Line 14: Long-term capital loss carryover from prior years
Line 15: Net long-term capital gain or loss (sum of lines 8 through 14)

Part III: Summary (Lines 16-22)

This section combines your short-term and long-term results.

Line 16: Combine net short-term (Line 7) and net long-term (Line 15)

If the result is a net gain, you proceed to the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to calculate your tax at the preferential rates.

If the result is a net loss, the rules are different:

The $3,000 Capital Loss Deduction

Line 21: If you have a net capital loss, you can deduct up to $3,000 against your ordinary income ($1,500 if married filing separately)
Any excess loss carries forward to future years indefinitely

Example: You have $15,000 in capital losses and $5,000 in capital gains. Your net loss is $10,000. You deduct $3,000 this year and carry forward $7,000 to next year.

The net gain or loss from Line 16 (or the limited loss amount) flows to Form 1040, Line 7.

Wash Sale Rule

The IRS wash sale rule prevents you from claiming a loss if you buy the same or “substantially identical” security within 30 days before or after the sale.

How it works:

You sell 100 shares of XYZ at a $2,000 loss on March 10
You buy 100 shares of XYZ on March 25 (within 30 days)
The $2,000 loss is disallowed and added to the cost basis of the replacement shares

On Form 8949: Enter code “W” in Column (f) and the disallowed loss amount in Column (g).

Common mistake: Thinking wash sales only apply to identical shares. Buying a substantially identical security (such as buying an S&P 500 index fund after selling a different S&P 500 index fund from another provider) can also trigger the rule. However, selling stock and buying options on the same stock may not trigger a wash sale in all cases — the rules are nuanced and IRS guidance is limited.

Cryptocurrency Reporting on Schedule D

Digital asset sales follow the same rules as stock sales. Report each transaction on Form 8949 with:

The specific cryptocurrency sold
Date acquired and date sold
Proceeds and cost basis
Gain or loss

Starting with the 2025 tax year, cryptocurrency exchanges are required to issue Form 1099-DA (a new form for digital assets), which functions similarly to Form 1099-B for brokerages. For a comprehensive guide to crypto taxation, see our crypto tax guide.

E-Filing Schedule D

Tax software handles Schedule D efficiently by:

Importing 1099-B data directly from brokerages (most major brokers support this)
Automatically categorizing transactions as short-term or long-term
Identifying wash sales
Calculating carryforward losses from prior years
Generating Form 8949 entries

If you have hundreds or thousands of transactions (common for active traders or crypto users), software import is practically essential.

Common Mistakes to Avoid

Ignoring cost basis adjustments — Reinvested dividends, stock splits, and return-of-capital distributions all affect your basis. Using incorrect basis means incorrect gain/loss.
Forgetting inherited asset basis — Inherited assets receive a “stepped-up” basis to fair market value at the date of death, which can eliminate decades of unrealized gains.
Missing capital loss carryforwards — If you had a net capital loss exceeding $3,000 in prior years, the excess carries forward. Check your prior year tax return’s Schedule D worksheet.
Not reporting all crypto transactions — Every crypto-to-crypto trade, crypto purchase with fiat, and crypto payment for goods/services is a taxable event.
Confusing “proceeds” with “gain” — If you sold $50,000 of stock but your basis was $45,000, your gain is $5,000 — not $50,000. Enter proceeds and basis separately.

Frequently Asked Questions

Do I need Schedule D if I only have capital gain distributions from mutual funds?

If capital gain distributions (1099-DIV, Box 2a) are your only capital gains and you have no capital losses, you may be able to report them directly on Form 1040, Line 7 without filing Schedule D. Check the instructions for whether you qualify for this exception.

How long do capital loss carryforwards last?

Indefinitely. Unused capital losses carry forward until you use them up, with no expiration date.

Is there a way to offset short-term gains with long-term losses?

Yes. Short-term and long-term gains/losses net against each other. A long-term loss offsets a short-term gain (and vice versa). After netting within each category, the net short-term and net long-term results are combined.

Do I owe the 3.8% NIIT on capital gains?

The Net Investment Income Tax applies if your modified AGI exceeds ~$200,000 (single) or ~$250,000 (MFJ). It applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. This is reported on Form 8960, not Schedule D.

What is the tax rate on selling my primary residence?

You can exclude up to ~~$250,000 of gain (~~$500,000 for MFJ) on the sale of your primary residence if you owned and lived in it for at least 2 of the 5 years before the sale. Gain above the exclusion is reported on Schedule D. Learn more about tax deductions related to homeownership.

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional or visit irs.gov for official guidance on your specific tax situation.