IRS Schedule D Form (1040) – Capital Gains and Losses

IRS Schedule D Form – If you’ve sold stocks, bonds, real estate, or other investments during the 2025 tax year, you may need to report those transactions on your federal tax return. IRS Schedule D (Form 1040) is the key form for calculating and reporting capital gains and losses. This guide breaks down everything you need to know about Schedule D, including who must file it, how to complete it, and tips for minimizing your tax liability. Whether you’re a first-time investor or a seasoned trader, understanding capital gains tax can help you stay compliant and potentially save money.

What Is IRS Schedule D (Form 1040)?

Schedule D is an attachment to Form 1040, 1040-SR, or 1040-NR used to report the sale or exchange of capital assets. Capital assets include items like stocks, bonds, mutual funds, cryptocurrency, real estate (not used for business), and collectibles. The form helps you calculate your net capital gain or loss, which flows to line 7a of Form 1040.

The primary purpose of Schedule D is to distinguish between short-term and long-term transactions, as they are taxed differently. Short-term gains (assets held one year or less) are taxed at ordinary income rates, while long-term gains (assets held more than one year) qualify for lower capital gains tax rates—typically 0%, 15%, or 20% depending on your income. For 2025, most taxpayers pay no more than 15% on net capital gains.

Capital gains occur when you sell an asset for more than its adjusted basis (usually your purchase price plus improvements minus depreciation). Conversely, a capital loss happens when you sell for less. Reporting these accurately ensures you don’t overpay taxes or face penalties.

Who Needs to File Schedule D?

Not everyone who sells an asset needs Schedule D. You must file it if you have:

  • Capital gains or losses from sales or exchanges not reported on another form (e.g., Form 4797 for business property).
  • Gains from involuntary conversions (like eminent domain) of non-business capital assets.
  • Capital gain distributions from mutual funds or REITs not directly reported on Form 1040 line 7a.
  • Capital loss carryovers from prior years.
  • Transactions reported on Form 1099-B, 1099-S, or 1099-DA (for digital assets).

If your only capital gain is from distributions on Form 1099-DIV (box 2a), you might not need Schedule D—just report it directly on Form 1040. However, if you have any losses or complex gains, filing Schedule D is required.

Short-Term vs. Long-Term Capital Gains and Losses

The holding period determines classification:

  • Short-term: Assets held one year or less. Taxed at your ordinary income rate (up to 37% for 2025).
  • Long-term: Assets held more than one year. Taxed at preferential rates (0% for taxable income up to $47,025 single/$94,050 MFJ; 15% up to $518,900 single/$583,750 MFJ; 20% above that). For certain partnership interests, the period may be more than three years.

Net losses can offset gains, and up to $3,000 ($1,500 if married filing separately) of excess losses can offset ordinary income. Remaining losses carry over to future years.

Capital Gains Tax Rates for 2025 Single Filers Married Filing Jointly
0% Rate Up to $47,025 Up to $94,050
15% Rate $47,026–$518,900 $94,051–$583,750
20% Rate Over $518,900 Over $583,750

Note: Additional 3.8% Net Investment Income Tax may apply for high earners.

How to Fill Out Schedule D? Step-by-Step

Before starting Schedule D, complete Form 8949 to list individual transactions. Totals from Form 8949 flow to Schedule D.

Part I: Short-Term Capital Gains and Losses

This section covers assets held one year or less.

  • Line 1a: Totals from Form 1099-B/1099-DA with basis reported to IRS (no adjustments).
  • Lines 1b–3: Totals from Form 8949 based on box checks (A–C or G–I for digital assets).
  • Lines 4–6: Additional gains/losses from other forms and carryovers.
  • Line 7: Net short-term gain or loss.

Part II: Long-Term Capital Gains and Losses

Similar to Part I but for assets held over one year.

  • Line 8a: Totals from Form 1099-B/1099-DA with basis reported (no adjustments).
  • Lines 8b–10: Totals from Form 8949 (boxes D–F or J–L).
  • Lines 11–14: Gains from other forms, distributions, and carryovers.
  • Line 15: Net long-term gain or loss.

Part III: Summary

  • Line 16: Combine lines 7 and 15.
  • Lines 17–19: Check for special gains (e.g., 28% rate for collectibles or unrecaptured Section 1250 gain).
  • Line 20: Use Qualified Dividends and Capital Gain Tax Worksheet or Schedule D Tax Worksheet if applicable.
  • Line 21: If a loss, deduct up to $3,000 against ordinary income.
  • Line 22: Complete tax worksheets as needed.

Key Worksheets and Calculations

  • Capital Loss Carryover Worksheet: For carrying forward losses from 2024.
  • 28% Rate Gain Worksheet: For collectibles and certain small business stock.
  • Unrecaptured Section 1250 Gain Worksheet: For depreciated real estate.
  • Qualified Dividends and Capital Gain Tax Worksheet: Simplifies tax on gains and dividends.
  • Schedule D Tax Worksheet: For complex situations involving special gains or Form 4952.

Always round cents to whole dollars for simplicity.

Special Rules and Exceptions

  • Sale of Main Home: Exclude up to $250,000 ($500,000 MFJ) if owned and used as primary residence for 2 of the last 5 years.
  • Wash Sales: Losses disallowed if you buy substantially identical securities within 30 days; adjust basis instead.
  • Qualified Opportunity Funds (QOF): Defer gains by investing in QOFs; report on Form 8997.
  • Qualified Small Business Stock: Exclude 50–100% of gains if held over 5 years.
  • Related-Party Transactions: Losses generally nondeductible.
  • Digital Assets: Use new codes G–L on Form 8949.

For traders with mark-to-market election, report on Form 4797 as ordinary income.

Tips for Filing Schedule D Accurately

  • Keep detailed records of basis and holding periods.
  • Use tax software to import Form 1099 data and handle calculations.
  • If e-filing, you may not need to attach Form 8949 for certain transactions.
  • Consult a tax professional for complex situations like installment sales or ESOP rollovers.
  • File by April 15, 2026, or request an extension.

Where to Download Schedule D and Instructions?

By properly reporting on Schedule D, you can optimize your tax outcome—perhaps by harvesting losses to offset gains. Stay informed with IRS updates, as rules can change. If you’re unsure, seek advice from a qualified tax advisor.