Contributed by: TriciaD, FreeTaxUSA Agent, TaxPro
Filing your tax return can be complicated, especially if you've had financial transactions involving stocks, bonds, or other investments. One form that plays a crucial role for taxpayers who’ve bought or sold capital assets is Form 8949. Many individuals are unsure about when this form is required and what information it should contain. This article will break down what Form 8949 is, who needs to file it, and why it's important for reporting your investment activity accurately.
Form 8949 and its filing requirements
Form 8949, Sales and Other Dispositions of Capital Assets, is generally used by individuals, estates, and trusts who have transactions involving capital assets during the tax year. Transactions include a sale, exchange, or disposition of capital assets, even if you only had a single transaction.
Brokers and agents are required to send an information return, such as Form 1099-B or 1099-DA to both you and the IRS for these transactions, making it essential for your tax return to match IRS records. Form 8949 is designed to accurately report these transactions and provide transparency. It shows your capital asset activity in detail, ensuring reported gains and losses match the records provided by brokers and other financial institutions.
Here are some common reasons you may need to include the form with your tax return:
- Selling stocks, bonds, or mutual funds outside of a retirement account.
- Exchanging cryptocurrency or digital assets.
- The sale of property such as land, artwork, or collectibles (not a main home).
- If you received Form 1099-B, 1099-S, or similar statement from a broker or sales agent.
- The form indicates an adjustment, such as disallowed losses from wash sales.
- The cost basis of the asset wasn’t reported to the IRS.
How does Form 8949 work?
Form 8949 requires you to list each transaction with key details: acquisition date, sale date, proceeds, cost basis, and any adjustments for tax purposes. Transactions are divided by holding period—short-term (one year or less) in Part I and long-term (more than one year) in Part II. Enter transactions according to how long the asset was held.
Depending on your activity, you might only need to complete one section. Both sections collect the same information. The following should be reported in the relevant section:
- Check Box A, B, C, D, E, or F based on information provided on Form 1099-B or related statement.
- Box A/D (Short- or Long-term) – Basis was reported to the IRS,
- Box B/E(Short- or Long-term) – Basis wasn’t reported to the IRS,
- Box C/F(Short- or Long-term) – Transactions weren’t reported to you on Form 1099-B or a substitute statement.
- Line 1 – Reports details of each short or long-term transaction. If totals of each type of transaction are entered instead of individual transactions, and there was an adjustment, a wash sale, or the basis wasn’t reported to the IRS, then a summary statement with transaction details must be included with your return (this generally means the consolidated year-end information return provided by the financial institution
- Line 2 – Reports the totals from Line 1, columns (d), (e), (g), and (h):
- (d) proceeds/sales price
- (e) cost or other basis
- (g) adjustments
- (h) gain/loss
After completing Form 8949, transaction totals are summarized on Schedule D, which is included with the Form 1040 tax return.
Are there situations Form 8949 doesn’t need to be included?
There are certain circumstances when you can bypass Form 8949 and report sales directly on Schedule D. Form 8949 is not required if all your capital gains and losses are reported on the Form you received with cost basis reported to the IRS and no adjustments are needed. In such cases, you’ll check the appropriate box on Schedule D and simply include the totals.
Tips for completing Form 8949
- Gather all 1099-B and brokerage statements before starting.
- Review each transaction, paying close attention to dates and amounts.
- Note any adjustments, such as a corrected cost basis or disallowed losses under the wash sale rules.
- Double-check for missing transactions, especially if you invested through multiple accounts or platforms.
How do I enter a sale of capital assets in FreeTaxUSA?
Whether or not you received a tax form reporting your transactions, enter the sale information by following these steps:
*Select Save and Continue at the bottom of each page.
- Follow menu path: Income > Common Income > Investments and Savings (1099-INT/DIV/B/DA).
- Select +Add Investment.
- Choose the investment type.
- Enter the bank/broker details.
- Select Enter it manually or Upload a PDF if the options are given. The software can import interest (1099-INT), dividends (1099-DIV), and stock sale (1099-B) information.
- Select to enter One at a time OR Summary (if 10 or more sales). Enter separate summary entries for short and long-term sales.
- Enter your form information as it applies.
- If there’s an adjustment, select Yes on the Tell us more about your sale page.
- Select the adjustment type from the list provided. The selection will determine which additional screens are shown.
- Continue through the screens provided.
- The software will guide you to the Your Stock Sales page, where each transaction entry is listed.
- Form 8949 will be generated by the software and included with your tax return, if required, based on your entries.
Summary statement: For each summary entry where the basis wasn’t reported to the IRS, adjustments were made, a wash sale was involved, or the “Ordinary” box was checked in Box 2 of Form 1099-B, you must provide a detailed summary statement to the IRS.
A summary statement is required to substantiate certain summaries of transactions reported on Form 8949 (as described above)and should include the following details for each transaction:
- Description
- Date acquired
- Date sold
- Sales price
- Cost basis
- Adjustment code(s) (not common)
- Adjustment amount (not common)
- Gain or loss
If you have a PDF summary statement, you’ll be asked to upload it so it can be included with your e-filed FreeTaxUSA tax return.
If you’re unable to upload a PDF or choose to mail your tax return, print your summary statement, and include it with your tax return submission. Only one copy is required when multiple investments are reported on a single 1099-B or brokerage statement.
Final thoughts
Form 8949 may seem like just another piece of paperwork, but its role in accurately reporting your capital gains and losses can’t be overstated. Understanding when and how to file is crucial to staying compliant and avoiding unnecessary stress during tax season. If you’re unsure about your reporting requirements, don’t hesitate to contact FreeTaxUSA Customer Support or consult a tax professional for guidance.