Form 8949 – Capital Gains and Losses

July 10, 2012 by  Filed under: Taxes 

For the 2011 tax year, taxpayers who have made a capital gain or capital loss will be required to complete Form 8949, Capital Gains and Losses Form, and attach the form to the tax return form. Filing of the Form 8949 will accompany figures indicated in the Schedule D. Prior to 2011, taxpayers were only required to indicate the gains in the Schedule D of the tax return form. However, with this new requirement, taxpayers will need to provide much more information concerning the capital gains.

What is a Capital Gain?

A capital gain is the profit that one makes after the sale of an asset including real estate, stocks, bonds, artwork, and any other form of investment. For the purpose of taxation, profits or losses made by sale of a principal residence or a personal car are not considered taxable gains and therefore, are not included in the gains schedule. To determine the capital gains made, one needs to keep the records of the purchase price of the assets as this is what will be offset to the selling price to determine the gains. Starting 2012, stockbrokers and mutual investment managers will now be required to provide their clients with a basis and gains calculation of assets sold for taxation purposes. This information will be provided to the asset owner on the Form 1099 B and a copy of this form will be sent to the IRS.

Six Categories under Form 8949

For 2011, taxpayers will be required to categorize their capital gains into 3 groupings with each grouping having 2 categories.

  • Long and Short Gains – Assets that have been bought and sold within one year are considered short gains and this will be included into one category. Assets sold after possession of over one year are considered long gains and will be included into a separate category.
  • Basis reported – Assets that have the basis reported on will be on a separate category while those whose basis is not reported will be on another category.
  • Form 1099-B – Gains that are accompanied with a Form 1099-B indicating the basis on the capital gains will be indicated in one category while gains that do not have an accompanying Form 1099B will be included in another category.

Getting the Basis

For assets that do not have a Form 1099B, a taxpayer will need to keep the original purchase receipts of the asset until sale is made so as to calculate the gains. Gains for mutual funds, swaps and forward contracts may be slightly complicated and you may require the help of a professional. For estate assets, the basis depends on the time the heir inherited the assets and once again, one may need the help of a professional to calculate the correct gains for tax purposes.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. / Tel:888.321.6188

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