2013 Schedule D forms and Form 8949 contain sale/exchange reporting changes

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January 22, 2014

IRS has recently released final versions of 2013 Forms 1040 Schedule D, 1120 Schedule D and 8949. The instructions to those forms contain a few changes in how sales and exchanges of capital assets are reported.

Click here for 2013 Form 1040, Schedule D, Capital Gains and Losses.

Click here for the draft instructions to 2013 Form 1040, Schedule D.

Click here for 2013 Form 8949, Sales and Other Dispositions of Capital Assets.

Click here for the instructions to 2013 Form 8949.

Background. Form 8949, Sales and Other Dispositions of Capital Assets, is used to list sales and other dispositions of capital assets. It creates separate totals for long- and short-term gains and losses, as well as separate totals that depend on how the transaction was reported to the taxpayer. Those totals are then brought forward to Schedule D, Capital Gains and Losses, of various forms, including Form 1040, Schedule D and Form 1120, Schedule D. The Schedule Ds are also used to report other capital gains and losses, i.e., capital gains and losses that aren’t from direct sales or other dispositions of capital assets by the taxpayer. All of the Form 8949 transactions and the Schedule D transactions are combined on Schedule D. For individuals, the resulting net capital gain or loss is carried to Form 1040. For corporations, any resulting net capital gain is transferred to Form 1120, and any resulting net capital loss is carried back or forward to another tax year.

2013 changes. The chief changes to the forms are: a) certain sale/other disposition transactions can be omitted from Form 8949 and reported directly on Schedule D; b) a prior year rule for reporting by corporations and electing large partnerships only applies to corporations this year; and c) for the first time, estates and trusts must use Form 8949.

Certain transactions can be omitted from Form 8949. The general instruction for Form 8949 is that every sale/disposition must be reported separately. In past years, there were exceptions under which: a) taxpayers could attach a separate statement with separate transaction detail, in a format prescribed by Form 8949 (Exception 1); and b) corporations, exempt organizations and partnerships with a large number of transactions could omit the detail and indicate “Available upon request” (Exception 2).

For 2013, a third exception has been provided. Taxpayers may aggregate and report qualifying transactions directly on either Line 1a (for short-term transactions) or Line 8a (for long-term transactions) of Schedule D. Qualifying transactions are transactions, other than sales of collectibles, for which the taxpayer both: i) received a Form 1099-B (or substitute statement) that shows basis was reported to IRS and does not show a nondeductible wash sale loss in box 5, and ii) doesn’t need to make any adjustments to the basis or type of gain or loss (short-term or long-term) reported on Form 1099-B (or substitute statement), or to his gain or loss.

A taxpayer who qualifies to use this new exception, and who also qualifies to use Exception 1 or Exception 2, can use both (i.e., Exception 3 plus either Exception 1 or Exception 2). He should report the transactions that qualify for Exception 3 directly on either Line 1a or 8a of Schedule D, whichever applies, and report the rest of his transactions as explained in Exception 1 or Exception 2 above, whichever applies.

Change in reporting by electing large partnerships. In earlier years, both corporations and electing large partnerships were required to report their share of gain or loss from pass-through entities on Form 8949, while other entities, e.g., individuals, had to report such gain or loss on Schedule D. For 2013, electing large partnerships report such gain or loss on Schedule D.

Estates and trusts must use Form 8949. The use of Form 8949 by estates and trusts is new. Many transactions that, in previous years, would have been reported by estates and trusts on Form 1041, Schedule D or Schedule D-1 must be reported on Form 8949 if they have to be reported on a 2013 form.

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