The information in this article is up to date through tax year 2025 (taxes filed in 2026).
When your clients sell a capital asset – whether they may a profit or a loss – it can significantly impact on their tax situation. These transactions must be reported on Schedule D, the IRS form used to calculate and summarize capital gains and losses.
In this guide, you’ll learn exactly what Schedule D is, who needs to file it, how capital gains and losses are classified and taxed, and how to complete the form accurately. We’ll also walk through related concepts like basis calculations, short‑term vs. long‑term gains, special tax rates, the Net Investment Income Tax (NIIT), capital loss deductions, and carryover rules.
What is a Schedule D tax form?
Schedule D is a tax form from the Internal Revenue Service (IRS) used to report profits or losses from selling capital assets that your clients sold or traded during the tax year. Capital assets include items like stocks, bonds, mutual funds, and real estate that are held for personal use or investment.
When completing Schedule D, you’ll provide key details about each asset, including the purchase price (or tax basis), the selling price, and how long your clients owned the asset. The tax basis may need to be adjusted to account for certain events such as reinvested dividends, return-of-capital distributions or improvements to real property, before calculating the gain or loss.
These details help determine whether the transaction is classified as short-term (owned for a year or less) or a long-term (owned for more than one year), which affects how the gain is taxed.
Who has to file a Schedule D?
Your clients will need to file a Schedule D if they made money or lost money from assets they sold or traded in taxable accounts. These assets commonly include stocks, bonds, mutual funds, ETFs, cryptocurrencies, and other investments held outside tax-advantaged plans.
Schedule D generally does not apply to transactions inside retirement accounts, such as traditional IRAs, Roth IRAs, or 401(k)s. In those accounts, investment activity, including gains, losses, or trades, isn’t taxable in the year it occurs.
Instead, taxes are deferred (or avoided entirely in the case of qualified Roth withdrawals). As a result, only the sale or trade of assets in taxable brokerage accounts or other non‑retirement accounts will trigger capital gains or losses that must be reported on Schedule D.
What counts as a capital asset?
Capital assets include personal property, such as your clients’ home or car, as well as investment property, such as stocks and bonds, and collectibles like art, coins, or rare items. In fact, according to the IRS, “almost everything you own or use for personal or investment purposes is a capital asset.” Because of this definition, selling virtually any capital asset could result in a capital gain or loss that should be reported on your client’s tax return.
Capital gains and losses explained
A capital gain or loss is the difference between your client’s basis and the amount they receive when they sell an asset. In most cases, the basis is the original cost of the asset plus any associated fees, such as commissions. However, the basis isn’t always fixed. Certain adjustments can increase or decrease basis, which in turn affects that final gain or loss reported on Schedule D. Common adjustments include reinvested dividends, return-of-capital distributions, and improvements made to real property.
If your client received the asset as a gift or inheritance, determining their basis can be trickier. In these cases, you’ll need to know the fair market value of the stock or bond on the day it was transferred to them and the donor’s adjusted basis. IRS Publication 550 Investment Income and Expenses offers detailed instructions for calculating basis in these situations.
What’s the difference between short-term vs. long-term capital gains and losses tax?
Capital gains and losses are either long-term or short-term, based on how long your client held the asset. This holding period matters because it determines which tax rates apply.
- Short‑term capital gains or losses apply to assets held one year or less. Short‑term gains are taxed at your client’s ordinary income tax rate, which is typically higher than long‑term rates.
- Long‑term capital gains or losses apply to assets held more than one year. Long‑term gains benefit from preferential tax rates, which are generally lower.
2025 Tax Rates for Long-Term Capital Gains
| Filing Status | 0% | 15% | 20% |
| Single | Up to $48,350 | $48,351 – $533,400 | $533,401+ |
| Head of household | Up to $64,750 | $64,751 – $566,700 | $566,701+ |
| Married filing jointly | Up to $96,700 | $96,701 – $600,050 | $600,051+ |
| Married filing separately | Up to $48,350 | $48,351 – $300,000 | $300,001 + |
Other capital gains tax rates for special assets
The long-term capital gains tax rate usually depends on income according to the table above. However, taxpayers may be subject to more than 20% in the following circumstances: The sale of section 1250 real property (tax at a maximum of 25%)
- The sale of a section 1202 qualified small business stock or collectibles items like coins or art (tax at a maximum of 28%)
- H2: How to fill out a Schedule D tax form for capital gains and losses
- Updated H2 for keyword targeting
- Reference “cost basis” contextually to reinforce how this is used when filling out a Schedule D form.
How to fill out a Schedule D tax form for capital gains and losses
When preparing a Schedule D tax form, make sure your clients gather all records related to the asset they sold or traded during the year. This includes documentationfor stocks, bonds, mutual funds, ETFs, cryptocurrencies, and other investments. You’ll need details such as the purchase dates, sale dates, proceeds, and asset’s cost basis. Th The cost basis will serve as the starting point used to calculate each gain and loss.
Start by completing Part I, where you’ll report short-term capital gains and losses for assets held for one year or less. List each transaction with the date acquired, date sold, proceeds, cost or other basis, and the resulting gain or loss.
Next, move on to Part II to report long-term capital gains and losses for assets held for more than one year. Use similar details for each transaction as you did in Part I.
After you’ve entered all transactions, calculate the totals for both short-term and long-term categories. To determine the overall capital gain or loss, subtract total losses from total gains in both sections. If there are any capital gains or losses, transfer these totals to Form (1040) in the appropriate lines.
Also, check if there’s a need to complete additional forms, such as Form 8949, for detailed transaction reporting or to claim exclusions. Once everything is filled out, review all entries for accuracy before filing Schedule D alongside the federal tax return by the deadline.
What is net investment income (NIIT)?
If your client has net investment income and a Modified Adjusted Gross Income (MAGI) above the following thresholds, they’ll likely be subject to the Net Investment Income Tax (NIIT).
| Filing Status | MAGI Threshold |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
| Qualifying widow(er) with dependent child | $250,000 |
The rate of this tax is 3.8%, and it will be applied to the lesser of their Net Investment Income or the amount that their MAGI exceeds the threshold. For example, a single filer has a Net Investment Income of $30,000 from the sale of stocks and a MAGI of $210,000. The 3.8% tax will only apply to the $10,000 (the amount that their MAGI exceeds the income threshold), not to the $30,000 in Net Investment Income. Their total NIIT would be $3,800.
How do you determine net capital gain for taxes?
To determine if your client has a net capital gain, you’ll determine both their long-term and short-term capital gains or losses on Schedule D (Form 1040). You’ll then combine the short and long-term gains or losses on Line 16. If the amount is positive, they have a net capital gain for the year.
When can you deduct capital losses?
Capital losses can be used to offset capital gains and lessen your client’s net capital gain for the year. If their capital losses exceed their capital gains, they can deduct their losses from their taxable income up to a certain amount (more on that below). Note that they cannot deduct losses on the sale of property that they hold for personal use, such as a home residence.
Is there a limit on the tax deduction for capital losses?
There is no limit on using capital losses to offset capital gains. There are, however, limits when deducting a net capital loss from taxable income. This loss deduction is capped at $3,000 per year or $1,500 per year for married filing separately. If your client’s losses exceed this amount, they can benefit from carryover losses in subsequent tax years.
How to handle capital carryover losses
If your client’s net capital loss is more than the limit they can deduct in a single tax year, they can carry over the remaining loss to future tax returns. If they are deducting the loss from their taxable income, the loss deduction cap of $3,000 per year (or $1,500 for married filing separately) still applies. So, if your client had a net capital loss of $12,000, they would deduct $3,000 from their taxable income in the year they incurred the loss and spread the remaining $9,000 deduction out equally over the next three years.
However, the $3,000 cap does not apply if the carryover loss is being deducted from a net capital gain. Using the example above, say that your client had a capital gain of $10,000 the year after they incurred the $12,000 loss. They could then deduct the remaining $9,000 in losses from their capital gains, reducing their taxable capital gains to $1,000.
Use the Capital Loss Carryover worksheet on the Schedule D Instructions to figure out the exact amount your clients can carry over in a given year.
Additional tax forms used to file capital gains and losses
When your client has a capital gain or loss, you’ll almost always need to file Form 8949 and Schedule D with their tax return. You’ll then enter relevant information from these forms on their Form 1040 or Form 1040-SR. Your TaxSlayer Pro software supports each of these forms and will help you simplify calculations and reporting.
For more details on capital gains and losses, you can refer to Publication 550 Investment Income and Expenses and the Schedule D Instructions.
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