Form 1040 Capital Gains: Schedule D, Form 8949, and Rates

Capital gains on Form 1040 are reported through a three-form chain: you list each sale on Form 8949, carry the totals to Schedule D, and the net result flows to Form 1040, line 7a. Short-term gains (assets held one year or less) are added to your ordinary income and taxed at your regular rate; long-term gains (held more than one year) get preferential rates of 0%, 15%, or 20%. The IRS receives copies of your brokerage 1099-Bs, so what you report has to match what your broker reported, or you have to show the correction.

The Three-Form Reporting Chain

Every capital gain or loss moves through the same path, whether you sold ten shares of stock or a rental property.

Form 8949: One Line Per Sale

Form 8949 is where individual transactions get listed. Part I covers short-term sales, Part II covers long-term. For each one, you enter the asset description, the date you acquired it, the date you sold it, the proceeds, the cost basis, and any adjustment code (for a wash sale, a basis correction, or similar items).¹

There’s a shortcut worth knowing. If your 1099-B shows the basis was reported to the IRS and you don’t need to adjust anything, you can skip Form 8949 for those transactions and enter the totals directly on Schedule D, lines 1a or 8a.² For a typical brokerage account, that eliminates pages of entries. Form 8949 is only required when the basis wasn’t reported, or when you need to correct something your broker got wrong.

Schedule D: The Summary

Schedule D pulls the Form 8949 totals (and any direct entries) into a short-term subtotal and a long-term subtotal.³ Capital gain distributions from mutual funds, reported to you on Form 1099-DIV, go straight onto Schedule D without passing through Form 8949. Line 16 nets short-term and long-term together.

Form 1040, Line 7a

Schedule D line 16 flows to Form 1040, line 7a.³ A gain adds to your income for the year. A loss is deductible, but with a cap discussed below. If you have a net long-term gain, Schedule D’s tax worksheet applies the preferential long-term rates to that portion rather than taxing everything at ordinary rates.

Short-Term vs. Long-Term

How long you held the asset decides everything about the rate. One year or less is short-term. More than one year is long-term.⁴ The holding period usually starts the day after you acquire the asset and includes the day you sell it.

Short-term gains stack on top of your wages and get taxed at your ordinary rate, up to 37% for 2026. Long-term gains get the preferential 0/15/20% treatment.⁵ Inherited property is automatically treated as long-term regardless of actual holding time. Gifted property can carry over the donor’s holding period.

Figuring the Gain or Loss

The basic formula is sale proceeds minus adjusted basis. A positive result is a gain; a negative result is a loss. The complication is in figuring the basis, and the rules differ by how you came to own the asset.

Property You Bought

For assets you purchased, the initial basis is the price plus transaction costs like brokerage commissions or transfer fees.⁶ For real estate, add closing costs, title insurance, and the cost of capital improvements. A new roof or kitchen renovation counts; routine maintenance does not. On the sale side, subtract selling expenses like agent commissions from the sale price to get net proceeds.

Inherited Property

Inherited property gets a stepped-up basis equal to its fair market value on the date the previous owner died.⁷ If a parent bought stock for $10,000 decades ago and it was worth $100,000 the day they died, your basis is $100,000. You owe capital gains tax only on appreciation above that figure when you sell.

Gifted Property

Gifted property follows a dual basis rule. For measuring a gain, your basis is the donor’s adjusted basis. But if the fair market value on the date of the gift was lower than the donor’s basis, you use the donor’s basis to measure any gain and the lower fair market value to measure any loss.⁸ Sell for a price between those two figures and you recognize neither gain nor loss.

Wash Sales

You cannot claim a capital loss on a stock or security if you buy a substantially identical replacement within 30 days before or after the sale.⁹ The disallowed loss gets added to the basis of the replacement shares, postponing the deduction until you sell those. Your broker tracks wash sales and flags them on Form 1099-B, so the IRS sees them regardless.

What Your 1099-B Tells You

Before touching any form, gather the 1099-Bs from your brokers. Each one reports your sale proceeds for the year and, for most securities, the cost basis. A code letter sorts the transaction into a reporting category.⁶

Code A (short-term) or D (long-term) means the basis was reported to the IRS. These are easiest to report because the IRS already has the numbers.
Code B (short-term) or E (long-term) means the basis was not reported. You supply it yourself, common with older positions or shares transferred between brokers.

Check every 1099-B. Brokers sometimes get basis wrong, especially for employee stock plan shares, reinvested dividends, or shares received in a corporate reorganization. If the basis is wrong, correct it on Form 8949 with an adjustment code rather than ignoring the discrepancy.

2026 Tax Rates on Your Gains

Short-term gains have no preferential rate. They’re added to ordinary income and taxed at your marginal rate, up to 37% for 2026.¹⁰

Long-term gains are taxed at 0%, 15%, or 20%, depending on taxable income and filing status. The 2026 brackets:⁵

0% rate: taxable income up to $49,450 single, $98,900 married filing jointly, $66,200 head of household.
15% rate: income above the 0% ceiling up to $545,500 single, $613,700 joint, $579,600 head of household.
20% rate: income above the 15% ceiling.¹⁰

Long-term gains fill whatever room remains in each bracket after your other income is counted, so a large gain can straddle rates: part at 0%, the rest at 15%, for example.

The 3.8% Net Investment Income Tax

Higher earners owe an additional 3.8% surtax on investment income, including capital gains. The Net Investment Income Tax applies to the lesser of net investment income or the amount your modified adjusted gross income exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).¹¹ Those thresholds aren’t indexed for inflation. The tax is calculated on Form 8960 and added to your regular liability.¹² A couple in the 20% long-term bracket who also owes NIIT faces an effective federal rate of 23.8% on their gains.

Collectibles and Depreciated Real Estate

Not every long-term gain qualifies for the 0/15/20% rates. Gains on collectibles like art, coins, antiques, and precious metals are taxed at a maximum of 28%.¹³ If your ordinary rate is lower, you pay the lower rate, but the 15% preferential rate never applies.

When you sell rental or commercial property on which you’ve claimed depreciation, the portion of gain attributable to that depreciation is taxed at a maximum 25% rate.⁵ This “unrecaptured Section 1250 gain” claws back some of the benefit those deductions provided. Only the gain above the depreciation amount qualifies for the regular long-term rates.

Selling Your Primary Residence

The home sale exclusion lets you leave out up to $250,000 of gain on the sale of your main home ($500,000 married filing jointly). You must have owned and used the home as your principal residence for at least two of the five years before the sale; the two years don’t need to be consecutive.¹⁴ For the joint $500,000 figure, both spouses must meet the use test and at least one must meet the ownership test.

If your gain fits within the exclusion, you generally don’t report the sale at all. If it exceeds the exclusion, only the excess goes on Schedule D. Partial exclusions are available if you fall short of two years because of a job move, health issue, or certain unforeseen events like divorce.

Reporting Crypto and Other Digital Assets

Digital assets follow the same capital gains framework as stocks, with an extra compliance layer on top. Form 1040 includes a yes-or-no question asking whether you received, sold, exchanged, or otherwise disposed of any digital asset during the year, and you have to answer it either way.¹⁵

You can answer “No” if you only held digital assets or bought with dollars without selling. You answer “Yes” if you sold crypto for cash or other crypto, received it as payment, earned it through mining or staking, or received an airdrop.¹⁵ Form 8949 has separate checkbox categories for digital asset transactions (Boxes G through L), so those sales are reported apart from traditional securities.¹⁶ Basis tracking is often the hard part with crypto, especially when you’ve bought at multiple prices, used crypto to buy other crypto, or received mining rewards. Keep detailed records of every acquisition.

When Losses Exceed Gains

If your total capital losses for the year exceed your total gains, you can deduct the net loss against ordinary income, but only up to $3,000 per year ($1,500 if married filing separately).¹⁷ That cap hasn’t been raised since 1978.

Any unused loss above $3,000 carries forward to the next year, keeping its short-term or long-term character. In that next year, the carryover first offsets new capital gains; if losses still remain, you can again deduct up to $3,000 against ordinary income. The carryover continues indefinitely until used up. It does not carry back to prior years, and it does not survive the taxpayer’s death.

Estimated Tax After a Large Sale

Selling an appreciated asset midyear can create a tax bill that paycheck withholding won’t cover. You generally need to make estimated tax payments if you expect to owe at least $1,000 after withholding and credits, and your withholding will cover less than the smaller of 90% of your current-year tax or 100% of your prior-year tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the 100% figure rises to 110%.¹⁸

Estimated payments are due April 15, June 15, September 15, and January 15 of the following year.¹⁹ After a big sale, the simplest move is to send an estimated payment covering the expected tax before the next quarterly deadline. Missing a quarter triggers penalties that run from the due date until the tax is paid.

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Internal Revenue Service. Form 8949 – Sales and Other Dispositions of Capital Assets
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Internal Revenue Service. Instructions for Schedule D (Form 1040)
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Internal Revenue Service. Schedule D (Form 1040) – Capital Gains and Losses
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Office of the Law Revision Counsel. 26 USC 1222 – Definition of Capital Gain and Loss
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Internal Revenue Service. Topic No. 409, Capital Gains and Losses
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Internal Revenue Service. Instructions for Form 1099-B (2026)
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Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
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eCFR. 26 CFR 1.1015-1 – Basis of Property Acquired by Gift
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Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
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Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
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Internal Revenue Service. Form 8960 – Net Investment Income Tax, Individuals, Estates, and Trusts
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Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
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Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
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Internal Revenue Service. Digital Assets
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Internal Revenue Service. Instructions for Form 8949
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Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
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Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals
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Internal Revenue Service. Estimated Tax