How to Report the Sale of Mutual Funds on Your Tax Return

To report the sale of mutual funds on your tax return, list each sale on Form 8949, carry the totals to Schedule D (Form 1040), and let Schedule D produce the net capital gain or loss that flows onto your Form 1040. The numbers you need come from the Form 1099-B your brokerage sends in January or February, and the IRS gets an identical copy, so what you enter has to match.¹ Even a sale at a loss has to be reported.

What Form 1099-B Gives You

Every mutual fund redemption during the year shows up on Form 1099-B. For each transaction the form lists the fund (Box 1a), the acquisition date (Box 1b), the sale date (Box 1c), the gross proceeds (Box 1d), and your cost basis (Box 1e). For most mutual fund shares purchased after 2011, the brokerage is required to report basis to the IRS.

One flag on the form controls where the sale lands on Form 8949: whether basis was reported to the IRS. That flag routes short-term sales to Box A (basis reported) or Box B (basis not reported), and long-term sales to Box D or Box E. If you never received a 1099-B for a sale, it goes under Box C or Box F.²

Before you copy anything onto a tax form, check the 1099-B against your own records. Confirm the share count, the dates, and especially the cost basis. Brokerages get basis wrong most often when shares were transferred in from another firm or when reinvested dividends were not properly tracked. Reinvested dividends increase your basis because you used already-taxed money to buy those additional shares; missing them means paying tax twice on the same dollars.

Short-Term vs. Long-Term

The holding period splits Form 8949 in half. The clock starts the day after you buy the shares and runs through the day you sell.³ One year or less is short-term, taxed at ordinary income rates. More than one year is long-term, taxed at the preferential 0%, 15%, or 20% rate depending on your taxable income.⁴

If you bought the same fund in more than one batch, each lot has its own acquisition date. A single redemption can produce both a short-term and a long-term line on Form 8949. Watch any date sitting close to the one-year mark; a single day changes which section of the form the sale belongs on.

Filling Out Form 8949

Part I of Form 8949 is for short-term sales; Part II is for long-term. Check the box (A, B, or C for short-term; D, E, or F for long-term) that matches how your 1099-B reported the transaction. Then enter one row per sale:

Column (a): description of the fund, using the name or CUSIP from the 1099-B.
Column (b): date acquired.
Column (c): date sold.
Column (d): proceeds, from Box 1d of the 1099-B.
Column (e): cost basis.
Column (f): adjustment code, if the transaction needs one (wash sale, basis correction, and so on).
Column (g): the dollar amount of any adjustment.
Column (h): gain or loss, calculated as column (d) minus column (e), then adjusted by column (g).

If every one of your sales had basis reported to the IRS and none needs an adjustment, most tax software will let you skip the line-by-line detail and put aggregated totals straight onto Schedule D. The moment a single transaction needs an adjustment code, that transaction has to appear on Form 8949 on its own row.

Fixing a Wrong Cost Basis

When the basis on your 1099-B is wrong, the correction goes on Form 8949, not through a request to the IRS to override the broker’s number.⁵ How you enter the fix depends on whether basis was reported to the IRS.

If basis was reported (Box A or D), enter the incorrect basis from the 1099-B in column (e) exactly as reported. Put adjustment code B in column (f). In column (g), enter the correction: subtract the correct basis from the reported basis. When the correct basis is higher than what was reported, that difference goes in as a negative number, which reduces your gain. When the correct basis is lower, it goes in as a positive number.

If basis was not reported to the IRS (Box B or E), just put the correct basis in column (e) and leave column (g) at zero. There is nothing for the IRS to reconcile against.

Wash Sales

Selling a mutual fund at a loss and buying it back within 30 days triggers the wash sale rule. The window covers 30 days before and 30 days after the sale, so the restricted period runs 61 days total, and the loss is disallowed.⁶ Buying back the same fund clearly counts. Buying a different fund from another company that tracks the same index sits in a grayer area the IRS has not fully defined. A fund investing in a genuinely different sector or index is generally safe.

Your brokerage usually flags the wash sale in Box 1g of the 1099-B. On Form 8949, enter code W in column (f) and put the disallowed loss in column (g) as a positive number. The loss is not lost for good: it gets added to the basis of the replacement shares, so the tax benefit comes back when you sell those.

Moving Totals to Schedule D

Once Form 8949 is finished, the column totals feed specific lines on Schedule D:⁷

Short-term Box A totals go to Schedule D line 1b; Box B to line 2; Box C to line 3.
Long-term Box D totals go to line 8b; Box E to line 9; Box F to line 10.

Schedule D then combines those figures with any other capital gains and losses for the year, including capital gain distributions from mutual funds, which sit on a different line. The bottom of the form produces your net capital gain or loss, which flows onto your Form 1040.⁸

If Your Sales Produced a Net Loss

Losses first offset gains dollar for dollar. Short-term losses net against short-term gains; long-term losses net against long-term gains. If one category still has a net loss, it offsets gains in the other. Only the remaining net loss after all that netting hits the deduction cap.

The cap is $3,000 per year against ordinary income, or $1,500 if you file married filing separately. Anything above the cap carries forward to future years and can offset gains or take another $3,000 bite out of ordinary income until it is used up. The carryforward has no expiration.⁴ Tracking the remaining carryforward from year to year is on you; the Schedule D instructions include a Capital Loss Carryover Worksheet.

Capital Gain Distributions Are Not the Same as a Sale

Even if you never sold a share, your mutual fund can generate a tax bill. When the fund sells securities inside the portfolio at a net gain, it passes those gains through to shareholders as capital gain distributions. These arrive on Form 1099-DIV in Box 2a, not on Form 1099-B.⁹

Capital gain distributions are always long-term, no matter how long you have owned the shares. Report them on Schedule D line 13, or, if you would not otherwise need Schedule D, directly on Form 1040 line 7. If you reinvested the distributions, they also increase your cost basis in the fund, which reduces the gain when you eventually sell.

Inherited Shares

Shares you inherited follow different basis rules. Instead of the decedent’s original purchase price, inherited property generally takes a stepped-up basis equal to the fair market value on the date of death.¹⁰ Shares originally bought for $10,000 and worth $80,000 at death give you an $80,000 basis; sell for $82,000 and the taxable gain is $2,000. If the shares had fallen in value, the basis steps down to the lower fair market value.

Inherited shares also get automatic long-term treatment regardless of how briefly you hold them before selling.¹¹ Shares received as a lifetime gift do not get a step-up; they carry over the donor’s original basis.

The 3.8% Net Investment Income Tax

Higher-income taxpayers owe an additional 3.8% surtax on net investment income, which includes gains from mutual fund sales. The tax applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds these thresholds:¹²

$200,000 for single or head of household filers.
$250,000 for married filing jointly.
$125,000 for married filing separately.

These thresholds are not indexed for inflation and have not moved since the tax took effect in 2013. If a large redemption pushes your MAGI over the line, the 3.8% applies to the overage. You calculate the tax on Form 8960 and attach it to your return alongside Schedule D.

What to Keep After Filing

Form 8949 and Schedule D both attach to Form 1040.⁸ E-filing handles the attachment automatically; paper filers send the physical forms to the IRS service center for their state.

Hold onto your 1099-B, Form 8949, Schedule D, and your own basis records for at least three years after filing. If you claimed a capital loss carryforward, keep the records until it is fully used up. The IRS can ask you to substantiate the original loss in any later year you apply it.

1
Internal Revenue Service. Instructions for Form 1099-B – Proceeds From Broker and Barter Exchange Transactions
2
Internal Revenue Service. Instructions for Form 8949 (2025)
3
Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
4
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
5
Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets
6
Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
7
Internal Revenue Service. Form 8949 – Sales and Other Dispositions of Capital Assets
8
Internal Revenue Service. Schedule D (Form 1040) – Capital Gains and Losses
9
Internal Revenue Service. Mutual Funds (Costs, Distributions, etc.) 4
10
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
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Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
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Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax