IRS Form 8949 Instructions: Boxes, Adjustment Codes, and Schedule D

IRS Form 8949 is where you list each sale or exchange of a capital asset — stocks, bonds, mutual funds, cryptocurrency, investment real estate — so the figures reconcile with what your broker sent the IRS on Form 1099-B or Form 1099-DA. The totals you build on Form 8949 then flow onto Schedule D. For tax year 2026, the form carries twelve checkbox categories (Boxes A through L) to handle the new digital asset reporting rules, so pull the current instructions before you start even if you have filed the form before.¹

Sort Every Sale by Holding Period First

Before you touch a single box, split your sales into two piles. Held one year or less? That gain or loss is short-term and belongs in Part I. Held more than one year? Long-term, Part II.²

The split matters because short-term gains are taxed at your ordinary income rate, while long-term gains qualify for the preferential 0%, 15%, or 20% rates.² A couple of acquisition rules override the clock: inherited property is automatically long-term regardless of how long you actually held it, and worthless securities take their holding period through December 31 of the year they died.

Pick the Right Box: A Through L

Each part of Form 8949 makes you check one box that tells the IRS two things at once — whether your broker reported basis to the IRS, and whether the asset is a traditional security or a digital asset. File a separate copy of Form 8949 for each box you check. Three categories, three copies.¹

For stocks, bonds, and other traditional securities, Part I (short-term) uses:

Box A: basis was reported to the IRS on your 1099-B.
Box B: you got a 1099-B, but basis was not reported to the IRS.
Box C: no 1099-B at all.

Part II mirrors that with Boxes D, E, and F for long-term sales under the same three scenarios.

Digital asset sales reported on Form 1099-DA get a parallel set. Short-term uses G, H, and I; long-term uses J, K, and L. The IRS specifically tells you not to use Box C or F for digital asset transactions — they go in I or L instead.³

When You Can Skip Form 8949 Entirely

Some sales can go straight onto Schedule D (line 1a for short-term, line 8a for long-term) without ever appearing on Form 8949. Every one of these conditions must be true for the shortcut to apply:¹

You received a 1099-B or 1099-DA showing basis was reported to the IRS.
No adjustments to the reported basis, gain, or loss are needed.
The “Ordinary” box on the 1099-B or 1099-DA is not checked.
The transaction does not involve collectibles.
You are not deferring gain through a Qualified Opportunity Fund.

If your whole portfolio sits in one brokerage account and every sale came back clean on the 1099-B, this exception saves real paperwork. The moment any condition fails for a transaction, that sale has to go through Form 8949.

Covered Transactions: Boxes A, D, G, and J

The easiest sales to report are “covered” securities where your broker reported basis to both you and the IRS. Traditional securities go in Box A or D; digital assets with reported basis go in Box G or J. “Covered” generally means stocks acquired on or after January 1, 2011, mutual fund and dividend reinvestment shares acquired on or after January 1, 2012, and most other securities acquired on or after January 1, 2013.⁴

You are essentially copying the 1099-B into the form’s columns: description of the property, date acquired, date sold, sales price, cost basis. The adjustment code and adjustment amount columns stay blank. Still, check the dates and dollars against your own records before you file.

Non-Covered Transactions: Boxes B, E, H, and K

When your broker did not report basis to the IRS, the sale lands in Box B or E for traditional securities, or Box H or K for digital assets. These usually involve assets acquired before the covered-security cutoffs, certain foreign stock, or cryptocurrency held in self-custody wallets where no broker tracks what you paid.¹

Calculating and substantiating basis is now your job. Dig up historical purchase confirmations, trade records, and any documentation of commissions or fees you paid when acquiring the asset. Those acquisition costs get added to the purchase price to form your total basis. If you cannot substantiate any basis at all, the IRS may treat it as zero, and the entire sales price becomes gain.

Inherited Property

If you inherited the asset, your basis is generally the fair market value on the date the original owner died. This “stepped-up basis” usually sits well above what the deceased originally paid.⁵ The holding period is automatically long-term.

Gifted Property

For a gift, you generally inherit the donor’s original basis.⁶ A wrinkle appears when fair market value at the time of the gift was lower than the donor’s basis. You then apply a “dual basis” rule: use the donor’s basis if you later sell at a gain, use the lower fair market value if you sell at a loss, and recognize neither gain nor loss if the sale price falls between the two. Map it out before you file.

Adjustment Codes That Modify Reported Figures

When the 1099-B numbers are not quite right, or the tax code forces a change to your gain or loss, you report the transaction with an adjustment code and amount in the last two columns of Form 8949. The codes are where most of the real complexity lives.

Code W: Wash Sales

A wash sale happens when you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale. That 61-day window — 30 days on each side plus the sale date — prevents you from deducting the loss immediately.⁷

The disallowed loss is not gone forever. It gets added to the basis of the replacement security, postponing the deduction until you eventually sell that replacement without triggering another wash. To report it, enter “W” in the adjustment code column and the disallowed loss as a positive number in the adjustment amount column. The positive entry increases your reported gain or shrinks your reported loss.

Your broker will flag wash sales inside a single account, but brokers are not required to track them across different accounts or between you and a spouse. Sell a losing position in one brokerage and buy it back within 30 days in another, and reporting the wash sale is on you. That is where most wash sale errors happen.

Code B: Incorrect Basis on the 1099-B

Use Code B when the basis your broker reported to the IRS is wrong. It happens more than you would expect, usually after corporate actions like stock splits, spin-offs, or return-of-capital distributions that the broker did not fully account for.

Figure the difference between the correct basis and the reported basis. If the correct basis is higher (your gain is smaller than reported), enter the adjustment as a negative number. If the correct basis is lower, enter it as a positive number.

Code B comes up often for stock acquired through incentive stock options or employee stock purchase plans. The 1099-B tends to show only the exercise price as basis, ignoring the compensation element you already reported as wages. The adjustment keeps you from being taxed twice on the same dollars. You will usually need your Form W-2 to pin down the right figure.

Code L: Permanently Disallowed Losses

Code L covers losses the tax code disallows for good. The most common case is a sale between “related parties” — family members, you and a corporation you control, certain trusts and their beneficiaries.⁸ Unlike a wash sale, this loss is not postponed; it is gone, and no later year can use it.

Enter “L” and the disallowed loss as a positive number. Code L also handles certain straddle losses, which are deductible only to the extent they exceed unrealized gain on the offsetting position.

Code O: Everything Else

Code O is the catch-all. One common situation is accrued market discount on bonds. Buy a bond below face value, hold it, sell it, and the portion of your gain attributable to the accrued discount is ordinary income rather than capital gain. Use Code O with a negative adjustment to pull that amount out of the capital gain calculation and report it as interest income on your return.

Another Code O case: interest that accrued between bond payment dates. If you sold mid-cycle, the buyer paid you for accrued interest as part of the price, and the 1099-B may have folded it into sales proceeds. Back it out with a negative adjustment and report it as ordinary interest.

Code C: Collectibles

Gains from collectibles — art, coins, stamps, precious metals, antiques — face a maximum long-term rate of 28% instead of the standard preferential rates.² On Form 8949, enter “C” in the adjustment code column and “$0” in the adjustment amount column. The code flags the transaction for Schedule D’s separate collectibles calculation without changing the dollar figures. Collectibles sales cannot use the Schedule D shortcut that lets you skip Form 8949 entirely.¹

Code Z: Qualified Opportunity Fund Deferrals

If you rolled a capital gain into a Qualified Opportunity Fund, you can elect to defer that gain using Code Z. Mark the deadline: all remaining deferred QOF gains must be recognized no later than December 31, 2026.³

To record the deferral, enter the QOF’s employer identification number in the description column, the date you invested in column (b), leave columns (c) through (e) blank, enter “Z” in column (f), and put the deferred gain as a negative number in column (g). Each QOF investment gets its own row. Taxpayers with QOF deferrals also file Form 8997 every year they hold the investment and in the year they dispose of it.

Digital Asset Transactions and the 1099-DA

Starting with tax year 2025, digital asset brokers must issue Form 1099-DA for cryptocurrency and other digital asset sales. Most 1099-DAs for 2025 will not include cost basis, which means you will likely calculate basis yourself and file under Box H or K.⁹

The box logic for digital assets mirrors traditional securities:³

Box G (short-term) or J (long-term): basis was reported to the IRS on Form 1099-DA.
Box H (short-term) or K (long-term): basis was not reported.
Box I (short-term) or L (long-term): no Form 1099-DA at all, such as decentralized exchange trades or self-custody wallet activity.

Trading crypto on a platform that did not issue a 1099-DA does not erase the tax. Use Box I or L and work out your basis from wallet records and blockchain history. The absence of a reporting form is not the absence of a reporting obligation.

Worthless Securities

If a stock or bond became completely worthless during the year, treat it as sold on the last day of the tax year for zero proceeds.¹⁰ Your holding period runs from acquisition to December 31 of the year it died, which decides whether the loss goes in Part I or Part II. Enter December 31 as the sale date, $0 as sales price, and your basis in the cost column.

Hundreds of Transactions? Use a Summary

Active traders and heavy crypto users can face thousands of individual sales. The IRS gives you two ways out of listing each one on its own row.¹

The first is an attached statement. Prepare a statement with the same columns and information Form 8949 asks for, then enter combined totals on a single row of the form with code “M” in the adjustment code column and “see attached statement” in the description column. If you e-file, print the statement, attach it to Form 8453, and mail it to the IRS separately.

S corporations, partnerships, and organizations exempt from receiving 1099-Bs can go further and report summary totals directly on Form 8949 when they have more than five transactions in a part, writing “Available upon request” in the description, “M” in column (f), and aggregated figures in the amount columns.

Carry the Totals to Schedule D

Once every transaction is entered, total the sales price, cost basis, and adjustment columns for each box category. Those totals flow to specific Schedule D lines:¹¹

Line 1b: totals from Box A or G (short-term, basis reported).
Line 2: totals from Box B or H (short-term, basis not reported).
Line 3: totals from Box C or I (short-term, no 1099-B/1099-DA).
Line 8b: totals from Box D or J (long-term, basis reported).
Line 9: totals from Box E or K (long-term, basis not reported).
Line 10: totals from Box F or L (long-term, no 1099-B/1099-DA).

Schedule D combines your short-term and long-term numbers into a net capital gain or loss for the year. A net loss is deductible against other income only up to $3,000 per year ($1,500 if married filing separately).² Any excess carries forward indefinitely until it is used up.

What It Costs to Get Form 8949 Wrong

The IRS imposes a 20% accuracy-related penalty on any underpayment attributable to negligence or a substantial understatement of income. A “substantial understatement” means the tax you reported was off by more than the greater of 10% of the correct tax or $5,000.¹² A gross valuation misstatement doubles the penalty to 40%.

Omitting transactions, reporting zero basis when you actually have records, and ignoring wash sales across accounts are the kinds of errors that draw scrutiny. Keep trade confirmations, broker statements, and basis records for at least three years after filing, and longer if you reported a loss carryforward.

1
Internal Revenue Service. Instructions for Form 8949 (2025)
2
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
3
Internal Revenue Service. Instructions for Form 8949 (2025)
4
Internal Revenue Service. Notice 2009-17 – Information Reporting of Customer’s Basis in Securities Transactions
5
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
6
Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
7
Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
8
Office of the Law Revision Counsel. 26 USC 267 – Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers
9
Internal Revenue Service. Reminders for Taxpayers About Digital Assets
10
Internal Revenue Service. Losses (Homes, Stocks, Other Property)
11
Internal Revenue Service. 2025 Schedule D (Form 1040)
12
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments