Changes to Reporting Schedule D Transactions
September 20, 2011 – 1:40 pmIn March, we reported on the changes to the stock tax lots beginning January 1, 2011. (Read the complete article here: http://www.taxworks.com/newsletters/Mar2011Newsletter/STOCK_TAX_LOTS.aspx.) Because of the Energy Improvement and Extension Act of 2008, brokers are required to report an individual’s adjusted basis on stock sales to the IRS and the individual. The IRS has modified Schedule D and Form 1099-B, which are used to report capital gains and losses. Additionally, it has added Form 8949, which will be used to report the details of Schedule D transactions for the 2011 filing season.
When an individual sells stock, s/he identifies at the time of sale the specific tax lot being sold. The taxpayer’s brokerage firm will then track and submit the data for each stock lot sale to the IRS using Form 1099-B. The broker will report the cost basis for “covered security” investments, which are defined as any stock in a corporation (acquired as of January 1, 2011); mutual fund shares and stocks in a corporation that were purchased through a dividend reinvestment plan (acquired as of January 1, 2012); and notes, bonds, and commodities (acquired as of January 1, 2013).
At tax time, the brokerage firm issues a Form 1099-B that reports the sale, including the cost basis information for the transaction. The new Form 8949, Sales and Other Dispositions of Capital Assets, will detail and separate each investment transaction into one of three categories: 1) cost basis provided on Form 1099-B; 2) no cost basis provided on Form 1099-B; or 3) no Form 1099-B received.
When the taxpayer reports the transactions, a separate Form 8949 is required for each category of transaction. The form also consists of sections for short-term gains/losses (on page 1) and long-term gains/losses (on page 2). For example, all short-term transactions where basis was reported will appear on page 1 of Form 8949, while all long-term transactions where basis was reported will appear on page 2 of the same Form 8949. Additional Forms 8949 are required for transactions where no basis was reported and for transactions where no Form 1099-B was received. The totals from all Forms 8949 will be summarized on the revised version of Schedule D.
Form 8949 also includes two columns that are not included on the 2010 version of Schedule D. These columns are used to report a “code” as well as adjustments to gain or loss. While the IRS has not yet released the revised instructions, the Code column will be used to indicate the type of transaction, such as a wash sale or to indicate if the broker incorrectly reported the basis, and the Adjustments column will be used to make corrections to the basis reported.
While the IRS is taking steps to regulate the reporting of Schedule D transactions, there will always be a need for taxpayers to maintain their own records, especially because these changes only apply to stocks acquired as of January 1, 2011. These changes additionally require more work on the broker’s end to accurately report the Schedule D transactions.
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