IRS Schedule D (Form 1040) is used to report the sale or exchange of a capital asset not reported on another tax form or schedule. Details about Schedule D can be found below.

OVERVIEW

• Holding period for capital gains rates: Over one year

• Excluded from 0%, 15%, and 20% rates:

o Unrecaptured Sec 1250 gain – Maximum 25%

o Collectibles – Maximum 28%

o  $3,000 ($1,500 MFS)

o $1,500 For Married Taxpayers Filing Separately

o $1,500 For Married Taxpayers Filing HH

• Capital Gain Deferral: Election to invest capital gains in Opportunity Zone Funds defers and potentially eliminates tax –see Chapter 2.18

Related IRS Publications and Forms

• Form 1040 Schedule D – Capital Gains & Losses

• Instructions 1040 (Schedule D)

• Form 8949 – Sales and Other Dispositions of Capital Assets

• Instructions Form 8949

• Form 8937 –Organizational Actions Affecting Basis of Securities

• Form 6781 –Section 1256 Contracts and Straddles

• Pub 537 – Installment Sales

• Pub 544 – Sales and Other Dispositions of Assets

• Pub 551 – Basis of Assets

For several years, long-term capital gains (LTCG) and qualified dividends have been taxed at preferential rates of 0%, 15% or 20%, with the capital gains rate depending on the taxpayer’s ordinary income tax bracket. If ordinary income was generally taxed at a rate below 25%, the capital gains and qualifying dividends were taxed at a 0% rate. If subject to a 25%-or-greater, but less than 39.6%, rate on ordinary income, the rate on LTCG and qualified dividends was 15%. For individuals whose taxable income exceeded the threshold for the 39.6% rate, the LTCG and qualifying dividends rate was 20%.

The Tax Cuts and Jobs Act, passed in December 2017, retained the 0%/15%/20% capital gains rates but specified taxable income amounts determine the breakpoints for the 15% and 20% rates instead of tax brackets. These amounts are shown on page 2.04.03 and are subject to inflation adjustment for years after 2018.

The maximum rate continues to be 28% for collectibles, and 25% for recaptured Sec. 1250 gains. The thresholds at which the 3.8% surtax on net investment income apply do not match the capital gains rate thresholds and were not changed by the TCJA.