Matching Gross Proceeds
One of the most important aspects of preparing IRS Form 8949 and Schedule D is making sure the gross proceeds from all transactions for the year are reported. Failing to match gross proceeds reported to the IRS will certainly trigger service center inquiry and on occasion, when a large discrepancy exists, it can trigger an audit.
However, frequently for a variety of reasons, it is necessary to make adjustments in the gain or loss. When this happens, be sure to report the full gross proceeds and make adjustments in the cost basis or adjust the gain or loss by entering an adjustment amount and using the appropriate adjustment code on Form 8949, if applicable.
“ Example – Matching gross proceeds - After they are divorced, John and Jane sell their jointly-owned investment land for $300,000 ($150,000 allocated to each), but the entire gross proceeds are reported under John's social security number on Form 1099-S. Their basis in the property is $100,000 ($50,000 each), which results in a gain of $100,000 each for John and Jane. John's return might be prepared showing the entire $300,000 as the sales price and $200,000 as his basis, resulting in the correct gain of $100,000. However, this overstates his basis. Instead, a more accurate reporting method would be to enter the sales price as $300,000 (to match the 1099-S) on Form 8949, and then enter John’s basis as $50,000 (his true basis) and an adjustment in col (g) of the 8949 of (150,000) and code the transaction with an N (nominee). This will net out to $100,000, his correct gain. Jane's return reports her sales price as $150,000 with a $50,000 basis, which also results in a $100,000 gain. ”
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Short Sale
Short sale transactions are not a taxable event until the short sale position is closed out. For sales closed on or after January 1, 2011, brokers will report as follows:
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If using covered securities, both the information concerning the securities sold to open the short sale and the information concerning the securities acquired to close the short sale will be reported on a single information return (1099-B).
If using non-covered securities, brokers will report only the information related to the securities sold to open the short sale. Brokers may, but are not required, to report adjusted basis for the securities acquired to close the short sale and whether any gain or loss on the short sale is long-term or short-term.
When completing Form 8949, the following instructions apply for the dates in columns (c) and (d):
Acquisition date - col. (c): Enter the date the taxpayer acquired the stock delivered to the broker to close the short sale.
Sale date – col. (d): Enter the date the taxpayer delivered the stock to the broker to close the short sale.