Comprehensive Example

Emily Jones is single and, in addition to wages from her job, she has income from stocks and other securities. For the 2001 tax year, she had the following capital gains and losses, which she reports on Schedule D. All the Forms 1099 she received showed net sales prices. Her filled-in Schedule D is shown in this chapter.

Capital gains and losses -- Schedule D. Emily sold stock in two different companies that she held for less than a year. In June, she sold 100 shares of Trucking Co. stock that she had bought in February. She had an adjusted basis of $650 in the stock and sold it for $900, for a gain of $250. In July, she sold 25 shares of Computer Co. stock that she bought in June. She had an adjusted basis in the stock of $2,500 and she sold it for $2,000, for a loss of $500. She reports these short-term transactions on line 1 in Part I of Schedule D.

Emily had three other stock sales that she reports as long-term transactions on line 8 in Part II of Schedule D. In February, she sold 60 shares of Car Co. for $2,100. She had inherited the Car Co. stock from her father. Its fair market value at the time of his death was $2,500, which became her basis. Her loss on the sale is $400. Because she had inherited the stock, her loss is a long-term loss, regardless of how long she and her father actually held the stock. She enters the loss in column (f) of line 8.

In June, she sold 500 shares of Furniture Co. stock for $14,000. She had bought 100 of those shares in 1990, for $1,000. She had bought 100 more shares in 1992 for $2,200, and an additional 300 shares in 1995 for $1,500. Her total basis in the stock is $4,700. She has a $9,300 ($14,000 - $4,700) gain on this sale, which she enters in column (f) of line 8. Because she held all 500 shares for more than 5 years, the entire gain is qualified 5-year gain.

In December, she sold 20 shares of Toy Co. for $4,100. This was qualified small business stock that she had bought in September 1996. Her basis is $1,100, so she has a $3,000 gain which she enters in column (f) of line 8. Because she held the stock more than 5 years, she has a $1,500 section 1202 exclusion. She enters that amount in column (g) as a 28% rate gain and claims the exclusion on the line below by entering $1,500 as a loss in column (f).

She received a Form 1099-B (not shown) from her broker for each of these transactions.

Capital loss carryover from 2000. Emily has a capital loss carryover to 2001 of $800, of which $300 is short-term capital loss, and $500 is long-term capital loss. She enters these amounts on lines 6 and 14 of Schedule D.

She kept the completed Capital Loss Carryover Worksheet in her 2000 Schedule D instructions (not shown), so she could properly report her loss carryover for the 2001 tax year without refiguring it.

Tax computation. Because Emily has gains on both lines 16 and 17 of Schedule D and has taxable income, she goes to Part IV of Schedule D to figure her tax. But because line 15 of Schedule D is more than zero (due to her section 1202 gain from selling qualified small business stock), she must use the Schedule D Tax Worksheet to figure her tax instead. She must also complete the Qualified 5-Year Gain Worksheet (not shown) in her Schedule D instructions.

After entering the gain from line 17 on line 13 of her Form 1040, she completes the rest of Form 1040 through line 39. She enters the amount from that line, $30,000, on line 1 of the Schedule D Tax Worksheet. After filling out the worksheet and the rest of that worksheet, she figures her tax is $4,235. This is less than the $4,876 tax she would have figured without the capital gain tax rates.

Reconciliation of Forms 1099-B. Emily makes sure that the total of the amounts reported in column (d) of lines 3 and 10 of Schedule D is not less than the total of the amounts shown on the Forms 1099-B she received from her broker. For 2001, the total of each is $23,100.

Schedule D (Form 1040): page 1

Schedule D, page 2

Schedule D Tax Worksheet-Line 40

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