Installment sales.   You cannot use the installment method to report a gain from the sale of stock or securities traded on an established securities market. You must report the entire gain in the year of sale (the year in which the trade date occurs).

Passive activity gains and losses.    If you have gains or losses from a passive activity, you may also have to report them on Form 8582. In some cases, the loss may be limited under the passive activity rules. Refer to Form 8582 and its separate instructions for more information about reporting capital gains and losses from a passive activity.

Form 1099-B transactions.   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B or equivalent statement from the broker. Use the Form 1099-B or the equivalent statement to complete Schedule D.

  Report the gross proceeds shown in box 2 of Form 1099-B as the gross sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies. However, if the broker advises you, in box 2 of Form 1099-B, that gross proceeds (gross sales price) less commissions and option premiums were reported to the IRS, enter that net sales price in column (d) of either line 1 or line 8 of Schedule D, whichever applies.

   If the net amount is entered in column (d), do not include the commissions and option premiums in column (e).

Form 1099-S transactions.   If you sold or traded reportable real estate, you generally should receive from the real estate reporting person a Form 1099-S showing the gross proceeds.

  “Reportable real estate” is defined as any present or future ownership interest in any of the following:

  A “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property.

  Your Form 1099-S will show the gross proceeds from the sale or exchange in box 2. Follow the instructions for Schedule D to report these transactions and include them on line 1 or 8 as appropriate.

Reconciling Forms 1099 with Schedule D.   Add the following amounts reported to you for 2004 on Forms 1099-B and 1099-S (or on substitute statements): If this total is more than the total of lines 3 and 10 of Schedule D, attach a statement to your return explaining the difference.

Nominees.   If you receive gross proceeds as a nominee (that is, the gross proceeds are in your name but actually belong to someone else), report on Schedule D, lines 3 and 10, only the proceeds that belong to you. Then add the following amounts reported to you for 2004 on Forms 1099-B and 1099-S (or substitute statements) that you are not reporting on another form or schedule included with your return: If the total of (1) and (2) is more than the total of lines 3 and 10, attach a statement to your return explaining the reason for the difference.

File Form 1099-B or Form 1099-S with the IRS.   If you received gross proceeds as a nominee in 2004, you must file a Form 1099-B or Form 1099-S for those proceeds with the IRS. Send the Form 1099-B or Form 1099-S with a Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to your Internal Revenue Service Center by February 28, 2005 (March 31, 2005, if you file Form 1099-B or Form 1099-S electronically). Give the actual owner of the proceeds Copy B of the Form 1099-B or Form 1099-S by January 31, 2005. On Form 1099-B, you should be listed as the “Filer.” The other owner should be listed as the “Recipient.” On Form 1099-S, you should be listed as the “Filer.” The other owner should be listed as the “Transferor.” You do not, however, have to file a Form 1099-B or Form 1099-S to show proceeds for your spouse. For more information about the reporting requirements and the penalties for failure to file (or furnish) certain information returns, see the General Instructions for Forms 1099, 1098, 5498, and W-2G.

Sale of property bought at various times.   If you sell a block of stock or other property that you bought at various times, report the short-term gain or loss from the sale on one line in Part I of Schedule D and the long-term gain or loss on one line in Part II. Write “Various” in column (b) for the “Date acquired.” See Comprehensive Example later in this chapter.

Sale expenses.    Add to your cost or other basis any expense of sale such as brokers' fees, commissions, state and local transfer taxes, and option premiums. Enter this adjusted amount in column (e) of either Part I or Part II of Schedule D, whichever applies, unless you reported the net sales price amount in column (d).

  For more information about adjustments to basis, see chapter 14.

Short-term gains and losses.   Capital gain or loss on the sale or trade of investment property held 1 year or less is a short-term capital gain or loss. You report it in Part I of Schedule D. If the amount you report in column (f) is a loss, show it in parentheses.

  You combine your share of short-term capital gains or losses from partnerships, S corporations, and fiduciaries, and any short-term capital loss carryover, with your other short-term capital gains and losses to figure your net short-term capital gain or loss on line 7 of Schedule D.

Long-term gains and losses.    A capital gain or loss on the sale or trade of investment property held more than 1 year is a long-term capital gain or loss. You report it in Part II of Schedule D. If the amount you report in column (f) is a loss, show it in parentheses.

  You also report the following in Part II of Schedule D:

   The result after combining these items with your other long-term capital gains and losses is your net long-term capital gain or loss (line 15 of Schedule D).

Capital gain distributions only.    You do not have to file Schedule D if both of the following are true. If both of the above statements are true, report your capital gain distributions directly on line 13 of Form 1040 and check the box on line 13. Also, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax.

  You can report your capital gain distributions on line 10 of Form 1040A, instead of on Form 1040, if both of the following are true.

Total net gain or loss.   To figure your total net gain or loss, combine your net short-term capital gain or loss (line 7) with your net long-term capital gain or loss (line 15). Enter the result on Schedule D Part III, line 16. If your losses are more than your gains, see Capital Losses, next. If both lines 15 and 16 are gains and line 42 of Form 1040 is more than zero, see Capital Gain Tax Rates, later.

If your capital losses are more than your capital gains, you can claim a capital loss deduction. Report the deduction on line 13 of Form 1040, enclosed in parentheses.

The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates.

The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

For 2004, the maximum capital gain rates are 5%, 15%, 25%, or 28%. See Table 17-1 for details.

If you figure your tax using the maximum capital gain rates and the regular tax computation results in a lower tax, the regular tax computation applies.

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 1993, for $1,000. She had bought 100 more shares in 1995 for $2,200, and an additional 300 shares in 1998 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.

  In December, she sold 20 shares of Toy Co. for $4,100. This was qualified small business stock that she had bought in September 1999. 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 claims the exclusion on the line below by entering $1,500 as a loss in column (f). She also enters the exclusion as a positive amount on line 2 of the 28% Rate Gain Worksheet.

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

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 2004, the total is $23,100.

Capital loss carryover from 2003.   Emily has a capital loss carryover to 2004 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 also enters the $500 long-term capital loss carryover on line 5 of the 28% Rate Gain Worksheet. Her filled-in 28% Rate Gain Worksheet is shown below.

  She kept the completed Capital Loss Carryover Worksheet (not illustrated) in her 2003 edition of Publication 550, so she could properly report her loss carryover for the 2004 tax year without refiguring it.

Tax computation.   Because Emily has gains on both lines 15 and 16 of Schedule D, she checks the “Yes” box on line 17 and goes to line 18. On line 18 she enters $450 from line 7 of the 28% Rate Gain Worksheet. Because line 18 is greater than zero, she checks the “No” box on line 20 and uses the Schedule D Tax Worksheet to figure her tax.

  After entering the gain from line 16 on line 13 of her Form 1040, she completes the rest of Form 1040 through line 42. She enters the amount from that line, $30,000, on line 1 of the Schedule D Tax Worksheet. After filling out the rest of that worksheet, she figures her tax is $3,352. This is less than the $4,244 tax she would have figured without the capital gain tax rates.