Schedule D, Capital Gains and Losses

This schedule is used to report gains and losses from the sale or exchange of capital assets. Capital assets include things like stocks, bonds, and real estate. 

If you sell a capital asset and make money because the selling price is higher than what you paid for it, you have a capital gain. If you sell a capital asset and lose money (the selling price is lower than what you paid for it), you have a capital loss.

  • Part I - Short-term capital gains and losses: Lists capital assets that you held for one year or less. This might include stocks or bonds you bought and sold within a single year. Short-term capital gains are taxed as ordinary income, so the rate can be quite high depending on your income.
  • Part II - Long-term capital gains and losses: Lists capital assets that you held for more than one year before selling. Long-term capital gains are usually taxed at a lower rate than short-term gains.
  • Part III - Summary: Combines your short-term and long-term gains and losses to calculate your net gain or loss. If you have a net capital loss, you can use it to offset other income you earned during the year, up to a certain limit.

Once you've completed Schedule D, you transfer the net result to your Form 1040, which can either increase your taxable income (if you had a net gain) or decrease it (if you had a net loss).