How to Prepare Tax Schedule D

Schedule D is one of the more difficult tax forms to understand and complete. If you've made or lost money during the previous year through the sale of stocks, mutual funds or other items, you probably have to file a Schedule D. Here are some helpful suggestions.

Things You'll Need

• Schedule D and instructions
• Capital gain information

Instructions

Complete Part I: Short Term Gain or Loss

1. Divide the capital gains and losses into long term and short term. Long term gains are on property held over 12 months. Highlight all long term gains.

2. List all short term gains or losses. List the item, the date purchased, the date sold, the sale price and the cost.

3. Subtract the cost from the sale price. If it's a negative number, put it in brackets.

4. Total the amounts and add pertinent information from other schedules.

5. List short term capital gain or loss from a schedules K-1 if you have a partnership, S corporation, estate or trust.

6. Insert any carry over short term capital loss from previous years.

Complete Part II: Long Term Capital Gain or Loss

1. List all long term gains or losses. List the item, the date purchased, the date sold, the sale price and the cost.

2. Subtract the cost from the sale price. If it's a negative number, put it in brackets.

3. Total the amounts and add pertinent information from other schedules.

4. List long term capital gain or loss from a schedules K-1 if you have a partnership, S corporation, estate, or trust.

5. Insert any carry over long term capital loss from previous years.

Complete Part III: Summary

1. Combine the totals of short term and long term capital gain or loss.

2. Complete the 28 percent rate gain worksheet if the totals are both positive.

3. Check the 28 percent rate gain worksheet if you had an exclusion from the sale of small business stock or had a gain or loss from collectibles. Also include any gain from an interest in an S corporation.

4. Enter unrecaptured Section 1250 gain on the worksheet. You will receive a form that shows the words unrecaptured 1250 or will have sold property on a land contract and have not recaptured all the depreciation.

5. Finish line through lines 43 on form 1040, or through lines 40 on 1040NR, if the amount from Steps 3 and 4 are blank or 0, or if you did not have to do these steps. If the answer to question 20 in Part III was no, complete Schedule D tax worksheet and do not complete questions 21 and 22.

6. Know whether line 16 is a loss. If it is, enter the amount on line 13 form 1040, or 14 on form 1040NR. If it is larger than $3,000 enter 3,000 ($1,500 if married filing separately). If it's smaller than $3,000, enter that amount.

7. Check to see if you have qualified dividends on line 9b on the 1040 form, or line 10b on form 1040 NR. If you do complete the Qualified Dividends and Capital Gains Worksheet on page 1040. If you don't, you are done with this and can complete your 1040 or 1040NR.

Tips & Warnings

• When selling mutual funds, include the dividends that were reinvested as part of the cost. The date of purchase can be "various." You can check back on previous years taxes to see the dividends that you paid tax on, and should know whether they were reinvested.

• Some of the extra schedules that will be necessary to list come from the involuntary conversion of property to cash (a theft or fire insurance payment, either a gain or loss), installment payments like a land contract and certain types of stock sales.

• The Schedule D Tax worksheet, while it looks quite imposing, is simple if you take it one step at a time.