Schedule D
An IRS tax schedule attached to Form 1040 that summarizes an investor's total capital gains and losses for the year, combining short-term and long-term results to determine the net taxable capital gain or deductible capital loss.
Schedule D ('Capital Gains and Losses') is the central document for capital gains tax reporting on your federal return. It receives totals from Form 8949 — which lists individual transactions — and aggregates them into a summary that ultimately feeds the correct capital gains amounts onto Form 1040. If you sold any stocks, bonds, mutual fund shares, real estate, or other capital assets during the year, you almost certainly need to complete Schedule D.
The schedule has three parts. Part I summarizes short-term capital gains and losses (from Form 8949, Part I), producing a net short-term result. Part II summarizes long-term capital gains and losses (from Form 8949, Part II) and also includes pass-through long-term gains from partnerships and S corporations reported on Schedule K-1, as well as capital gain distributions from mutual funds or REITs reported on Form 1099-DIV box 2a. Part III combines the net short-term and net long-term results to determine the taxpayer's overall capital gain or loss.
If the net result is a capital gain, it is carried to Form 1040 where it increases taxable income. The Qualified Dividends and Capital Gain Tax Worksheet (or the Schedule D Tax Worksheet for more complex situations) then applies the appropriate 0%, 15%, or 20% rates to the long-term portion, while the short-term portion is taxed at ordinary rates.
If the net result is a capital loss, the taxpayer may deduct up to $3,000 ($1,500 for married filing separately) against ordinary income on Form 1040. The remaining loss carries forward to the next tax year, retaining its short-term or long-term character. The Capital Loss Carryover Worksheet helps taxpayers track and correctly apply losses in future years.
Schedule D also plays a role in reporting the sale of a primary residence under the Section 121 exclusion (up to $250,000 for single filers, $500,000 for joint filers), certain installment sales, and involuntary conversions from casualty or theft. In years where a taxpayer has only capital gain distributions from mutual funds and no other capital transactions, they may be eligible to skip Schedule D entirely and enter the distribution directly on Form 1040.