5.3 Capital Gains Rates and Holding Periods

Form 8949 is used for reporting sales of capital assets. On Form 8949, you separate your 2012 sales into short-term and long-term categories. Assets held for one year or less are in the short-term category and assets held for more than one year are in the long-term category. The totals from Form 8949 are entered on Schedule D (Form 1040).

The computation of tax liability using the favorable long-term capital gain rates is not made directly on Schedule D, but on worksheets in the IRS instructions. Mutual-fund and REIT investors may be able to apply the favorable rates on the “Qualified Dividends and Capital Gain Tax Worksheet” included in the Form 1040 or Form 1040A instructions, without having to file Form 8949 or Schedule D (32.8).

See the Example in 5.8, which includes filled-in samples of Form 8949 and Schedule D, and a Qualified Dividends and Capital Gain Tax Worksheet.

Held for a year or less.

Details for sales of capital assets held for a year or less are reported in Part I of Form 8949. The total sales prices and total cost basis for all the short-term transactions, along with any adjustments for such transactions, are transferred to Part I of Schedule D, where the net short-term gain or loss for the year is determined. A net short-term capital gain is subject to regular tax rates. A net short-term loss offsets a net long-term gain, if any, from Part II of Schedule D. A net short-term loss in excess of net long-term gain is deductible ...

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