Computing Capital Gains

Generally, the proceeds of any stock, bond, or other securities you sold during 2011 will be reported to you on IRS Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, by the brokerage or financial institution that carried out the sale for you. The form will state the proceeds from the sale in Box 2 (except for regulated futures contract and foreign currency contract profits or losses, which are figured in Boxes 8 through 11).

The institution may choose to report the gross proceeds, or the net proceeds (gross proceeds minus any commissions, option premiums, state or local transfer taxes, brokers' fees, etc.), in Box 2. Next to the amount reported, the appropriate box for the method used should be checked.

A new, complicated and time-consuming form is required for all sales and exchanges of capital assets during 2011. Form 8949 (Sales and Other Dispositions of Capital Assets) must be filed for all sales and exchanges of capital assets, including stocks, bonds, etc., and real estate unless the sale or exchange must be reported on Form 4684, 4797, 6252, 6781, or 8824. You must report every, single transaction--even if you did not receive a Form 1099-B or 1099-S or substituted statement for these forms.

You may well have to file multiple Forms 8949--up to six may be required because a separate form is required for sales in these different categories:

1. Short-term gains and losses for which you received a Form 1099-B (or substitute statement) that shows the cost or other basis;
2. Short-term gains and losses for which you received a Form 1099-B (or substitute statement) that does not show the cost or other basis;
3. Short-term gains and losses for which you did not receive a Form 1099-B (or substitute statement);
4. Long-term gains and losses for which you received a Form 1099-B (or substitute statement) that shows the cost or other basis;
5. Long-term gains and losses for which you received a Form 1099-B (or substitute statement) that does not show the cost or other basis;
6. Long-term gains and losses for which you did not receive a Form 1099-B (or substitute statement).

For each transaction reported on your Form(s) 8949, you will need to enter the following information:

• Description of the property
• Date acquired
• Date sold/exchanged
• Sale price, and
• Cost or other basis

You may need to enter the following information for a transaction:

• A description code that identifies the type of transaction if you will be making an adjustment to the gain or loss you realized. There are 21 codes covering a wide-range of transactions, from the sale of a principle residence to a loss that is disallowed because of the passive activity loss rules (see the IRS website for updated information on all the codes-- listing of the codes can be found in the 2011 Instructions for Schedule D (and Form 8949) at http://www.irs.gov/pub/irs-pdf/i1040sd.pdf.
• Adjustments to the gain or loss you reported.

The information from all of the Forms 8949 is transferred to your Schedule D. The line on which the totals are entered depends upon which of the six categories (listed above) the sales were considered.