To report capital gains on Form 1040, you list each sale on Form 8949, carry the totals to Schedule D, and put the net result on Form 1040, line 7a. Short-term gains (assets held one year or less) get taxed at your ordinary income rate. Long-term gains (held more than one year) get preferential rates of 0%, 15%, or 20%.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses The IRS receives copies of your brokerage statements, so the numbers on your return need to match what your broker reported.
Start With Your 1099-B Statements
Before opening any tax form, pull together the Form 1099-B statements your brokers sent for the year. Each one shows the proceeds from your sales and, for most securities acquired after the covered-security effective dates, the cost basis as well. A code letter on the form tells you which reporting category the transaction belongs to.2Internal Revenue Service. Instructions for Form 1099-B (2026)
The categories that matter most:
- Code A (short-term) or D (long-term): basis was reported to the IRS by your broker. These are the simplest to report.
- Code B (short-term) or E (long-term): basis was not reported to the IRS. You calculate and supply it yourself, which is common for older stock lots or shares transferred between brokers.
Check every 1099-B against your own records. Brokers sometimes report incorrect basis, especially for employee stock plan shares, reinvested dividends, or shares that went through a corporate reorganization. A wrong basis gets corrected on Form 8949 using an adjustment code rather than ignored. Your broker also tracks wash sales and flags them on the 1099-B, so those adjustments should already be baked in.3Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
Sort Each Sale by Holding Period
Holding period determines everything about how a gain is taxed, so split your transactions into two piles before entering anything. Held for one year or less: short-term. Held for more than one year: long-term.4Office of the Law Revision Counsel. 26 USC 1222 – Definition of Capital Gain and Loss The clock starts the day after you acquired the asset and includes the day you sold it.
Two exceptions worth knowing. Inherited property is automatically long-term no matter how briefly you held it. And when you sell rental or commercial real estate on which you claimed depreciation, the portion of gain tied to that depreciation is taxed at a maximum 25% rate rather than the standard long-term rate.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Fill Out Form 8949
Form 8949 is where the individual sales go. Part I is for short-term transactions, Part II for long-term.5Internal Revenue Service. Form 8949 – Sales and Other Dispositions of Capital Assets Within each part, you check the box (A, B, or C for short-term; D, E, or F for long-term) that matches how the sale was reported on your 1099-B. Digital asset sales use separate boxes G through L.6Internal Revenue Service. Instructions for Form 8949
For each transaction, enter:
- A description of the property (for example, “100 sh XYZ Corp”)
- Date acquired and date sold
- Proceeds from the sale
- Cost basis
- Any adjustment code and amount (for wash sales, basis corrections, and similar items)
- The resulting gain or loss
There is a shortcut that saves real work. If your 1099-B shows that basis was reported to the IRS and you don’t need to make any adjustments to the numbers, you can skip Form 8949 for those transactions and enter the totals straight onto Schedule D, line 1a for short-term or line 8a for long-term.7Internal Revenue Service. Instructions for Schedule D (Form 1040) For someone with a straightforward brokerage account and no basis corrections, that can eliminate pages of paperwork. Form 8949 is only needed for the transactions where basis wasn’t reported or where something has to be adjusted.
Total Everything on Schedule D
Schedule D pulls the pieces together.8Internal Revenue Service. Schedule D (Form 1040) – Capital Gains and Losses Part I collects short-term totals from Form 8949 and any transactions you entered directly. Part II does the same for long-term. Capital gain distributions from mutual funds, reported to you on Form 1099-DIV, also land on Schedule D directly without going through Form 8949.
Part III nets the two subtotals together on line 16. If the result is a net long-term gain, Schedule D’s tax computation worksheet applies the preferential long-term rates instead of taxing the whole amount as ordinary income. The line 16 figure then flows to Form 1040, line 7a.
What You’ll Owe: Rates for 2026
Short-term gains get no special treatment. They stack on top of your wages and other ordinary income and are taxed at your regular marginal rate, up to 37% in 2026.9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Long-term gains are taxed at 0%, 15%, or 20% depending on your taxable income and filing status. The 2026 thresholds:9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 0% rate: taxable income up to $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household).
- 15% rate: taxable income above the 0% ceiling up to $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household).
- 20% rate: taxable income above the 15% ceiling.
These rates apply after your other income and deductions are accounted for, so a long-term gain fills whatever room remains in each bracket. Part of a large gain might be taxed at 0% while the rest is taxed at 15%.
The 3.8% Net Investment Income Tax
Higher earners owe an additional 3.8% surtax on investment income, capital gains included. The Net Investment Income Tax applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds these thresholds:10Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
- $200,000 for single filers
- $250,000 for married filing jointly
- $125,000 for married filing separately
These thresholds aren’t indexed for inflation. You calculate the NIIT on Form 8960 and add it to your regular tax.11Internal Revenue Service. Form 8960 – Net Investment Income Tax, Individuals, Estates, and Trusts A married couple in the 20% long-term bracket who also owes the NIIT pays an effective 23.8% federal rate on their gains.
Collectibles
Long-term gains from selling art, coins, antiques, and precious metals are taxed at a maximum 28% rate.12Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed If your ordinary rate is lower, you pay the lower rate. You never get the 15% preferential rate on collectibles.
Situations That Change What You Report
Sale of Your Main Home
You can exclude up to $250,000 of gain on the sale of your principal residence, or $500,000 if married filing jointly, provided you owned and used it as your main home for at least two of the five years before the sale.13Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence The two years don’t have to be consecutive. For the joint exclusion, both spouses must meet the use test and at least one must meet the ownership test.
If your gain fits within the exclusion, you generally don’t have to report the sale at all. If it exceeds the exclusion, you report only the excess on Schedule D. A partial exclusion may apply if you fell short of the two-year requirement because of a job move, health issue, or certain unforeseen circumstances.
Digital Assets
Cryptocurrency and other digital assets go through the same Form 8949 and Schedule D chain, but Form 1040 also asks a yes-or-no question about digital asset activity that you must answer either way.14Internal Revenue Service. Digital Assets Answer “No” if you only held crypto or purchased it with dollars without selling. Answer “Yes” if you sold crypto for cash or other crypto, received it as payment for services, or earned it through mining, staking, or an airdrop. On Form 8949, digital asset sales use boxes G through L rather than the boxes for traditional securities.6Internal Revenue Service. Instructions for Form 8949
Net Losses and Carryovers
If your total losses for the year exceed your total gains, you can deduct the net loss against ordinary income, but only up to $3,000 per year ($1,500 if married filing separately).15Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything above $3,000 carries forward to the next year, keeping its short-term or long-term character. In the following year, the carryover first offsets any new gains, and any remainder can again offset up to $3,000 of ordinary income. The carryover continues indefinitely until it’s used up. It does not carry back to earlier years, and it doesn’t survive the taxpayer’s death.
Pay the Tax Before April If the Gain Is Large
Selling an appreciated asset midyear can produce a tax bill that paycheck withholding won’t cover. You generally need to make estimated tax payments if you expect to owe at least $1,000 after withholding and credits, and your withholding will cover less than the smaller of 90% of your current-year tax or 100% of your prior-year tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the 100% safe harbor rises to 110%.16Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals
Estimated payments are due quarterly: April 15, June 15, September 15, and January 15 of the following year.17Internal Revenue Service. Estimated Tax The IRS lets you annualize income when figuring whether a specific quarter was underpaid, so a sale in August doesn’t automatically mean you owed estimated tax in April. After a big gain, the practical move is sending an estimated payment that covers the expected tax before the next quarterly deadline. Missing a deadline by even one quarter can trigger penalties that run from the due date until the tax is paid.