Only sales of stocks, mutual funds, certain bonds, and personal residences are in-scope.

Worthless debts or the sale of other types of securities or assets make the return out-of-scope.


  • Capital gains and losses are generally reported on a Form 1099-B,  which is often part of a broker’s statement that may include a Form 1099-INT and a Form 1099-DIV. Those two other forms are handled as discussed above – see the section Line 2 - Taxable and Tax-Exempt Interest on page 33, and the section Line 3 - Dividends on page 35, respectively.
    • Capital gains also are reported in box 2a of Form 1099-DIV, as discussed above, page 35.
  • When Form 1040 is printed, the summary of capital gains and losses appears on Schedule D, and the supporting details on one or more Form 8949s, Sales and Other Dispositions of Capital Assets. 
  • Separate management or investment fees on the broker’s statement can no longer be an itemized deduction on the federal Schedule A. They are in the category of deductible expenses that were subject to a 2%-of-AGI reduction; the entire category has been eliminated. 
    • Note for CA state returns: California conforms to federal Schedule A deductions as of 2015, so this expense is allowable as a CA itemized deduction, subject to a 2%-of-AGI reduction.
      • TaxSlayer handles such “no longer valid for federal, but possibly valid for states” expenses by continuing to have them manually entered in the federal Schedule A section. For details, see page 88. 
  • Note for CA state returns: CA does not recognize HSA trusts – gains and losses incurred in the trust are currently reportable for CA - see Health Savings Accounts in CA, page 113.

Out-of-scope

  • The following are out-of-scope and make the return out-of-scope:
    • Taxpayers who day trade or trade in futures and options 
    • The sale of bonds acquired by other than purchase (for example, inheritance or gift)
    • A tax return for a dependent with unearned income (including investment income) that exceeds the threshold for the “kiddie tax”
    • Receipt of a Form 2439 (notice to shareholder)
    • A return requiring completion Form 4797 (Sales of Business Property), 6252 (Installment Sale Income), 6781 (Gains and Losses from Section 1256 Contracts and Straddles), and/or 8824 (Like-Kind Exchanges) 
    • A taxpayer who has margin interest (is borrowing money from the broker, to purchase securities), and is itemizing
    • Sales paid for with virtual currencies (cryptocurrencies), such as bitcoin; this includes redemptions
    • Sales of digital assets (cryptocurrencies, NFTs) 
  • Also, Page D-37 of  Pub 4012 lists out-of-scope adjustments to basis [codes D, N, Q, X, R, S, C, Z and Y], any of which make the entire return out-of-scope.

Summarization

  • Transactions on a Form 1099-B are typically entered in TaxSlayer in summarized format. Each Form 1099-B will have no more than four entries in TaxSlayer: short-term “covered” (basis reported to the IRS) (box “A”); short-term “uncovered” (basis not reported to the IRS) (box “B”); long-term “covered” (basis reported to the IRS) (box “D”); and long-term “uncovered” (basis not reported to the IRS) (box “E”.)
    • If entering a summarized transaction, also check the “Reporting Multiple Transactions on a Single Row” box near the bottom of the Adjustments section of the TaxSlayer page.
  • Tax-Aide policy: Brokers’ statements entered in TaxSlayer in a summarized format will not be scanned and attached to an electronically-filed return, nor photocopied and mailed to the IRS. Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, will not be prepared, neither paper nor electronic. 

Entering Capital Gains and Losses

  • From the Income menu page in the Federal Section, select “Capital Gains and Losses”; then, on the Schedule D Capital Gains menu page, select either “Capital Gains and Loss Items” or “1099-B Transactions with No Adjustments” (new for tax season 2024), as applicable.
    • Note:  The new option (“1099-B Transactions with No Adjustments”) should be used only for covered sales, where the cost basis has been reported to the IRS (type A and D on Form 8949).  You may total all covered transactions on multiple 1099-Bs, then enter totals on this screen (but see CA legal note below).
    • On the relevant Capital Gains Transaction page, complete the needed information.
    • Note: If entering each 1099-B separately, and at least one item already exists, click “Add new” on the Capital Gain/Loss entry grid to get to the Capital Gains Transaction page.
  • CA legal note: Because CA is a community-property state, it doesn’t matter, on a MFJ return, whether you select that the capital gains transaction belongs to the taxpayer, spouse, or both.
  • Description of Property (30 characters or less; previously was 15): 
    • If multiple transactions are being summarized (you’re using a summary line from the broker’s statement), enter the broker’s name (for example, “TIAA” or “Scottrade”), then remember to check the “M” box near the bottom of the Adjustments section of the TaxSlayer page.
    • For a single transaction, enter the number of shares and the symbol for the stock or bond (for example, “100 USCBX”.)
  • Date Acquired: 
    • If multiple transactions are being summarized, then check “Alternate Option” and from the “ – Select if Applicable - ” box, select the appropriate option. (Groups “A” and “B”, if one of those labels appear on the broker’s statement, are short-term, groups “D” and “E” are long-term.)
      • All sales of inherited assets are long-term.  If a mix of inherited and non-inherited long-term sales, select “Various – Long Term”.
    • For a single transaction, and when the purchase date on the Form 1099-B is blank, make a “best guess” using what the taxpayer knows about the approximate purchase date.
  • Date Sold:
    • If multiple transactions are being summarized, then pick one of the sales dates to enter in TaxSlayer.
  • For Sales Price, enter the total proceeds from selling the stock(s), bond(s), and/or mutual fund(s) in the group. 
    • The total is almost always on the broker’s statement; it’s rarely necessary to manually total the transactions.
  • The cost basis type (oddly enough, in the “Sales Price” section) should be clearly stated on the broker’s statement (groups A and D are basis reported to the IRS; groups B and E are basis not reported). 
  • For Cost [the legal term is “basis” or “cost basis”]:
    • For group A and D transactions, the cost (basis) will always be on the broker’s statement.
    • For group E transactions, the cost may be on the broker’s statement; if it is, the taxpayer may use that basis, or may (rarely) have their own documentation showing a different methodology for determining their cost (first-in, first-out; first in, last-out; average cost).
    • WARNING: When a spouse dies, 100% of assets that are community property change basis (not just the deceased spouse’s half). Specifically, the basis is changed to market value at the time of death. This applies not only to a home, but also to stocks and bonds. Broker statements may not reflect this change in basis. If a taxpayer is a widow/widower, it is critical to determine if the stated basis on the broker statement is correct, by comparing the date acquired to the death date.
      • Stocks and bonds are community property in California if they were acquired during the marriage, regardless of whether were in a joint account. Assets acquired prior to a marriage are also community property if they were combined with community property - for example, moved from an individual account to a joint account any time during the marriage.
    • If the cost (basis) is not on the Form 1099-B, and a gain/loss statement or original purchase confirmation is not available, there are several options:
      • The taxpayer can ask their broker to research and (we hope) provide the cost basis, but this may be unsuccessful if the security involved was transferred in from another broker. 
      • If the taxpayer knows approximately when the security or mutual fund was purchased, they can use the lowest value during the period that the purchase occurred. To look up historical prices, use the Tax-Aide links in your Chromebook: in the Miscellaneous section, select "NTTC Useful Tax Prep Links", which has two links to historic stock prices.  If those searches fail, then you can try other websites.
      • If all else fails, enter zero as the basis and advise the taxpayer that the return can be amended when a basis is determined, within the next three years. (If the taxpayer is in the 10% or 12% tax bracket, an amendment may not be necessary because their long-term capital gains have a federal tax rate of zero.)
        • Note: If the taxpayer has Social Security income, then capital gains can increase taxable income even though the taxpayer is in the 10 or 12% tax bracket. That’s because capital gains, on page 1 of Form 1040, can increase the taxable portion of Social Security income.
    • If a non-statutory qualified stock option is exercised and sold on the same day, the taxpayer's Form W-2 will show code V and the compensation amount is included in box 1, “Wages, tips, other compensation”.
      • The disposition of the stock acquired through the option is reported on a Form 1099-B.
      • Often there is a small loss reflecting the commissions.
    • Inherited property
      • The basis for inherited property is normally the FMV at the death of the original owner; this dollar amount must come from the taxpayer.
      • However, estates of decedents dying in 2010 could have made an election for a carryover basis that would be shown on Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, provided by the estate. If so, use the basis provided and the original purchase date. (Form 8939 is not required if the taxpayer has the necessary information.)
        • Note for CA state returns:  In all cases, the basis for CA returns is FMV at the date of death. If a Form 8939 issued in 2010 did not use FMV, an adjustment would be needed on CA 540 Schedule D, adjusting the gain or loss; that return would be out-of-scope.
  • Adjustments to gains or losses are entered near the bottom of the TaxSlayer page. (For most entries, no adjustment will be needed other than “Reporting Multiple Transactions on a Single Row”, code M.) Page D-36 of  Pub 4012 describes how to handle specific adjustments.
    • Entering a negative adjustment amount will reduce the gain on what has been entered, or, if what was entered was a loss, entering a negative amount will increase the loss.
      • For “Nondeductible Loss from a Wash Sale”, code W, enter the amount as a positive number. 
    • Note: Also note any adjustments recorded in TaxSlayer on the paper Form 1099-B, so the two match.
  • When done with the transaction, click “Save & Enter Another” if there are more transactions to enter from a Form 1099-B. Otherwise, click “Continue.”

Verification

  • After doing all entries, it’s a good idea to review Schedule D, to make sure that amounts are on the proper lines and add up to the same total as on the taxpayer's pages or brokers’ statements. The easiest way to do so is “print” the Schedule D from the Federal Income menu page.

Taxes Withheld

  • If federal tax has been withheld on a Form 1099-B or broker’s statement, go to the Other Federal Withholdings page [Federal Section > Payments & Estimates > ...], enter the amount, check the box, and click “Continue.”
    • Because there is one field to enter the total of all entries, one or more notes (see page 8) is recommended to explain each entry on this page.
  • If there is any state tax withholding, see the section State Tax Withheld, page 118.

If there is a capital loss carryover for the next tax year, TaxSlayer will add a Capital Loss Carryforward Worksheet – Lines 6 and 14 to the printed tax return.

Capital Loss Carryover from a Prior Year's Schedule D 

  • The capital loss carryover amount is one of the items included in TaxSlayer Carryforward.
    • If the taxpayer doesn’t have prior-year Carryforward (for example, a paid preparer did the prior return), then you need the prior return or a copy of the appropriate worksheet to correctly report any loss carryover.
  • Enter in TaxSlayer (or verify, if carried forward) the amounts from the prior capital loss carryover, on the Other Capital Gains Data page [Income > Schedule D (Form 1040) > Other Capital Gains Data (Including Capital Loss Carryover)].
    • Enter the number(s) as positive (don’t use a negative sign).
    • TaxSlayer will create a new carryover worksheet for any balance over the maximum allowable loss of $3,000 ($1,500 if MFS.)
  • WARNING: Do not omit the entering of a capital loss carryover even if it does not help the taxpayer for the tax year. Failure to enter a capital loss carryover into a tax return means that any remaining capital loss carryover is forfeited for future years.  
  • Note for CA state returns: The federal and CA capital loss carryover amounts can be different, due to HSA or other rules.
    • If the two amounts are not the same, go to the State Section: click “Miscellaneous Forms”, then go to the California Schedule D Capital Gain or Loss Adjustment page, and enter the CA carryover amount. 
      • If an amount is entered, California Schedule D will be included in the PDF for the return.
      • The difference between the federal and CA amounts will appear on CA Schedule CA Part I, Section A line 7, in either column B or C.

Sale of Home

Note: Enter the sale information only if the taxpayer has received a Form 1099-S, Proceeds From Real Estate Transactions, or if there is a gain on the sale of the home that is taxable in part or in full. If neither is true, do not enter any information in TaxSlayer.
Note: Schedule D instructions say that if the taxpayer received a Form 1099-S, the taxpayer must report the sale, which means that the taxpayer must file a tax return even if the taxpayer otherwise has no filing requirement.

    • A home can be a houseboat, mobile home, condo, or ownership of a cooperative (co-op).
    • Sale of a second home – for example, one that has been inherited – can be in-scope if, while owned by the taxpayer, it was always a residence, not a rental nor used for business.
  • Special circumstances:
    • If any portion of the home was ever rented out or used for business (home office) such that depreciation would have been allowable (whether it was actually claimed or not), the return is out-of-scope.
    • If the home was purchased in 2008 and the First-Time Homebuyer Credit was claimed, the main calculations for the sale of the home are not affected, but additional information probably needs to be entered in TaxSlayer: see the section Schedule 2, Line 10 - Repayment of First-Time Homebuyer Credit, page 102.
    • Sale of the home within two years of the death of a spouse affects both the exclusion amount and the ownership and use tests for claiming an exclusion – see Pub 523, Selling Your Home.
    • The sale of a home received as a gift is out-of-scope unless it has been used as a personal residence by the taxpayer or spouse. The taxpayer’s cost basis on a gift is complicated to determine, involving the (adjusted) cost basis of the donor, the fair market value (FMV) of the house at the time of the gift, and whether the house was sold at a loss (compared to the FMV) by the taxpayer.
  • In general, a single person can exclude of up to $250,000 of gain on the sale of a main home; a married couple can exclude $500,000. However, to claim the exclusion, the taxpayer must meet the ownership and use tests:
    • The taxpayer must have owned the property for a total of 24 of the previous 60 months.
      • The ownership requirement can be satisfied by one of the two spouses filing a joint return.
    • The taxpayer must have used it as their principal residence for a total of 24 of the previous 60 months.
      • The use requirement must be satisfied by both spouses when filing a joint return to claim the maximum $500,000 exclusion of the amount of gain.
      • For MFJ returns, if only one spouse satisfies the use test, the exclusion is limited to $250,000.
    • The ownership and the residence 24-month test periods don’t have to be continuous or overlapping.
    • To claim an exclusion, the taxpayer can’t have used the exclusion on a home sale within the previous two years.
    • Partial exclusion, out-of-scope, is possible under some circumstances, such as a change of employment. Details are in Pub 523, Selling Your Home.  Because the potential tax savings are likely to be significant if the taxpayer is able to claim s/he moved because of “unforeseen circumstances”, the taxpayer should be referred to a full-time paid preparer who is better qualified to find a reason to make such a claim.
    • The Home Sale Worksheet at cotaxaide.org/tools/ has four worksheets for determining the taxable gain on a home, included worksheets to be given to the taxpayer to determine cost basis of the home. These worksheets are not needed if it is obvious there is no taxable gain on the sale of the home.
    • Note for CA state returns: CA conforms to the federal rules for sale of a home, including the potential exclusion of $500,000 gain when the house is sold by a widow/er within two years of the spouse’s death.
  • When determining the proceeds from the sale of a home, you normally subtract the sales commission paid by the seller, as well as other transactional costs of the sale that were paid by the seller. However, if a 1099-S is involved, make the adjustment(s) to the cost basis, rather than sale proceeds.
    • Note: Taxpayers often want to reduce their reported proceeds by the amount of a mortgage or mortgages that they have paid off at the time of the sale. Do not make that adjustment. The presence of a mortgage [or a lien on the home] does not affect the determination of the amount of gain on the sale of the home.
  • Computing the (cost) basis of a home, to determine the exact amount of gain, is complicated; it may require a complete review of the transactions regarding home purchases and sales since the acquisition of the taxpayer’s first home, if the current home was purchased before May 8, 1997 (because profits on the gain from the sale of a home, prior to that date, could be postponed if a new home, of at least the same price, was purchased.)
    • The taxpayer needs to provide the basis information; calculation of the basis by a counselor is out-of-scope.
      • Note: The cost basis is irrelevant if the selling price is less than the $250,000 or $500,000 exclusion.
    • If a married couple owned the home together (both names were on the title), and one of the two has died, then, by law, the basis of the home is adjusted at the time of the death.
      • CA legal note: Because CA is a community-property state, the cost basis of the entire home changes to the FMV at the time of the death, for both federal and state purposes, if both spouses owned the home.  
  • If, after using the basis provided by the taxpayer, and determining the exclusion, there is still taxable gain on the home sale, the taxpayer may be better off seeing a paid preparer who can help determine the basis.
    • For example, if the cost basis is understated by only $10,000, the taxpayer could end up paying several thousand dollars more of taxes than was in fact owed, if in the 22% or higher marginal tax bracket.
  • To enter information in TaxSlayer for a home sale, it’s easier to use the Capital Gains Transaction page [Income > Schedule D (Form 1040) > Capital Gains and Loss Items], as described in the section above, rather than the Sale of Home page. When using the Capital Gains Transaction page:
    • If a Form 1099-S was issued for the sale, use the Gross proceeds amount (box 2) on that form, rather than net proceeds after selling costs, as the Sales Price, and increase the Cost (basis) to account for selling expenses on the closing form.
    • If an exclusion can be claimed, as discussed above, then select “Exclude Some/All of the Gain from the Sale of Your Main Home” (code H), and enter the exclusion amount as a negative number.
    • The exclusion amount will normally be -250,000 or -500,000 if, after the exclusion, there is still a profit on the sale. Otherwise, the amount will be a negative number equal to the net proceeds from the sale.
    • Note: The (very rare) exception would be if the taxpayer has a Form 1099-S and a loss on the sale. If that is the situation, you must use the Sale of Home page to keep the loss from appearing on Schedule D.
  • Note for CA state returns: If the taxpayer had CA tax withheld from the sale, they’ll receive CA Form 593.
    • In the State Section, go the Payments menu, then CA Real Estate Withholding (from Form 593) page, and enter information on that page and the four associated pages, using the paper CA Form 593.
      • Information entered in TaxSlayer will show on CA Form 540, page 3, line 73. 
    • If (and only if) the taxpayer is itemizing on the federal return, and if the $10,000 cap for state and local taxes has not been reached, then another adjustment is needed [because the entry in the State Section is not carried to Line 5a of Schedule A (Income Taxes)].
      • Go to the Payments - Other State Withholdings page [Federal > Payments & Estimates > Other State Withholdings], enter the amount of CA tax withheld, then pick any state other than CA (for example, Alabama). [This gets the amount onto Schedule A while avoiding carrying it twice to CA Form 540.]
        • Note: When starting the E-file section, TaxSlayer may offer a reminder that there is state withholding without a matching state return. Ignore the reminder.

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