Schedule D (Form 1040) Use Schedule D to report sales, exchanges, and other dispositionsof capital assets. Caution: Before completing Schedule D (Form 1040), you may have to completeother forms as shown below. For a sale, exchange, or involuntary conversion of businessproperty, complete Form 4797. For a like-kind exchange, complete Form 8824. (SeeReporting the exchange under Like-Kind Exchanges,in chapter 1.) For an installment sale, complete Form 6252. (SeePublication 537.) For an involuntary conversion due to casualty or theft,complete Form 4684. (See Publication 547,Casualties, Disasters,and Thefts (Business and Nonbusiness).) Tartu hotelesFor a disposition of an interest in, or property used in, anactivity to which the at-risk rules apply, complete Form 6198. (SeePublication 925,Passive Activity and At-RiskRules.) For a disposition of an interest in, or property used in, apassive activity, complete Form 8582. (See Publication 925.) Personal-use property.Report gain on the sale or exchange of property held for personaluse (such as your home) on Schedule D. Loss from the sale or exchangeof property held for personal use is not deductible. But if you had aloss from the sale or exchange of real estate held for personal usefor which you received a Form 1099-S, report the transaction onSchedule D even though the loss is not deductible. Complete columns(a) through (e) and enter -0- in column (f), and column (g) ifappropriate. Long and Short Term Where you report a capital gain or loss depends on how long you ownthe asset before you sell or exchange it. The time you own an assetbefore disposing of it is the holding period. If you hold a capital asset 1 year or less, the gain or loss fromits disposition is short term. Report it in Part I of Schedule D. Ifyou hold a capital asset longer than 1 year, the gain or loss from itsdisposition is long term. Report it in Part II of Schedule D.   Table 4-1 Table 4-2These distinctions are essential to correctlyarrive at your net capital gain or loss. Capital losses are allowed infull against capital gains plus up to $3,000 of ordinary income. Thetax rate for capital gains is explained later under Capital GainTax Rates. Holding period.To figure if you held property longer than 1 year, start countingon the day following the day you acquired the property. The same dateof each following month is the beginning of a new month regardless ofthe number of days in the preceding month. The day you disposed of theproperty is part of your holding period. Example.If you bought an asset on June 18, 1998, you should start countingon June 19, 1998. If you sold the asset on June 18, 1999, your holdingperiod is not longer than 1 year, but if you sold it on June 19, 1999,your holding period is longer than 1 year. Patent property.If you dispose of patent property, you are generally considered tohave held the property longer than 1 year, no matter how long youactually held it. For more information, see Patents inchapter 2. Inherited property.If you inherit property, you are considered to have held theproperty longer than 1 year, regardless of how long you actually heldit. Installment sale.The gain from an installment sale of an asset qualifying forlong-term capital gain treatment in the year of sale continues to belong term in later tax years. If it is short term in the year of sale,it continues to be short term when payments are received in later taxyears. Nontaxable exchanges.If you acquire an asset in exchange for another asset and yourbasis for the new asset is figured, in whole or in part, by your basisin the old property, the holding period of the new property includesthe holding period of the old property. That is, it begins on the sameday as your holding period for the old property. Example.You bought machinery on December 4, 1998. On June 3, 1999, youtraded this machinery for other machinery in a nontaxable exchange. OnDecember 5, 1999, you sold the machinery you got in the exchange. Yourholding period for this machinery begins on December 5, 1998.Therefore, you will have a long-term gain or loss. Corporate liquidation.The holding period for property you receive in a liquidationgenerally starts on the day after you receive it if gain or loss isrecognized. Profit-sharing plan.The holding period of common stock withdrawn from a qualifiedcontributory profit-sharing plan begins on the day following the daythe plan trustee delivered the stock to the transfer agent withinstructions to reissue the stock in your name. Gifts.If you receive a gift of property and your basis in it is figuredusing the donor's basis, your holding period includes the donor'sholding period. For more information on basis, see Publication 551. Real property.To figure how long you held real property, start counting on theday after you received title to it or, if earlier, the day after youtook possession of it and assumed the burdens and privileges ofownership. ERROR MSGHowever, taking possession of real property under an optionagreement is not enough to start the holding period. The holdingperiod cannot start until there is an actual contract of sale. Theholding period of the seller cannot end before that time. Repossession.If you sell real property but keep a security interest in it andthen later repossess it, your holding period for a later sale includesthe period you held the property before the original sale, as well asthe period after the repossession. Your holding period does notinclude the time between the original sale and the repossession. Thatis, it does not include the period during which the first buyer heldthe property. Nonbusiness bad debts.Nonbusiness bad debts are short-term capital losses. Forinformation on nonbusiness bad debts, see chapter 4 of Publication 550. Net Gain or Loss The totals for short-term capital gains and losses and the totalsfor long-term capital gains and losses must be figured separately. Net short-term capital gain or loss.Combine your short-term capital gains and losses, including yourshare of short-term capital gains or losses from partnerships, Scorporations, and fiduciaries and any short-term capital losscarryover. Do this by adding all your short-term capital gains. Thenadd all your short-term capital losses. Subtract the lesser total fromthe other. The result is your net short-term capital gain or loss. Net long-term capital gain or loss.Follow the same steps to merge your long-term capital gains andlosses. Include the following items. Net section 1231 gain from Part I, Form 4797, after anyadjustment for nonrecaptured section 1231 losses from prior taxyears. Capital gain distributions from regulated investmentcompanies (mutual funds) and real estate investment trusts. Your share of long-term capital gains or losses frompartnerships, S corporations, and fiduciaries. Any long-term capital loss carryover. The result from combining these items with other long-termcapital gains and losses is your net long-term capital gain or loss. Net gain.If the total of your capital gains is more than the total of yourcapital losses, the difference is taxable. However, the part that isnot more than your net capital gain may be taxed at a rate that islower than the rate of tax on your ordinary income. See CapitalGain Tax Rates, later. Net loss.If the total of your capital losses is more than the total of yourcapital gains, the difference is deductible. But there are limits onhow much loss you can deduct and when you can deduct it. SeeTreatment of Capital Losses, next. Treatment of Capital Losses If your capital losses are more than your capital gains, you mustdeduct the difference even if you do not have ordinary income tooffset it. The yearly limit on the amount of the capital loss you candeduct is $3,000 ($1,500 if you are married and file a separatereturn). Capital loss carryover.Generally, you have a capital loss carryover if either of thefollowing situations applies to you. Your net loss on line 17 of Schedule D is more than theyearly limit. The amount shown on line 37, Form 1040 (your taxable incomewithout your deduction for exemptions), is less than zero. If either of these situations applies to you in 1999, completethe Capital Loss Carryover Worksheet provided in theinstructions for Schedule D to figure the amount of your loss that youcan carry over to 2000. hotels SofiaIn 2000, you will treat the carryover loss as if it occurred inthat year. It will be combined with any capital gains and losses youhave in 2000, and any net loss will be subject to the limit for thatyear. Any loss not used in 2000 will be carried over to 2001. Example.Bob and Gloria Sampson sold property in 1999. The sale resulted ina capital loss of $7,000. The Sampsons had no other capitaltransactions. On their joint 1999 return, the Sampsons deduct $3,000,the yearly limit. They had taxable income of $2,000. The unused partof the loss, $4,000 ($7,000 - $3,000), is carried over to 2000.The allowable $3,000 deduction is considered used in 1999. If the Sampsons' capital loss had been $2,000, it would not havebeen more than the yearly limit. Their capital loss deduction wouldhave been $2,000. They would have no carryover to 2000. Table 4-3 Short-term and long-term losses.When you carry over a loss, it retains its original character aseither long term or short term. A short-term loss that you carry overto the next tax year is added to short-term losses occurring in thatyear. A long-term loss that you carry over to the next tax year isadded to long-term losses occurring in that year. A long-term capitalloss you carry over to the next year reduces that year's long-termgains before its short-term gains. If you have both short-term and long-term losses, your short-termlosses are used first against your allowable capital loss deduction.If, after using your short-term losses, you have not reached the limiton the capital loss deduction, use your long-term losses until youreach the limit. This computation of your short-term capital losscarryover or your long-term capital loss carryover is made on theCapital Loss Carryover Worksheet provided in theinstructions for Schedule D. Joint and separate returns.On a joint return, the capital gains and losses of a husband andwife are figured as the gains and losses of an individual. If you aremarried and filing a separate return, your yearly capital lossdeduction is limited to $1,500. Neither you nor your spouse may deductany part of the other's loss. If you and your spouse once filed separate returns and are nowfiling a joint return, combine your separate capital loss carryovers.However, if you and your spouse once filed jointly and are now filingseparately, any capital loss carryover from the joint return can bededucted only on the return of the spouse who actually had the loss. Death of taxpayer.Capital losses cannot be carried over after a taxpayer's death.They are deductible only on the final income tax return filed on thedecedent's behalf. The yearly limit discussed earlier still applies inthis situation. Even if the loss is greater than the limit, thedecedent's estate cannot deduct the difference or carry it over tofollowing years. Corporations.A corporation may deduct capital losses only up to the amount ofits capital gains. In other words, if a corporation has a net capitalloss, it cannot be deducted in the current tax year. It must becarried to other tax years and deducted from capital gains occurringin those years. For more information, see Publication 542,Corporations. Capital Gain Tax Rates ERROR MSGThe 31%, 36%, and 39.6% income tax rates for individuals do notapply to a net capital gain. In most cases, the 15% and 28% rates donot apply either. Instead, your net capital gain is taxed at lowercapital gain rates. Net capital gain is the net long-term capital gain for the yearthat is more than the net short-term capital loss for the year. You will need to use Part IV of Schedule D (Form 1040) to figureyour tax using the capital gain rates if both of the following aretrue. Both lines 16 and 17 of Schedule D are gains. Your taxable income on Form 1040, line 39, is more thanzero. The rate may be 10%, 20%, 25%, 28%, or a combination of two or moreof those rates, as shown in Table 4-3. Using the capital gain rates.The part of a net capital gain that is subject to each maximum rateis determined by first netting long-term capital gains with long-termcapital losses in the following tax rate groups. A 28% group, consisting of all the following gains andlosses. Collectibles gains and losses. The part of your gain on qualified small business stock thatis equal to the section 1202 exclusion. Any long-term capital loss carryover. A 25% group, consisting of unrecaptured section 1250gain. A 20% group, consisting of gains and losses not in the 28%or 25% group. Groningen accommodationIf any group has a net loss, the following rules apply. A net loss from the 28% group reduces any gain from the 25%group, and then any net gain from the 20% group. A net loss from the 20% group reduces any net gain from the28% group, and then any gain from the 25% group. If you have a net short-term capital loss, it reduces any net gainfrom the 28% group, then any gain from the 25% group, and finally anynet gain from the 20% group. The resulting net gain (if any) from each group is subject to thetax rate for that group. (The 10% rate applies to a net gain from the20% group to the extent that, if there were no capital gain rates, thenet capital gain would be taxed at the 15% regular tax rate.) Collectibles gain or loss.This is gain or loss from the sale or exchange of a work of art,rug, antique, metal, gem, stamp, coin, or alcoholic beverage heldlonger than 1 year. Collectibles gain includes gain from the sale ofan interest in a partnership, S corporation, or trust attributable tounrealized appreciation of collectibles. Gain on qualified small business stock.If you realized a gain from qualified small business stock that youheld longer than 5 years, you exclude up to one-half of your gain fromyour income. The taxable part of your gain equal to your section 1202exclusion is a 28% rate gain. See Sales of Small Business Stockin chapter 1. Unrecaptured section 1250 gain.This is the part of any long-term capital gain on section 1250property (real property) that is due to depreciation minusany net loss in the 28% group. Unrecaptured section 1250 gain cannotbe more than the net section 1231 gain or include any gain that isotherwise treated as ordinary income. Use the worksheet in theSchedule D instructions to figure your unrecaptured section 1250 gain.For more information about section 1250 property and net section 1231gain, see chapter 3. Changes after 2000.After 2000, there will be changes to the capital gain rates. 2001.Beginning in 2001, the 10% capital gain rate will be lowered to 8%for "qualified 5-year gain." 2006.Beginning in 2006, the 20% capital gain rate will be lowered to 18%for qualified 5-year gain from property with a holding period thatbegins after 2000. Taxpayers who own certain stock on January 1, 2001, can choose totreat the stock as sold and repurchased on January 2, 2001, if theypay tax for 2001 on any resulting gain. Qualified 5-year gain.This is long-term capital gain from the sale of property you heldlonger than 5 years that would otherwise be subject to the 10% or 20%capital gain rate. Net capital gain from disposition of investment property.If you choose to include any part of a net capital gain from adisposition of investment property in investment income for figuringyour investment interest deduction, you must reduce the net capitalgain eligible for the capital gain tax rates by the same amount. Youmake this choice on Form 4952, Investment Interest ExpenseDeduction, line 4e. For information on making this choice, seethe instructions to Form 4952. For information on the investmentinterest deduction, see chapter 3 in Publication 550.