FS-2007-19, May 2007 — Page 2 of 3
property are not deductible. More information about increases and decreases to basis
can be found in Publication 551, Basis of Assets.
Schedule D
Capital gains and deductible capital losses are reported on Form 1040, Schedule D,
Capital Gains and Losses, and then transferred to line 13 of Form 1040, U.S. Individual
Income Tax Return. Capital gains and losses are classified as long-term or short term.
If you hold the asset for more than one year, your capital gain or loss is long-term. If you
hold the asset one year or less, your capital gain or loss is short-term. To figure the
holding period, begin counting on the day after you received the property and include
the day you disposed of the property.
You may have to make estimated tax payments if you have a taxable capital gain.
Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
Other Rules
Home –– If you sell your residence, you may be able to exclude from income any gain
up to a limit of $250,000 ($500,000 on a joint return in most cases). To exclude the
gain, you must have owned and lived in the property as your main home for at least 2
years during the 5-year period ending on the date of sale. Generally, you cannot
exclude gain on the sale of your home if, during the 2-year period ending on the date of
the sale, you sold another home at a gain and excluded all or part of that gain. If you
cannot exclude gain, you must include it in income. To determine the maximum dollar
limit you can exclude and for additional information, refer to Publication 523, Selling
Your Home. You cannot deduct a loss on the sale of your home.
Property outside U.S. –– U.S. citizens who sell property located outside the United
States must also report gains from these sales, unless the property is exempt by U.S.
law. Reporting is required whether you reside inside or outside the United States and
whether or not you receive a Form 1099 from the payer.
Installment sales –– If you sold property (other than publicly traded stocks or securities)
at a gain and will receive any payments in a year after the year of sale, you generally
must report the sale on the installment method using Form 6252, Installment Sale
Income. You can elect out of the installment method by reporting the entire gain in the
year of sale.
Investment Transactions –– Gains from sales and trades of stocks, bonds, or certain
commodities are usually reported to you on Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions, or an equivalent statement. Your basis, the sales price,
and the resulting capital gain or loss is entered on Form 1040, Schedule D, Capital
Gains and Losses.
Gains from the sale of business property are reported on Form 4797, Sales of Business
Property and flow to Form 1040, Schedule D. See Publication 544, Sales and Other
Dispositions of Assets for additional information on the sale of business property.