Reporting Sales Transactions on your Individual Return by Carolyn Flaherty

Missing a 1099 from your brokerage firm? Don't get on the phone quite yet. As was mentioned in our blog on February 2, there have been extensive changes to the way in which sales of capital assets are reported. As such, investment firms were given an extension until February 15, 2012 to mail the required 1099-B forms. Therefore, you should expect to receive your tax forms by or around February 20th.

When you receive your 1099-B Forms, you will likely notice a number of changes in both what and how information is reported. However, interpreting your 1099-B is only the first hurdle in your tax compliance process: next you must transcribe the data properly onto your Form 1040.

In the past, gains and losses generated from the sale of a capital asset were reported on Schedule D or D-1 of your Form 1040. Most property you own and use for personal purposes, pleasure or investment is a capital asset. Generally the information required on Schedule D was your cost or tax basis in the property, the sales price, and the dates of purchase and sale, (to determine whether the transaction was short-term or long-term).

For 2011 the reporting requirements have become more complex and demand more information. Capital asset transactions will now be reported on Form 8949. Short term transactions (those held for one year or less) must be reported on Part I of Form 8949, while long-term capital gains or losses will be reported on Part II.

When completing either Part I or Part II Form 8949, you must check a box indicating the transactions were:

(A) reported on Form 1099-B with basis reported to the IRS
(B) reported on Form 1099-B but basis not reported to the IRS
(C) cannot check box A or B

Therefore, if you receive a 1099-B that shows cost basis, you would check box (A). If the 1099-B does not indicate basis, you would check box (B). If the transaction was not reported on a 1099, you are forced to check box (C). Only one box can be checked per form. Hence, if you have multiple types of transactions you could be filing up to three short-term Part I Forms 8949 and up to three long-term Part II Forms 8949. Thankfully most of us file electronically or the trees would be pulling up roots and running scared!

Furthermore, if you receive a 1099-B that reports cost basis but you adjust that basis, you must show the amount of the adjustment so that the IRS can reconcile from the basis you report back to the 1099. Then, you must enter a code explaining your adjustment. Some common reasons that you may need to adjust the basis from the amount on your Form 1099-B may be that the 1099-B showed an incorrect amount, you received the 1099-B as a nominee, or the transaction resulted in a wash sale.
Additional codes listed in the instructions include:

DC Zone or qualified community asset
Section 1045 rollover
Section 1397B rollover
Personal or other non-deductible loss
Other adjustment

To reiterate the 2/2/12 blog conclusion: If you have prepared your own return in the past, the new requirements may be reason enough to have a “tax check-up” this year and allow a preparer to guide you through the changes.