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Form 8949 CPA discusses IRS Schedule D and Form 1099-B | Investment CPA | new instructions for 2012 on wash sales

form 8949 discusses 2012 wash sales Schedule D and Form 1099-B

Additional rules for 2012 Form 8949 on wash sales came out February 28, 2013. If you need help on Form 8949, Schedule D or Form 1099-B consider calling us for a free phone consult. (910) 399-2705. Our virtual office can serve you wherever you live.

Investment CPAs rejoiced at IRS Form 8949’s introduction, wink. But Form 8949, Sales and Other Dispositions of Capital Assets, is just a re-tooling of Schedule D-1, which now rests in the IRS cemetery. Form 8949 integrates with Schedule D to report Capital Gains from information on Form 1099-B.

New rules for reporting wash sales on Form 8949 for 2012 tax returns came out February 13, 2013. For your convenience I cut and pasted the IRS blurb on these new rules at the bottom of this post.

Wash Sales

The IRS often revises their forms as new issues emerge. Form 8949 CPAs had problems reporting wash sales when Form 1099-B showed an incorrect amount of non-deductible loss. Wash sales occur when you sell stocks and bonds at a loss, and, purchase the same stock just before or after the sale. Of course there are lots of IRS wrinkles, so consult with your investment CPA if your transaction get complex. Wash sale issues include:

  • Non deductible losses.
  • Basis adjustment to the newly purchased stock.
  • Holding period.

If you understand the IRS rules, you can sometimes proactively structure the transaction to avoid wash sale pitfalls. When I re-calculate a wash sale, I send supplemental documentation with your tax return showing why the original figures on Form 1099-B were wrong and how I arrived at the correct number.

“Information from your broker’s Form 1099-B flows to Schedule D and then summarized on Form 8949.”
– Gary Bode, Form 8949 CPA

The real change is Form 1099-B

The fundamental change in this process?  Requiring brokerage firms to track the purchase costs of stocks, bonds, mutual funds, etc. and cross correlate them to sales for the current tax year. This is another example of the IRS requiring costly compliance, from someone else, to increase their own efficiency. But streamlining the process makes it easier for tax return preparation. From experience with Form 1099-B, Schedule D and Form 8949, my perception is the IRS accepts the Form 1099-B information as gospel for “covered” transaction and concentrates on “non-covered” transaction when they look for fraud. In 2013, lingering problems exist:

  • For investments purchased too far back to have accurate records.
  • For stocks that split in the past.
  • For investors who switched brokerage houses over the years.

Capital Gains remain the same even though Schedule D looks different

  • You still pay capital gains from investments sold at a profit.
  • You still try to use capital losses to offset taxable income.
  • You still aggregate capital gains and losses by the short and long-term designations.
  • Information now just passes through to Form 8949.

We’re a CPA firm with a virtual office to serve clients outside of our Wilmington NC geographical base. The virtual office adds greater convenience for local clients as well. Of course, we deal with Form 1099-B Schedule D and Form 8949 routinely. For a free phone consult, please call (910) 399-2705.

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Here is the summary of the new rules for wash sales on Form 8949, cut and pasted from their website.

If you receive a Form 1099-B (or substitute statement) showing an incorrect amount of a nondeductible loss in a wash sale transaction (box 5), enter the correct amount of the disallowed loss as a positive number in column (g) of Part I or II of Form 8949 with the appropriate box checked. Enter “W” in column (f). Complete the remaining columns. If the amount of the disallowed loss is less than the amount shown on Form 1099-B (or substitute statement), attach a statement explaining the difference. If no part of the loss is a nondeductible loss from a wash sale transaction, enter -0- in column (g).

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