Stop Overpaying Capital Gains Tax — How to Use Form 8949 Properly in 2025

💥 Stop Overpaying Capital Gains Tax — How to Use Form 8949 Properly in 2025

If you sold stocks, ETFs, options, or crypto in 2025, your capital gains story is really told on Form 8949 — not just on Schedule D or your broker’s 1099-B.
Many taxpayers assume “the broker sent everything to the IRS, so I’m fine,” and then get a surprise CP2000 notice because basis was missing, adjustments weren’t explained, or crypto sales were never reported.

1️⃣ What Form 8949 Really Does

Form 8949 is essentially a reconciliation schedule. It connects what the IRS sees from brokers, crypto platforms, and other payers with the numbers you put on Schedule D.
Whenever your records don’t perfectly match the information the IRS receives — missing basis, wash-sale adjustments, fees, or unreported crypto sales — Form 8949 is where you explain the difference line by line.

Common situations that call for Form 8949:

• Your 1099-B shows proceeds but does not report basis on some trades.
• You traded crypto or used a platform that did not issue a 1099-B at all.
• You have adjustments for wash sales, return of capital, or corrected basis.
• You sold assets that were originally received by gift or inheritance.

2️⃣ Short-Term vs Long-Term: The One-Year Line

The holding period rules are simple but easy to misapply:

• Short-term gain or loss: asset held one year or less.
• Long-term gain or loss: asset held more than one year.

The clock starts the day after you acquire the asset and includes the day you sell it.
On Form 8949, short-term transactions go to Part I and long-term to Part II.
Getting this wrong can shift income from favorable long-term rates to higher ordinary brackets.

3️⃣ Turning 1099-B Data into Form 8949 Lines

Brokers group transactions into categories based on whether they reported basis to the IRS:

• Box A / D – basis reported to IRS.
• Box B / E – basis not reported.
• Box C / F – no 1099-B received.

When you copy trades to Form 8949, each line should show:

• Description of property (for example, “AAPL 50 sh”).
• Date acquired and date sold.
• Sales price (proceeds) and cost basis.
• Adjustment code and amount, if anything must be corrected.

After subtotals for each category, you carry the totals to Schedule D, which then flows into Form 1040.

4️⃣ Understanding IRS Adjustment Codes (A–H)

On Form 8949, column (f) uses single-letter codes to signal why your numbers differ from what the IRS may see from information returns. A few of the most common:

• A – basis reported to IRS, no adjustment.
• B – basis not reported; you supply the cost data.
• D – no 1099-B issued (common with some crypto platforms).
• E – wash sale adjustment disallowing part of the loss.
• H – “other” adjustments that require an explanation statement.

5️⃣ One Simple Example from Trade to Schedule D

For crypto, the mechanics are the same, but you often have to reconstruct basis from wallets and exchanges yourself.
With the new Form 1099-DA reporting rules, the IRS will see more of your digital-asset proceeds than in the past, so clean records matter more each year.

6️⃣ EA Checklist: Practical Filing & Planning Tips

• Match every 1099-B and 1099-DA you receive to at least one line on Form 8949 or Schedule D.
• Keep CSV exports and wallet records in case you ever need to prove your basis years later.
• Consider tax-loss harvesting near year-end, but watch holding periods and wash-sale risk for securities.
• Double-check that totals on Form 8949 agree with Schedule D and then with Form 1040.