This year changes were made to the federal partnership return forms. These involve how capital gains are reported. Form 8949 was added and changes to Schedule D were implemented. Both are involved with reporting capital gains.
In the past, individual transactions that generated a capital gain or loss were itemized on Schedule D in either the short-term or long-term gain sections. This practice changes for 2012 returns. This year only a summary of the gains appears on Schedule D. The itemized list will appear on Form 8949.
Depending on the details of your transactions and your broker’s actions, clubs may need as many as three different 8949s to complete. Changes in law required brokerage firms to start tracking the cost basis of customer purchases starting in 2011. Many brokerages began this sooner. Starting in tax year 2012, brokerage firms are required to report the cost basis of stocks sold on the 1099s sent to customers and the Internal Revenue Service. This applies to stocks sold in 2012 that were acquired in 2011 or later.
Since some brokers started tracking cost basis sooner, they may report cost-basis information on a 1099 from stocks acquired before 2011. So it’s possible some transactions reported on a 1099 may have cost-basis information included and some may not.
This is where multiple 8949s come into play. The new instructions require a separate 8949 for:
- All transactions in which cost basis information was included on the 1099.
- Cost-basis information not reported on the 1099.
- The sale wasn’t reported on any 1099.
Form 8949 has three check boxes named A, B and C to indicate which subset of transactions are reported on that 8949. Each 8949 has separate sections for short-term gains and long-term gains. The total for each subtype of gain, such as “1099 reported basis short-term gains,” is transferred to the updated Schedule D. Schedule D now has entry lines for each of the check box options from Form 8949 in the short-term and long-term gains sections. Schedule D now also includes a summary of each of the different 8949s, plus totals for short-term and long-term gains.
The added complexity doesn’t stop here. The IRS realized the cost basis calculated by the broker may not coincide with the cost basis in the customer’s records.
To account for this, Form 8949 has a column to show an adjustment for these differences. Form 8949 should report the broker’s reported cost basis, not the taxpayer’s if the broker reported a basis.
The adjustment column will show any difference between the reported broker’s basis and the club’s basis. If you sold a company that was involved in a spinoff at any time you held it or a transaction that generated fractional shares, there’s an increased likelihood your cost basis will differ from the broker’s.
Fortunately, ICLUBcentral’s 2012 Tax Printer is adjusting to these changes. Running the software will require slightly more input, as it’ll need the broker’s reported gain from 1099s, whether cost basis wasn’t reported, or if no 1099 was received for a particular sale.