IRS Form 1065 (Schedule D) – Capital Gains and Losses

IRS Form 1065 (Schedule D) – Partnerships use IRS Form 1065 Schedule D (Capital Gains and Losses) to report sales, exchanges, and other dispositions of capital assets. The form summarizes short-term and long-term capital gains/losses, which flow through to partners via Schedule K-1 and affect their individual tax returns.

This guide draws from official IRS resources for tax year 2025, including the latest form and instructions.

What Is Schedule D (Form 1065)?

Schedule D (Form 1065) attaches to Form 1065 (U.S. Return of Partnership Income) or Form 8865. It reports:

  • Totals from Form 8949 (Sales and Other Dispositions of Capital Assets)
  • Transactions not requiring Form 8949
  • Installment sales (Form 6252)
  • Like-kind exchanges (Form 8824)
  • Partnership’s share of capital gains/losses from other partnerships, estates, or trusts
  • Capital gain distributions

The net amounts go to Form 1065, Schedule K (lines 8–11 or equivalent on Form 8865).

Download the 2025 Schedule D (Form 1065):
https://www.irs.gov/pub/irs-pdf/f1065sd.pdf

Download the official Instructions:
https://www.irs.gov/pub/irs-pdf/i1065sd.pdf

Who Must File Schedule D?

File Schedule D if the partnership has any of the items listed above. Even if the partnership reports only capital gain distributions (line 14), complete Schedule D unless you report them directly elsewhere (rare for partnerships). Most partnerships with investment activity or asset sales will need it.

Key Definitions: What Counts as a Capital Asset?

A capital asset is any property the partnership holds—except:

  • Inventory or property held mainly for sale to customers
  • Accounts/notes receivable from services or inventory sales
  • Depreciable or real property used in trade/business
  • Certain copyrights, literary/artistic works, letters, etc. (section 1221(a)(3))
  • Patents, inventions, models, designs, formulas, etc.
  • U.S. government publications received free or by reference
  • Certain commodities derivatives, hedging transactions, and supplies

See Pub. 544 for details.

Holding periods:

  • Short-term: 1 year or less → Part I
  • Long-term: More than 1 year → Part II

Special rules apply to applicable partnership interests (e.g., carried interests in investment partnerships).

What’s New for 2025?

New reporting codes (G, H, I, J, K, L) on lines 1b, 2, 3, 8b, 9, and 10 for digital asset transactions (e.g., cryptocurrency). See Form 1099-DA and Form 8949 instructions.

Structure of Schedule D (Form 1065)

The form has two main parts plus summary lines.

Preliminary Question — “Did the partnership dispose of any investment(s) in a qualified opportunity fund (QOF) during the tax year?” (Attach Form 8949 if Yes.)

Part I – Short-Term Capital Gains and Losses (assets held 1 year or less)

  • Lines 1a–3: Totals from Form 8949 (different boxes for basis reported to IRS, adjustments, etc.)
  • Line 4: Installment sales (Form 6252)
  • Line 5: Like-kind exchanges (Form 8824)
  • Line 6: Share from other partnerships/estates/trusts
  • Line 7: Net short-term gain/loss → Schedule K

Part II – Long-Term Capital Gains and Losses (assets held >1 year)

  • Lines 8a–10: Form 8949 totals
  • Line 11: Installment sales
  • Line 12: Like-kind exchanges
  • Line 13: Share from other entities
  • Line 14: Capital gain distributions
  • Line 15: Net long-term gain/loss → Schedule K

Columns typically include: (d) Proceeds, (e) Cost/basis, (g) Adjustments, (h) Gain/loss.

Use Form 8949 first for most individual transactions. Lines 1a/8a allow aggregation only for specific no-adjustment cases reported on 1099-B/1099-DA.

Step-by-Step: How to Complete Schedule D?

  1. Gather Forms 8949, 6252, 8824, K-1s from other entities, 1099s, etc.
  2. Complete Form 8949 pages as needed (short-term and long-term separately).
  3. Enter aggregates on Schedule D lines 1b/2/3 or 8b/9/10.
  4. Add other lines (installment, like-kind, shares, distributions).
  5. Compute nets on lines 7 and 15.
  6. Carry nets to Form 1065 Schedule K.
  7. Partners receive their share on Schedule K-1 (boxes for short/long-term capital gain/loss).

Round cents to whole dollars if desired. Always attach required forms.

  • Form 8949 — Detailed transaction listing (required for most sales).
  • Form 4797 — Business property (not capital assets).
  • Form 4684 — Casualties/thefts.
  • Form 6781 — Section 1256 contracts/straddles.
  • Form 8997 — QOF investments.
  • Special treatments: Traders in securities, constructive sales, QSB stock rollover, community asset exclusion, QOF deferral, etc.

See full instructions for details.

Common Questions

Do I need Schedule D if there are no capital transactions?
No—skip it.

How do capital gains flow to partners?
Net short-term (Schedule K line 8/11) and long-term (line 9a/11) amounts pass through on K-1; partners report on their own Form 1040 Schedule D.

What about digital assets/crypto?
Report on Form 8949/Schedule D using new codes if applicable.

Can losses offset ordinary income?
Partnerships pass capital losses to partners; partners can use up to $3,000 against ordinary income (with carryover).

Final Tips

  • Always use the latest IRS forms and instructions (check IRS.gov/Form1065 for updates).
  • Keep detailed records of basis, holding periods, and supporting documents.
  • Consult a tax professional for complex situations (e.g., QOF, carried interests, multi-state issues).

Accurate reporting on Schedule D helps partners correctly report capital gains/losses and avoid audits or penalties.

For the official source, visit IRS.gov and download the form/instructions linked above. Tax rules can change—verify with the most current IRS publications for your specific situation.