IRS Form 1120 (Schedule D) – In the complex world of corporate taxation, accurately reporting capital gains and losses is crucial for compliance and optimizing tax liabilities. IRS Form 1120 Schedule D plays a pivotal role in this process, helping corporations detail their capital transactions. This SEO-optimized article explores everything you need to know about Schedule D for Form 1120, including its purpose, filing requirements, step-by-step instructions, and recent updates for the 2025 tax year. Whether you’re a tax professional, business owner, or accountant, this guide draws from official IRS resources to ensure accuracy.
What Is IRS Form 1120 Schedule D?
IRS Form 1120 Schedule D, titled “Capital Gains and Losses,” is an attachment to Form 1120, the U.S. Corporation Income Tax Return. It is used by corporations to calculate and report net capital gains or losses from the sale or exchange of capital assets. Capital gains occur when a corporation sells an asset for more than its adjusted basis, while losses happen when the sale price is lower. These figures directly impact the corporation’s taxable income.
The form consolidates information from various sources, such as sales of stocks, bonds, real estate, and other investments. It distinguishes between short-term (assets held for one year or less) and long-term (assets held for more than one year) transactions, as they are taxed differently. Net capital gains are included in the corporation’s income, while losses can offset gains but are subject to specific carryover rules.
For the 2025 tax year, notable updates include new reporting codes (G through L) for digital asset transactions, reflecting the growing role of cryptocurrencies and similar assets in corporate portfolios. Additionally, corporations that invested in Qualified Opportunity Funds (QOFs) may qualify for basis adjustments after a seven-year holding period.
You can download the latest PDF version of Schedule D from the IRS website: https://www.irs.gov/pub/irs-pdf/f1120sd.pdf.
Who Must File Schedule D for Form 1120?
Not every corporation needs to file Schedule D. It is required if the corporation has any capital gains or losses to report, including those from Form 8949 (Sales and Other Dispositions of Capital Assets), Form 4797 (Sales of Business Property), Form 6252 (Installment Sale Income), or Form 8824 (Like-Kind Exchanges). It also covers unused capital loss carryovers and capital gain distributions not directly reported on Form 1120.
Specific entities that must attach Schedule D include those filing:
- Form 1120 (standard C corporations)
- Form 1120-C (cooperatives)
- Form 1120-F (foreign corporations)
- Form 1120-FSC (foreign sales corporations)
- Form 1120-H (homeowners associations)
- Form 1120-IC-DISC (interest charge domestic international sales corporations)
- Form 1120-L (life insurance companies)
- Form 1120-ND (nuclear decommissioning funds)
- Form 1120-PC (property and casualty insurance companies)
- Form 1120-POL (political organizations)
- Form 1120-REIT (real estate investment trusts)
- Form 1120-RIC (regulated investment companies)
- Form 1120-SF (settlement funds)
- Certain Forms 990-T (exempt organization business income tax returns)
If your corporation has no capital transactions, you generally don’t need to file Schedule D. However, always review the instructions for your specific form to confirm.
Key Terms and Concepts in Schedule D
Before diving into the form, understanding key terminology is essential:
- Capital Assets: Most property held by the corporation, excluding inventory, accounts receivable, depreciable business property, and certain intellectual property. Corporations can elect to treat musical compositions or copyrights as capital assets under section 1221(b)(3).
- Basis: Typically the cost of the asset, adjusted for improvements, depreciation, or other factors. Special rules apply for inherited assets, gifts, or exchanges.
- Short-Term vs. Long-Term: Short-term applies to assets held one year or less; long-term for over one year. This affects tax rates and reporting.
- Capital Losses: Deductible only against capital gains. Net losses can be carried back three years or forward five years (10 years for foreign expropriation losses). No carryback if it creates a net operating loss (NOL).
- Digital Assets: New for 2025, transactions involving cryptocurrencies or tokenized assets must be reported using specific codes on lines 1b, 2, 3, 8b, 9, and 10. Refer to Form 1099-DA for broker-reported proceeds.
- Qualified Opportunity Funds (QOFs): Allows deferral of capital gains invested in QOFs until December 31, 2026, or earlier disposition. File Form 8997 if applicable.
For more details on capital assets and dispositions, consult IRS Publication 544 (Sales and Other Dispositions of Assets) and Publication 550 (Investment Income and Expenses).
How to Complete Part I: Short-Term Capital Gains and Losses?
Part I focuses on assets held for one year or less. Complete Form 8949 first if required, then transfer totals to Schedule D. Round all amounts to whole dollars.
| Line | Description | How to Calculate/Enter |
|---|---|---|
| 1a | Totals for short-term transactions not reported on Form 8949 (basis reported to IRS, no adjustments) | Aggregate proceeds (sales price), cost basis, and gain/loss. Enter in columns (d), (e), and (h). |
| 1b | Totals from Form 8949, Part I (box C checked) | Transfer from Form 8949, line 2. |
| 2 | Totals from Form 8949, Part I (box B checked) | Transfer from Form 8949, line 2 (basis not reported to IRS). |
| 3 | Totals from Form 8949, Part I (box A checked) | Transfer from Form 8949, line 2 (adjustments needed, e.g., wash sales). |
| 4 | Gain from Form 6252, 4797 (Part I), or 2438 | Enter applicable short-term gains. |
| 5 | Gain/loss from Form 8824 | Enter short-term like-kind exchange amounts. |
| 6 | Unused capital loss carryover | Attach a statement showing computation from prior years. |
| 7 | Net short-term capital gain or loss | Add lines 1a through 5, subtract line 6. |
If line 7 shows a net gain, carry it to line 15 (Part II). For losses, see carryover rules.
How to Complete Part II: Long-Term Capital Gains and Losses?
Part II handles assets held more than one year. Follow a similar process to Part I.
| Line | Description | How to Calculate/Enter |
|---|---|---|
| 8a | Totals for long-term transactions not reported on Form 8949 (basis reported to IRS, no adjustments) | Aggregate proceeds, basis, and gain/loss in columns (d), (e), (h). |
| 8b | Totals from Form 8949, Part II (box F checked) | Transfer from Form 8949, line 2. |
| 9 | Totals from Form 8949, Part II (box E checked) | Transfer from Form 8949, line 2 (basis not reported). |
| 10 | Totals from Form 8949, Part II (box D checked) | Transfer from Form 8949, line 2 (adjustments needed). |
| 11 | Gain from Form 6252 or 4797 (Part I) | Enter long-term gains. |
| 12 | Gain/loss from Form 8824 | Enter long-term like-kind exchange amounts. |
| 13 | Undistributed long-term gains from Form 2439 | Enter from RIC/REIT notices. |
| 14 | Capital gain distributions | Enter total distributions (regardless of holding period). |
| 15 | Net long-term capital gain or loss | Add lines 8a through 13, subtract line 14. |
| 16 | Combine lines 7 and 15 | This is the net capital gain/loss. Enter on Form 1120, line 8 (gains) or line 11 (losses, limited to gains). |
Special Considerations and Rules
Several special rules apply:
- Wash Sales: Losses from selling and repurchasing substantially identical assets within 30 days are disallowed. Report on Form 8949 with code “W.”
- Installment Sales: Use Form 6252 unless electing out by reporting full gain on Form 8949.
- Like-Kind Exchanges: Report non-recognized gains/losses on Form 8824, then transfer to Schedule D.
- Passive Activities: If applicable, complete Form 8810 before Schedule D.
- At-Risk Limitations: Use Form 6198 if losses exceed at-risk amounts.
- Related Party Transactions: Losses generally disallowed under section 267.
- Digital Assets and QOFs: Ensure proper coding and attach Form 8997 for QOF investments.
Exclusions may apply for gains from DC Zone or qualified community assets (though repealed for recent acquisitions).
Common Mistakes to Avoid
- Failing to report basis adjustments or special codes for digital assets.
- Incorrectly classifying short- vs. long-term holdings.
- Not attaching required forms like 8949 or 8997.
- Overlooking carryover losses from prior years.
- Ignoring special treatment for worthless securities or constructive sales.
Always double-check calculations and consult IRS Publications 542 and 544 for corporation-specific guidance.
Conclusion
Mastering IRS Form 1120 Schedule D ensures your corporation accurately reports capital gains and losses, potentially reducing tax burdens through proper offsets and carryovers. For the 2025 tax year, stay updated on digital asset rules and QOF opportunities. While this guide provides a solid foundation, tax laws are intricate—consult a qualified tax advisor for personalized advice. For the most current information, visit IRS.gov/Form1120.