What this line means
Each row in Part II reports a single long-term capital asset transaction — an asset you held for more than one year before selling or disposing of it. The column structure is the same as Part I: description, date acquired, date sold, proceeds (column d), cost basis (column e), adjustment code (column f), adjustment amount (column g), and gain or loss (column h).
Before entering transactions you check one of three boxes at the top of Part II. Check Box D if your broker reported the cost basis to the IRS on your 1099-B. Check Box E if your broker did not report basis to the IRS. Check Box F if you did not receive a 1099-B at all. You file a separate copy of Form 8949 for each box type, just like Part I. 1
Long-term capital gains are taxed at preferential rates — 0%, 15%, or 20% depending on your taxable income — rather than the ordinary income rates that apply to short-term gains. 2
Does this apply to you?
- You sold stocks, ETFs, bonds, or mutual fund shares that you held for more than one year
- You received a 1099-B from a brokerage showing long-term sales
- You sold real estate (other than your primary home excluded under Section 121) that you owned for more than one year
- You sold cryptocurrency that you held for more than one year
- You disposed of collectibles, precious metals, or other capital assets held longer than one year
Easy to overlook
Inherited assets get a stepped-up basis When you sell an asset you inherited, your cost basis is generally the fair market value on the date the person died — not what they originally paid. Using the decedent’s original purchase price instead of the stepped-up basis creates a phantom gain. For a stock bought at $10 in 1990 and worth $100 on the date of death, your basis is $100 regardless of the original cost. 2 IRS Publication 550 — Investment Income and Expenses
Holding period straddles the one-year mark The holding period starts the day after you acquired the asset and includes the day you sold it. If you bought shares on March 15, 2024, you must sell on March 16, 2025, or later for the gain to be long-term. Selling on March 15, 2025 — exactly one year later — is still short-term. Getting this wrong by one day moves the transaction from the 0%/15%/20% rate to ordinary income rates. 1 IRS Form 8949 instructions — Reporting long-term transactions
Gifted assets carry over the donor’s basis and holding period If someone gave you stock, your cost basis is generally the donor’s original basis, and your holding period includes the time the donor held it. This means a gift of shares the donor held for five years counts as long-term for you from day one, even though you just received them. 2 IRS Publication 550 — Investment Income and Expenses
Watch out for this
Reporting an inherited asset as short-term because you sold it within a year of receiving it. Inherited assets are treated as long-term regardless of how long you personally held them. If your parent died in January and you sold the inherited stock in March, that sale goes in Part II (long-term), not Part I. Reporting it as short-term means you pay ordinary income rates on a gain that qualifies for the lower long-term capital gains rates.
Footnotes
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IRS Form 8949 Instructions, Part II — Long-Term Capital Gains and Losses. https://www.irs.gov/instructions/i8949 ↩ ↩2
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IRS Publication 550, Investment Income and Expenses, Basis of Investment Property. https://www.irs.gov/pub/irs-pdf/p550.pdf ↩ ↩2 ↩3