What this line means
Your net capital gain for purposes of the QBI income limitation. If you file Schedule D, use the amount from Schedule D line 21 (if positive). If you do not file Schedule D, use the capital gain amount from Form 1040 line 7a. This amount is subtracted from taxable income on line 12 because capital gains already get their own preferential tax rate. 1
Does this apply to you?
- You sold stocks, bonds, mutual funds, or other capital assets at a gain during the year
- You received capital gain distributions from mutual funds on Form 1099-DIV
- You filed Schedule D and line 21 shows a positive net capital gain
- You have qualified dividends reported on Form 1040 line 3a (these count as net capital gain here)
- You had no capital gains or losses this year (enter zero)
Easy to overlook
Qualified dividends are included in net capital gain for this calculation Net capital gain on this line includes both long-term capital gains and qualified dividends — not just gains from selling assets. If you received $10,000 in qualified dividends and had no actual capital gains, your net capital gain for this line is still $10,000. Omitting qualified dividends understates line 11 and overstates the income limitation. 2 IRS Form 8995 Instructions — Line 11
A net capital loss means zero on this line, not a negative number If your capital losses exceed your capital gains, your net capital gain is negative. But you enter zero on this line, not a negative number. Capital losses do not increase your income limitation. 3 IRS Publication 535 — Qualified Business Income Deduction
Watch out for this
Using the wrong Schedule D line. The instructions specify line 21 of Schedule D, which is the smaller of your net long-term capital gain or total net gain. Using line 16 (total net capital gain) or another line produces the wrong amount and miscalculates the income limitation. If you do not file Schedule D, use Form 1040 line 7a instead.
Footnotes
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IRS Form 8995 Instructions, Line 11. https://www.irs.gov/instructions/i8995 ↩
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IRS Form 8995 Instructions, Line 11 — Definition of Net Capital Gain. https://www.irs.gov/instructions/i8995 ↩
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IRS Publication 535, Business Expenses, Chapter 12 — Income Limitation. https://www.irs.gov/pub/irs-pdf/p535.pdf ↩