1120-S Schedule D Instructions for Form 1120-S Schedule D

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2018

Instructions for Schedule D
(Form 1120S)

Department of the Treasury
Internal Revenue Service

DRAFT AS OF
September 11, 2018
Capital Gains and Losses and Built-in Gains
Section references are to the Internal Revenue
Code unless otherwise noted.

General Instructions

Future Developments

Purpose of Schedule

For the latest information about
developments related to Schedule D
(Form 1120S) and its instructions, such
as legislation enacted after they were
published, go to IRS.gov/Form1120S.

What’s New
Transactions with respect to applicable partnership interests. For tax
years beginning after December 31,
2017, the long-term holding period for
gains and losses with respect to
applicable partnership interests is more
than 3 years. See Transactions with
respect to applicable partnership
interests.
Special rules for eligible capital
gains invested in Qualified Opportunity Funds. Effective December 22,
2017, section 1400Z-2 provides a
temporary deferral of inclusion in gross
income for eligible capital gains
invested in a Qualified Opportunity Fund
(QOF) within 180 days of the sale or
exchange. Section 1400Z-2 also
provides a permanent exclusion of
capital gains from the sale or exchange
of an investment in the QOF if the
investment is held for at least 10 years.
For information on how to report your
election to defer eligible capital gains
invested in a QOF, see the Instructions
for Form 8949.
Built-in gains tax rate. P.L. 115-97
reduced the highest corporate tax rate
from 35% to 21%, effective for tax years
beginning after December 31, 2017.
See Schedule D (Form 1120S), line 21.
Capital assets. For dispositions after
2017, certain patents, inventions,
models, or designs (whether or not
patented); secret formulas or
processes; or similar property are not
capital assets. See Capital Assets.

Sep 11, 2018

Use Schedule D to report the following.
• The overall capital gains and losses
from transactions reported on Form
8949, Sales and Other Dispositions of
Capital Assets.
• Certain transactions the corporation
doesn't have to report on Form 8949.
• Capital gains from Form 6252,
Installment Sale Income.
• Capital gains and losses from Form
8824, Like-Kind Exchanges.
• Gains on distributions to
shareholders of appreciated capital
assets.
• Capital gain distributions.
• Tax on built-in gains. See Part III.
Built-in Gains Tax.

Other Forms the
Corporation May Have To
File
Use Form 8949 to report the sale or
exchange of a capital asset (defined
later) not reported on another form or
schedule. Complete all necessary
pages of Form 8949 before you
complete line 1b, 2, 3, 8b, 9, or 10 of
Schedule D. See Lines 1a and
8a—Transactions Not Reported on
Form 8949, later, for more information
about when to use Form 8949.

Use Form 4797, Sales of Business
Property, to report the following.
• The sale, exchange, or distribution of
property used in a trade or business.
• The sale, exchange, or distribution of
depreciable and amortizable property.
• The sale or other disposition of
securities or commodities held in
connection with a trading business, if
the corporation made a mark-to-market
election.
• The involuntary conversion (from
other than casualty or theft) of property
used in the corporation's trade or
business and capital assets held in
Cat. No. 64419L

connection with a trade or business or a
transaction entered into for profit.
• The disposition of noncapital assets
other than inventory or property held
primarily for sale to customers in the
ordinary course of the corporation's
trade or business.

Use Form 4684, Casualties and
Thefts, to report involuntary conversions
of property due to casualty or theft.
Use Form 6781, Gains and Losses
From Section 1256 Contracts and
Straddles, to report gains and losses
from section 1256 contracts and
straddles.
Additional information. For more
information, see Pub. 544, Sales and
Other Dispositions of Assets, and Pub.
550, Investment Income and Expenses
(Including Capital Gains and Losses).

Capital Assets

Each item of property the corporation
held (whether or not connected with its
trade or business) is a capital asset
except the following.
• Stock in trade or other property
included in inventory or held mainly for
sale to customers. However, see the
Note below.
• Accounts or notes receivable
acquired in the ordinary course of the
trade or business for services rendered
or from the sale of stock in trade or other
property included in inventory or held
mainly for sale to customers.
• Depreciable or real property used in
the trade or business, even if it is fully
depreciated.
• Certain copyrights; literary, musical,
or artistic compositions; letters or
memoranda; or similar property.
However, see the Note below.
• Certain patents, inventions, models,
or designs (whether or not patented);
secret formulas or processes; or similar
property. See section 1221(a)(3).
• U.S. Government publications,
including the Congressional Record,
that the corporation received from the

government, other than by purchase at
the normal sales price, or that the
corporation got from another taxpayer
who had received it in a similar way, if
the corporation's basis is determined by
reference to the previous owner's basis.
• Certain commodities derivative
financial instruments held by a dealer in
connection with its dealer activities.
• Certain identified hedging
transactions entered into in the normal
course of the trade or business.
• Supplies regularly used in the trade
or business.

person, in any applicable trade or
business. See section 1061 and Pub.
541 for details.
Figure gains and losses with respect
to the applicable partnership interest on
Form 8949 by applying the special
holding period rules discussed above.
See the Instructions for Form 8949.

Gain on certain short-term federal,
state, and municipal obligations
(other than tax-exempt obligations).
If a short-term governmental obligation
(other than a tax-exempt obligation) that
is a capital asset is acquired at an
acquisition discount, a portion of any
gain realized is treated as ordinary
income and any remaining balance is
treated as a short-term capital gain. See
section 1271.

DRAFT AS OF
September 11, 2018
For details, see section 1221(a).

Note. The corporation can elect to treat
as capital assets certain musical
compositions or copyrights in musical
works it sold or exchanged. See section
1221(b)(3) and Pub. 550 for details.

Short- or Long-Term Gain
or Loss

Report short-term gains or losses in Part
I. Report long-term gains or losses in
Part II. The holding period for short-term
capital gains and losses is generally 1
year or less. The holding period for
long-term capital gains and losses is
generally more than 1 year. However,
an exception applies for certain sales of
applicable partnership interests. See
Transactions with respect to applicable
partnership interests, later.
For more information about holding
periods, see the Instructions for Form
8949.

Items for Special
Treatment

Note. For more information, see Pub.
544.
Transactions with respect to applicable partnership interests. For tax
years beginning after December 31,
2017, the long-term holding period for
gains and losses with respect to
applicable partnership interests is more
than 3 years. If the holding period is 3
years or less, gains and losses with
respect to applicable partnership
interests are treated as short-term. An
applicable partnership interest is any
interest in a partnership that, directly or
indirectly, is transferred to (or is held by)
the taxpayer in connection with the
performance of substantial services by
the taxpayer, or any other related

Loss from a sale or exchange between the corporation and a related
person. Except for distributions in
complete liquidation of a corporation, no
loss is allowed from the sale or
exchange of property between the
corporation and certain related persons.
See section 267.

Loss from a wash sale. A wash sale
occurs if the corporation acquires (by
purchase or exchange), or has a
contract or option to acquire,
substantially identical stock or securities
within 30 days before or after the date of
the sale or exchange. The corporation
can’t deduct a loss from a wash sale of
stock or securities (including contracts
or options to acquire or sell stock or
securities) unless the corporation is a
dealer in stock or securities and the loss
was sustained in a transaction made in
the ordinary course of the corporation's
trade or business. For more information
on wash sales, see section 1091.
The wash sale rules don’t apply to a
redemption of shares in a floating-NAV
(net asset value) money market fund.

Report the transaction as the
corporation otherwise would on Form
8949, Part I or II (depending on how
long the corporation owned the stock or
securities). Check the appropriate box.
Enter "W" in column (f). Enter the
nondeductible loss as a positive number
in column (g). Complete all remaining
columns. See the Instructions for Form
8949.
Gain on distributions of appreciated
property. Generally, gain (but not loss)
is recognized on a nonliquidating
distribution of appreciated property to
the extent that the property's fair market
value (FMV) exceeds its adjusted basis.
See section 311.
Gain or loss on distribution of property in complete liquidation.
Generally, gain or loss is recognized on
property distributed in a complete
liquidation. Treat the property as if it had
been sold at its FMV. See section 336.
-2-

Gain from installment sales. If the
corporation sold property at a gain and it
will receive a payment in a tax year after
the year of sale, it generally must report
the sale on the installment method
unless it elects not to. However, the
installment method may not be used to
report sales of stock or securities traded
on an established securities market.
Use Form 6252 to report the sale on
the installment method. Also use Form
6252 to report any payment received
during the tax year from a sale made in
an earlier year that was reported on the
installment method. Enter gain from the
installment sales on Schedule D, line 4
or line 11, as applicable. See the
Instructions for Form 6252.
To elect out of the installment
method, report the full amount of the
gain on Form 8949 for the year of the
sale on a return filed by the due date
(including extensions). If the original
return was filed on time without making
the election, the corporation can make
the election on an amended return filed
no later than 6 months after the original
due date (excluding extensions). Enter
“Filed pursuant to section 301.9100-2”
at the top of the amended return.
Gain or loss on an option to buy or
sell property. See sections 1032 and
1234 for the rules that apply to a
purchaser or grantor of an option or a
securities futures contract (as defined in
section 1234B). See Pub. 550 for
details.
Gain or loss from a short sale of
property. Report the gain or loss on
Form 8949 to the extent that the
property used to close the short sale is
considered a capital asset in the hands
of the taxpayer. Report any short sale in
the year the sale closes.
If a short sale closed in 2018 but the
corporation didn’t get a 2018 Form
1099-B (or substitute statement) for it
because the corporation entered into it

Instructions for Schedule D (Form 1120S) (2018)

before 2011, report it on Form 8949 in
Part I with box C checked or Part II with
box F checked (whichever applies). In
column (a), enter (for example) “100 sh.
XYZ Co.–2010 short sale closed.” Fill in
the other columns according to their
instructions. Report the short sale the
same way if the corporation received a
2018 Form 1099-B (or substitute
statement) that doesn't show the
proceeds (sales price).

Instructions for Form 8949 for detailed
information about how to report the
disposition of a contingent payment
debt instrument.

mark-to-market election (see the
Instructions for Form 4797), each
transaction is reported in Part II of Form
4797 instead of on Form 8949.

Nonbusiness bad debts. A
nonbusiness bad debt must be treated
as a short-term capital loss and can be
deducted only in the year the debt
becomes totally worthless. See
Nonbusiness Bad Debts in Pub. 550 for
details.

The limitation on investment interest
expense that applies to investors
doesn't apply to interest paid or incurred
in a trading business. A trader reports
interest expense and other expenses
(excluding commissions and other costs
of acquiring and disposing of securities)
from a trading business on page 1 of
Form 1120S.

DRAFT AS OF
September 11, 2018
Loss from securities that are capital
assets that become worthless during the year. Except for securities held
by a bank, treat the loss as a capital loss
as of the last day of the tax year. See
section 582 for the rules on the
treatment of securities held by a bank.
Nonrecognition of gain on sale of
stock to an employee stock ownership plan (ESOP) or an eligible cooperative. See section 1042 and
Temporary Regulations section
1.1042-1T for rules under which the
corporation can elect not to recognize
gain from the sale of certain stock to an
ESOP or an eligible cooperative.
Bonds and other debt instruments.
See Pub. 550.
Gain on disposition of market discount bonds. In general, a capital gain
upon the disposition of a market
discount bond is treated as interest
income to the extent of accrued market
discount as of the date of disposition.
See sections 1276 through 1278 and
Pub. 550 for more information on market
discount. See the Instructions for Form
8949 for detailed information about how
to report the disposition of a market
discount bond.
Contingent payment debt instruments. Any gain recognized on the
sale, exchange, or retirement of a
contingent payment debt instrument
subject to the noncontingent bond
method is generally treated as interest
income rather than as capital gain. In
certain situations, all or a portion of a
loss recognized on the sale, exchange,
or retirement of a contingent payment
debt instrument subject to the
noncontingent bond method may be
treated as an ordinary loss rather than
as a capital loss. See Regulations
section 1.1275-4(b) and Pub. 550 for
more information on contingent
payment debt instruments subject to the
noncontingent bond method. See the

Real estate subdivided for sale.
Certain lots or parcels that are part of a
tract of real estate subdivided for sale
may be treated as capital assets. See
section 1237.

Sale of a partnership interest. A sale
or other disposition of an interest in a
partnership owning unrealized
receivables or inventory items may
result in ordinary gain or loss. See Pub.
541, Partnerships.

Special rules for traders in securities. Traders in securities are engaged
in the business of buying and selling
securities for their own account. To be
engaged in a business as a trader in
securities, the corporation:
• Must seek to profit from daily market
movements in the prices of securities
and not from dividends, interest, or
capital appreciation;
• Must be involved in a trading activity
that is substantial; and
• Must carry on the activity with
continuity and regularity.
The following facts and
circumstances should be considered in
determining if a corporation's activity is
a business.
• Typical holding periods for securities
bought and sold.
• The frequency and dollar amount of
the corporation's trades during the year.
• The extent to which the shareholders
pursue the activity to produce income
for a livelihood.
• The amount of time devoted to the
activity.
Like an investor, a trader generally
must report each sale of securities
(taking into account commissions and
any other costs of acquiring or
disposing of the securities) on Form
8949 unless one of the exceptions
described under Exceptions to reporting
each transaction on a separate row in
the Instructions to Form 8949 applies.
However, if a trader made the

Instructions for Schedule D (Form 1120S) (2018)

-3-

A trader also may hold securities for
investment. The rules for investors
generally will apply to those securities. If
they apply, allocate interest and other
expenses between the corporation's
trading business and investment
securities. Report investment interest
expense on line 12b of Schedule K and
in box 12 of Schedule K-1 using code H.

Gain from certain constructive ownership transactions. Gain in excess of
the net underlying long-term gain the
corporation would have recognized if it
had held a financial asset directly during
the term of a derivative contract must be
treated as ordinary income. See section
1260.
Gain on the constructive sale of certain appreciated financial positions.
Generally, the S corporation must
recognize gain (but not loss) on the date
it enters into a constructive sale of any
appreciated position in stock, a
partnership interest, or certain debt
instruments as if the position were
disposed of at FMV on that date.
The S corporation is treated as
making a constructive sale of an
appreciated position when it (or a
related person, in some cases) does
one of the following.
• Enters into a short sale of the same or
substantially identical property (that is, a
“short sale against the box”).
• Enters into an offsetting notional
principal contract relating to the same or
substantially identical property.
• Enters into a futures or forward
contract to deliver the same or
substantially identical property.
• Acquires the same or substantially
identical property (if the appreciated
position is a short sale, offsetting
notional principal contract, or a futures
or forward contract).

Exception. Generally, constructive
sale treatment doesn't apply if:
• The S corporation closed the
transaction before the end of the 30th
day after the end of the tax year in which
it was entered into,
• The S corporation held the
appreciated position to which the
transaction relates throughout the
60-day period starting on the date the
transaction was closed, and
• At no time during that 60-day period
was the S corporation's risk of loss
reduced by holding certain other
positions.

To be QSB stock, the stock must
meet all of the following tests.
• It must be stock in a C corporation.
• It must have been originally issued
after August 10, 1993.
• As of the date the stock was issued,
the corporation was a qualified small
business. A qualified small business is a
domestic C corporation with total gross
assets of $50 million or less (a) at all
times after August 9, 1993, and before
the stock was issued, and (b)
immediately after the stock was issued.
Gross assets include those of any
predecessor of the corporation. All
corporations that are members of the
same parent-subsidiary controlled
group are treated as one corporation.
• The corporation must have acquired
the stock at its original issue (either
directly or through an underwriter),
either in exchange for money or other
property or as pay for services (other
than as an underwriter) to the
corporation. In certain cases, the
corporation may meet the test if it
acquired the stock from another person
who met this test (such as by gift or
inheritance) or through a conversion or
exchange of QSB stock held by the
corporation.
• During substantially all the time the
corporation held the stock:

• One whose principal asset is the
reputation or skill of one or more
employees.
• Any banking, insurance, financing,
leasing, investing, or similar business.
• Any farming business (including the
raising or harvesting of trees).
• Any business involving the production
of products for which percentage
depletion can be claimed.
• Any business of operating a hotel,
motel, restaurant, or similar business.

DRAFT AS OF
September 11, 2018
For details and other exceptions to
these rules, see Pub. 550.

Rollover of gain from qualified small
business (QSB) stock. If the
corporation sold QSB stock (defined
below) it held for more than 6 months, it
can postpone gain if it purchased other
QSB stock during the 60-day period that
began on the date of the sale. The
corporation must recognize gain to the
extent the sale proceeds exceed the
cost of the replacement stock. Reduce
the basis of the replacement stock by
any postponed gain.
If the corporation chooses to
postpone gain, report the entire gain
realized on the sale on Form 8949, Part
I or II (with the appropriate box
checked). Enter "R" in column (f). Enter
the amount of the postponed gain as a
negative number (in parentheses) in
column (g). Complete all remaining
columns. See the Instructions for Form
8949.

The corporation also must
separately state the amount of
CAUTION the gain rolled over on qualified
stock under section 1045 on Form
1120S, Schedule K, line 10. Each
shareholder must determine if he or she
qualifies for the rollover at the
shareholder level. Also, the corporation
must separately state on that line (and
not on Form 8949) any gain that could
qualify for the section 1045 rollover at
the shareholder level instead of the
corporate level (because a shareholder
was entitled to purchase replacement
stock). If the corporation had a gain on
qualified stock that could qualify for the
exclusion under section 1202, report
that gain on Form 8949 (and on Form
1120S, Schedule K, line 10).

!

1. The issuer was a C corporation;
2. At least 80% of the value of the
issuer's assets were used in the active
conduct of one or more qualified
businesses (defined below); and
3. The issuing corporation wasn't a
foreign corporation, domestic
international sales corporation (DISC),
former DISC, corporation that has made
(or that has a subsidiary that has made)
a section 936 election, regulated
investment company (RIC), real estate
investment trust (REIT), real estate
mortgage investment conduit (REMIC),
financial asset securitization investment
trust (FASIT), or cooperative.
Note. A specialized small business
investment company (SSBIC) is treated
as having met test (2) above.
A qualified business is any business
other than the following.
• One involving services performed in
the fields of health, law, engineering,
architecture, accounting, actuarial
science, performing arts, consulting,
athletics, financial services, or
brokerage services.
-4-

For more details about limits and
additional requirements that may apply,
see Pub. 550 or section 1202.

Deferral of gain invested in a Qualified Opportunity Fund. If the
corporation realized gain from an actual
or deemed sale or exchange with an
unrelated person and, during the 180day period beginning on the date the
gain is realized, the corporation
invested any portion of the gain in a
Qualified Opportunity Fund (QOF), the
corporation may be able to elect to
temporarily defer such eligible capital
gain that would otherwise be includible
in the current year's income. If the
corporation makes the election, the
eligible capital gain is included in
taxable income only to the extent, if any,
the amount of realized gain exceeds the
aggregate amount invested in a QOF
during the 180-day period. For more
information, see section 1400Z-2.
How to report. Report the gain as it
otherwise would be reported if the
corporation was not making the
election. Make the election for the
deferred amount invested in a Qualified
Opportunity Fund on Form 8949. See
the Instructions for Form 8949.
Exclusion of gain from DC Zone assets. If the corporation sold or
exchanged a District of Columbia
Enterprise Zone (DC Zone) asset
acquired after 1997 and before 2012,
and held for more than 5 years, it can
exclude any qualified capital gain that
the corporation would otherwise include
in income. The exclusion applies to an
interest in, or property of, certain
businesses operating in the District of
Columbia.
DC Zone asset. A DC Zone asset is
any of the following.
• DC Zone business stock.
• DC Zone partnership interest.
• DC Zone business property.

Instructions for Schedule D (Form 1120S) (2018)

Report the sale or exchange of
tangible property used in the
corporation's DC Zone business on
Form 4797.
Qualified capital gain. Qualified
capital gain is any gain recognized on
the sale or exchange of a DC Zone
asset, but doesn't include any of the
following.
• Gain attributable to periods after
December 31, 2016.
• Gain attributable to unrecaptured
section 1250 gain on the sale of an
interest in a partnership that is a DC
Zone business. See the instructions for
line 8c of Schedule K for information on
how to report unrecaptured section
1250 gain.
• Gain on the sale or exchange of an
interest in a partnership attributable to
real property or an intangible asset that
isn't an integral part of a DC Zone
business.
• Gain from a related-party transaction.
See Sales and Exchanges Between
Related Persons in chapter 2 of Pub.
544.

and before 2010, it may be able to
exclude any qualified capital gain that
the corporation would otherwise include
in income. The exclusion applies to an
interest in, or property of, certain
renewal community businesses.
Qualified community asset. A
qualified community asset is any of the
following.
• Qualified community stock.
• Qualified community partnership
interest.
• Qualified community business
property.

silver, and platinum bullion), gems,
stamps, coins, alcoholic beverages, and
certain other tangible property.
Report any 28% rate gain or loss
from a sale or exchange of a collectible
on Form 8949, Part II (with the
appropriate box checked). See the
Instructions for Form 8949.

DRAFT AS OF
September 11, 2018
See section 1400B (as in effect
before its repeal on March 23, 2018) for
more details on DC Zone assets and
special rules.
How to report. Report the sale or
exchange on Form 8949, Part II, as the
corporation otherwise would without
regard to the exclusion (with the
appropriate box checked). Enter "X" in
column (f). Enter the amount of the
exclusion as a negative number (in
parentheses) in column (g). Complete
all remaining columns. See the
Instructions for Form 8949 for details.
Rollover of gain from empowerment
zone assets. If the corporation sold a
qualified empowerment zone asset held
for more than one year, it may be able to
elect to postpone part or all of the gain.
See section 1397B for details.
At the time these instructions
were printed, the rollover gain
CAUTION provision expired at the end of
2017. To find out if legislation was
enacted to extend the rollover gain
provision and make it available for 2018,
go to IRS.gov/Form1120S.

!

Exclusion of gain from qualified
community assets. If the corporation
sold or exchanged a qualified
community asset acquired after 2001

Qualified capital gain. Qualified
capital gain is any gain recognized on
the sale or exchange of a qualified
community asset, but doesn't include
any of the following.
• Gain treated as ordinary income
under section 1245.
• Section 1250 gain figured as if
section 1250 applied to all depreciation
rather than the additional depreciation.
• Gain attributable to real property, or
an intangible asset, that isn't an integral
part of a renewal community business.
• Gain from a related-party transaction.
See Sales and Exchanges Between
Related Persons in chapter 2 of Pub.
544.
• Gains attributable to periods after
December 31, 2014.
See section 1400F (as in effect
before its repeal on March 23, 2018) for
more details on qualified community
assets and special rules.
How to report. Report the sale or
exchange on Form 8949, Part II, as the
corporation otherwise would without
regard to the exclusion (with the
appropriate box checked). Enter "X" in
column (f) and enter the amount of the
excluded gain as a negative number (in
parentheses) in column (g). Complete
all remaining columns. See the
Instructions for Form 8949.

Collectibles gain (28% rate gain) or
loss. Report any 28% rate gain or loss
on line 8b of Schedule K (and each
shareholder's share in box 8b of
Schedule K-1). A collectibles gain or
loss is any long-term gain or deductible
long-term loss from the sale or
exchange of a collectible that is a capital
asset.
Collectibles include works of art,
rugs, antiques, metals (such as gold,

Instructions for Schedule D (Form 1120S) (2018)

-5-

Also include gain (but not loss) from
the sale or exchange of an interest in a
partnership or trust held more than 1
year and attributable to unrealized
appreciation of collectibles. See
Regulations section 1.1(h)-1. Also,
attach the statement required under
Regulations section 1.1(h)-1(e).

Undistributed long-term gains from
a regulated investment company
(RIC) or real estate investment trust
(REIT). Report the corporation's share
of long-term gains from Form 2439,
Notice to Shareholder of Undistributed
Long-Term Capital Gains, on Form
8949, Part II (with box F checked). Enter
“From Form 2439” in column (a). Enter
the gain in column (h). Leave all other
columns blank. See the Instructions for
Form 8949.
NAV method for money market
funds. Report capital gain or loss
determined under the net asset value
(NAV) method with respect to shares in
a money market fund on Form 8949,
Part I, with box C checked. Enter the
name of each fund followed by “(NAV)”
in column (a). Enter the net gain or loss
in column (h). Leave all other columns
blank. See the Instructions for Form
8949.

Specific Instructions
Complete all necessary pages of Form
8949 before completing line 1b, 2, 3, 8b,
9, or 10 of Schedule D.

Rounding Off to Whole
Dollars

Cents can be rounded to whole dollars
on the Schedule D. If cents are rounded
to whole dollars, all amounts must be
rounded. To round, drop amounts under
50 cents and increase amounts from 50
to 99 cents to the next dollar. For
example, $1.49 becomes $1 and $2.50
becomes $3.
If two or more amounts have to be
added to figure the amount to enter on a

line, include cents when adding the
amounts and round off only the total.

Parts I and II
Lines 1a and 8a—Transactions
Not Reported on Form 8949
The corporation can report on line 1a
(for short-term transactions) or line 8a
(for long-term transactions) the
aggregate totals from any transactions
(other than sales of collectibles) for
which:
• The corporation received a Form
1099-B (or substitute statement) that
shows basis was reported to the IRS
and doesn't show any adjustments in
box 1f or box 1g;
• The ordinary box in box 2 isn't
checked; and
• The corporation doesn't need to
make any adjustments to the basis or
type of gain or loss reported on Form
1099-B (or substitute statement), or to
its gain or loss.

If the corporation had a second
transaction that was the same except
that the proceeds were $5,000 and the
basis was $3,000, combine the two
transactions. Enter $11,000 ($6,000 +
$5,000) on Schedule D, line 8a, column
(d), $5,000 ($2,000 + $3,000) in column
(e), and $6,000 ($11,000 − $5,000) in
column (h).

Line 13. Capital Gain
Distributions
Enter the total capital gain distributions
paid to the corporation during the year.

Part III. Built-in Gains Tax

Section 1374 provides for a tax on
built-in gains. The built-in gains tax may
apply to the following S corporations.

DRAFT AS OF
September 11, 2018
See How To Complete Form 8949,
Columns (f) and (g) in the Instructions
for Form 8949 for details about possible
adjustments to the corporation's gain or
loss.
If the corporation chooses to report
these transactions on lines 1a and 8a,
don’t report them on Form 8949. Also,
the corporation doesn’t need to attach a
statement to explain the entries on lines
1a and 8a.
Figure gain or loss on each line. First,
subtract the cost or other basis in
column (e) from the proceeds (sales
price) in column (d). Enter the gain or
loss in column (h). Enter negative
amounts in parentheses.
Example 1—Basis reported to the
IRS. The corporation received a Form
1099-B reporting the sale of stock held
for 3 years, showing proceeds (in
box 1d) of $6,000 and cost or other
basis (in box 1e) of $2,000. Box 3 is
checked, meaning that basis was
reported to the IRS. The corporation
doesn't need to make any adjustments
to the amounts reported on Form
1099-B or enter any codes. This was
the corporation's only 2018 transaction.
Instead of reporting this transaction on
Form 8949, the corporation can enter
$6,000 on Schedule D, line 8a, column
(d), $2,000 in column (e), and $4,000
($6,000 − $2,000) in column (h).

Example 2—Basis not reported to
IRS. The corporation received a Form
1099-B showing proceeds (in box 1d) of
$6,000 and cost or other basis (in
box 1e) of $2,000. Box 3 isn't checked,
meaning that basis wasn't reported to
the IRS. Don’t report this transaction on
line 1a or line 8a. Instead, report the
transaction on Form 8949. Complete all
necessary pages of Form 8949 before
completing line 1b, 2, 3, 8b, 9, or 10 of
Schedule D.

Example 3—Adjustment. The
corporation received a Form 1099-B
showing proceeds (in box 1d) of $6,000
and cost or other basis (in box 1e) of
$2,000. Box 3 is checked, meaning that
basis was reported to the IRS. However,
the basis shown in box 1e is incorrect.
Don’t report this transaction on line 1a
or line 8a. Instead, report the transaction
on Form 8949. See the instructions for
Form 8949, columns (f), (g), and (h).
Complete all necessary pages of Form
8949 before completing line 1b, 2, 3, 8b,
9, or 10 of Schedule D.

Lines 1b, 2, 3, 8b, 9, and 10,
Column (h)—Transactions
Reported on Form 8949
Figure gain or loss on each line. First,
subtract cost or other basis in column
(e) from proceeds (sales price) in
column (d). Then combine the results
with any adjustments in column (g).
Enter the results in column (h). Enter
negative amounts in parentheses.
Example 1—Gain. Column (d) is
$6,000 and column (e) is $2,000. Enter
$4,000 in column (h).
Example 2—Loss. Column (d) is
$6,000 and column (e) is $8,000. Enter
($2,000) in column (h).
Example 3—Adjustment. Column
(d) is $6,000, column (e) is $2,000, and
column (g) is ($1,000). Enter $3,000
($6,000 − $2,000 − $1,000) in column
(h).

-6-

1. An S corporation that was a C
corporation before it elected to be an S
corporation.

2. An S corporation that acquired an
asset with a basis determined (in whole
or in part) by reference to its basis (or
the basis of any other property) in the
hands of a C corporation (a
transferred-basis acquisition). See
section 1374(d)(8).

An S corporation may owe the tax if it
has net recognized built-in gain during
the applicable recognition period. For
computation details, see Regulations
section 1.1374-1(a).
The applicable recognition period is
the 5-year period beginning:
• For an asset held when the S
corporation was a C corporation, on the
first day of the first tax year for which the
corporation is an S corporation; or
• For a transferred-basis acquisition,
on the date the asset was acquired by
the S corporation.
A corporation described in both (1)
and (2) above must figure the built-in
gains tax separately for the group of
assets it held at the time its S election
became effective and for each group of
transferred-basis acquisitions. For
details, see Regulations section
1.1374-8.
Certain transactions involving the
disposal of timber, coal, or domestic
iron ore under section 631 aren’t subject
to the built-in gains tax. See Rev. Rul.
2001-50, which is on page 343 of
Internal Revenue Bulletin 2001-43 at
IRS.gov/pub/irs-irbs/irb01-43.pdf.

Line 16
Generally, enter the amount that would
be the taxable income of the corporation
for the tax year if only recognized built-in
gains (including any carryover of gain
under section 1374(d)(2)(B)) and
recognized built-in losses were taken
into account.

Instructions for Schedule D (Form 1120S) (2018)

Generally, recognized built-in gain
includes the following items.
1. Any gain recognized during the
applicable recognition period on the
sale, distribution, or other disposition of
any asset, except to the extent the
corporation establishes that:

the instructions for Form 1120. Enter the
amount from line 28 of Form 1120 on
line 17 of Schedule D. Attach to
Schedule D the Form 1120 computation
or other worksheet used to figure
taxable income.
For corporations figuring the built-in
gains tax for separate groups of assets,
taxable income must be apportioned to
each group of assets in proportion to the
net recognized built-in gain for each
group of assets. For details, see
Regulations section 1.1374-8.

assets. See section 1374(b)(2) and
Regulations section 1.1374-5.

Line 22
Enter the section 1374(b)(3) credit.
Generally, this is any general business
credit arising in tax years for which the
corporation was a C corporation or
acquired in a transferred-basis
acquisition (defined earlier). The section
1374(b)(3) credit must be figured and
applied separately for each separate
group of assets. Section 1374(b)(3)
business credit and minimum tax credit
carryforwards from C corporation years
are subject to the business credit
limitation in section 38(c) and the AMT
credit limitation in section 53(c), as
modified by Regulations section
1.1374-6(b).

DRAFT AS OF
September 11, 2018
a. The asset wasn't held by the
corporation as of the beginning of the
applicable recognition period, or

b. The gain exceeds the excess of
the FMV of the asset as of the beginning
of the applicable recognition period over
the adjusted basis of the asset at that
time.
2. Any item of income that is
properly taken into account during the
applicable recognition period but is
attributable to periods before the
applicable recognition period.
Generally, recognized built-in loss
includes the following items.
1. Any loss recognized during the
applicable recognition period on the
disposition of any asset to the extent the
corporation establishes that:
a. The asset was held by the
corporation as of the beginning of the
applicable recognition period; and
b. The loss doesn't exceed the
excess of the adjusted basis of the
asset as of the beginning of the
applicable recognition period, over the
FMV of the asset as of that time.
2. Any amount that is allowed as a
deduction during the applicable
recognition period (determined without
regard to any carryover) but is
attributable to periods before the
applicable recognition period.
For details, see section 1374(d) and
Regulations section 1.1374-4.
The corporation must show on an
attachment its total net recognized
built-in gain and list separately any
capital gain or loss and ordinary gain or
loss.

Line 17
Figure taxable income by completing
lines 1 through 28 of Form 1120. Follow

Note. Taxable income is figured as
provided in section 1375(b)(1)(B) and is
generally figured in the same manner as
taxable income for line 9 of the Excess
Net Passive Income Tax Worksheet for
Line 22a in the Instructions for Form
1120S.

Line 18
If, for any tax year in the recognition
period, the amount on line 16 exceeds
the taxable income on line 17, the
excess is treated as a recognized
built-in gain in the succeeding tax year.
This carryover provision applies only in
the case of an S corporation that made
its election to be an S corporation after
March 30, 1988. See section 1374(d)(2)
(B).
For corporations figuring the built-in
gains tax for separate groups of assets,
don’t use the amount from Schedule B,
line 8. Instead, figure the amount of net
unrealized built-in gain separately for
each group of assets.

Line 19
Enter the section 1374(b)(2) deduction.
Generally, this is any net operating loss
carryforward or capital loss carryforward
(to the extent of net capital gain
included in recognized built-in gain for
the tax year) either arising in tax years
for which the corporation was a C
corporation or acquired in a
transferred-basis acquisition (defined
earlier). The section 1374(b)(2)
deduction must be figured and applied
separately for each separate group of

Instructions for Schedule D (Form 1120S) (2018)

-7-

For tax years beginning in

TIP 2018, the AMT credit limitation

is increased by the AMT
refundable credit amount. The portion of
the credit treated as refundable is 50%
of the excess of minimum tax credits
available over the 2018 built-in gain tax
liability. See the instructions for Form
8827, Credit for Prior Year Minimum
Tax—Corporations, and Form 1120S,
line 23d.

Line 23
The built-in gains tax is treated as a loss
sustained by the corporation during the
same tax year. The character of the
deemed loss is determined by allocating
the loss proportionately among the net
recognized built-in gains giving rise to
the tax and attributing the character of
each net recognized built-in gain to the
allocable portion of the loss. Deduct the
tax attributable to the following.
• Short-term capital gain as short-term
capital loss on Schedule D, line 6.
• Long-term capital gain as long-term
capital loss on Schedule D, line 14.
• Ordinary income as a deduction for
taxes on Form 1120S, line 12.