IRS Tax Form 8949 for American Expats: Reporting Capital Gains

All Americans, including those living abroad, must fulfill the same annual federal US filing requirements. This includes reporting certain capital gains.

A capital gain is the increase in the value of an asset that you realize when you sell that asset. Capital gains (and losses) are reported on Form 1040 Schedule D; however the calculations to arrive at the capital gain or loss are reported on IRS Form 8949.

This guide will walk you through the essentials of IRS Form 8949, its importance for expats, and how to navigate the reporting process.

What is Form 8949?

Form 8949, titled “Sales and Other Dispositions of Capital Assets,” is a tax form that reports capital gains and losses from investment transactions. It serves as a detailed supplement to Schedule D of Form 1040, providing a comprehensive record of your investment activities for the tax year.

Key points about Form 8949:

1. Purpose: The form serves the purpose of calculating and reporting the gain or loss from the sale or exchange of capital assets, including stocks, bonds, real estate, and cryptocurrencies.

Note: With the increasing prevalence of digital asset investments, Form 8949 has become particularly important for reporting cryptocurrency transactions.

2. Structure: Form 8949 has two main parts:
   • Part I: For reporting short-term capital gains and losses (assets held for one year or less)
   • Part II: For reporting long-term capital gains and losses (assets held for more than one year)
3. Information required: For each transaction, you must provide:
   • A description of the property sold
   • Date acquired
   • Date sold or disposed of
   • Sales price
   • Cost or other basis
   • Gain or loss
4. Multiple forms: You may need to use multiple Form 8949s if you have numerous transactions or different types of transactions (for example, some reported on Form 1099-B and others not).
5. Relationship to Schedule D: The totals from Form 8949 are transferred to Schedule D, where your overall capital gain or loss for the tax year is calculated.

Who has to file IRS Form 8949?

Any US person, including expats, who has realized a capital gain or loss from the sale of an asset during the tax year must file Form 8949. This includes:

• Individual taxpayers
• Estates
• Trusts

What capital gains are reportable?

Assets that can realize a capital gain include real estate, investments, business ownership, cryptocurrencies such as Bitcoin, material assets such as fine art, precious metals or jewlery, or any other assets sold that you bought as an investment or have appreciated in value.

Form 8949 classifies capital gains and losses as either short-term or long-term. A short-term transaction is when you buy an asset and then sell again within a year, whereas a long-term transaction refers to when ownership lasts longer than a year.

Short-term capital gains are taxed as ordinary income, which is normally a higher rate, so it can make sense to hold on to investment for longer than a year if it has appreciated in value.

Is there a personal capital gains exemption allowance?

“Use Form 8949 to report sales and exchanges of capital assets. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated in aggregate.” – the IRS

There’s a personal capital gains allowance, which means long-term gains of up to a certain amount are taxed at the 0% tax rate if your overall income falls below a certain threshold.

The allowance for single filers was $44,625 for tax year 2023, and is $47,025 for tax year 2024.

The next capital gains tax bracket of 15% applies for single filers with total income between $47,026 and $518,900. If your overall income exceeds the higher threshold, your capital gains are taxed at 20%.

A personal exclusion is also available if you sell a property that you have lived in and owned as your primary residence for at least two of the five years prior to the sale. Under this rule, individuals can exclude $250,000 of capital gain on the sale, and married couples filing jointly can exclude $500,000.

How to file Form 8949?

A capital gain (or loss) from the sale of an asset is calculated by deducting the net purchase price (i.e. the purchase price minus related expenses) from the net sale price (being the sale price minus related expenses).

On Form 8949, for each capital asset disposed of in the year you must enter the asset type, the purchase and disposal dates, and the net purchase and sale values. If you received a form 1099-B or 1099-S from a broker, the net sale value should be shown.

To file Form 8949, follow these steps:

1. Gather necessary information:
   • Description of each capital asset sold
   • Date acquired and date sold
   • Proceeds from sale (in USD)
   • Cost basis (original purchase price plus any improvements, in USD)
   • Any adjustments to gain or loss
2. Categorize your transactions:
   • Short-term (held for one year or less)
   • Long-term (held for more than one year)
3. Determine if your transactions were reported on Form 1099-B:
   • Use a separate Form 8949 for transactions reported on Form 1099-B and those not reported
4. Complete the form:
   • Part I for short-term transactions
   • Part II for long-term transactions
   • Enter each transaction on a separate line
5. For each transaction, enter:
   • Description of property
   • Date acquired
   • Date sold
   • Proceeds (sales price)
   • Cost basis
   • Code(s) for any adjustments (if applicable)
   • Amount of adjustment
   • Gain or loss
6. Calculate totals for each part and transfer to Schedule D (Form 1040)

Each transaction should be listed separately, and there are different sections for short term and long term gains.

The totals should then be entered in Form 1040 Schedule D.

Special considerations for expats

• Currency conversion: Report all amounts in U.S. dollars. Use the exchange rate on the transaction date for both purchase and sale.
• Foreign property sales: Include sales of foreign real estate or other assets. The same rules apply as for US-based assets.
• Cryptocurrency transactions: Report each crypto transaction separately, including the date acquired, date sold, proceeds, and cost basis.
• PFIC investments: Be aware of special reporting requirements for Passive Foreign Investment Companies, common in foreign mutual funds.
• Foreign tax credits: If you paid capital gains tax in your country of residence, you may be eligible for a foreign tax credit. Report this on Form 1116.

What’s the deadline for filing Form 8949?

The deadline for filing Form 8949 is the same as the deadline for filing your individual income tax return (Form 1040), as you submit Form 8949 along with your tax return.

For US citizens and resident aliens living and working abroad:

• A 2-month extension is automatic, making the deadline June 15th
• This extension applies without needing to file for it specifically

However, there are some important points to keep in mind:

1. If April 15th falls on a weekend or holiday, the deadline falls onto the next business day.
2. You can request an additional extension until October 15th by filing Form 4868. This extends the deadline for Form 8949, along with your entire tax return.
3. While the filing deadline may be extended, any tax owed is still due by the original deadline (April 15th for most taxpayers). Interest will accrue on unpaid taxes even if you have an extension to file.
4. If you’re using the Foreign Earned Income Exclusion, you must file by June 15th (or request an further extension) to claim this benefit, even if you don’t owe any tax.

Can you catch up if you’re behind with your US filing?

If you’ve only recently become aware that you have to file US taxes from abroad, there’s a way to catch up and get compliant without incurring penalties and, for most expats, paying back taxes.

This is by filing under a special IRS amnesty program called the Streamlined Procedure — about which you can learn more in our detailed guides.