2023

Instructions for Schedule D 

(Form 1120-S)

Capital Gains and Losses and Built-in Gains

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code unless 

otherwise noted.

Future Developments

For the latest information about developments related to 

Schedule D (Form 1120-S) and its instructions, such as 

legislation enacted after they were published, go to IRS.gov/

Form1120S.

General Instructions

Purpose of Schedule

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, later.

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 and to report the deferral or exclusion of capital 

gains. See the Instructions for Form 8949. 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 real 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 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.

• Election to defer a qualified section 1231 gain invested in a 

qualified opportunity fund (QOF).

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 the 

instructions for the forms listed above. Also, see Pub. 544, 

Sales and Other Dispositions of Assets, and Pub. 550, 

Investment Income and Expenses.

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.

• 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.

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 

Jan 4, 2024 Cat. No. 64419L
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.

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 must generally 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 of the 

return (excluding extensions). Enter “Filed pursuant to 

section 301.9100-2” at the top of the amended return.

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.

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.

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 before 1998 and after 2016.

• Gain treated as ordinary income under section 1245.

• 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 Form 1120-S, Schedule K, 

line 8c, 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.

How to report. If applicable, 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.

Report the sale or exchange of DC Zone business 

property on Form 4797. See the Instructions for Form 4797 

for details.

Exclusion of gain from qualified community assets. If 

the corporation sold or exchanged a qualified community 

asset acquired after 2001 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.

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) for more 

details and special rules.

How to report. If applicable, 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.

Report the sale or exchange of qualified community 

business property on Form 4797. See the Instructions for 

Form 4797 for more details.

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, an offsetting notional 

principal contract, or a futures or forward contract).

Exception. Generally, constructive sale treatment doesn't 

apply if:

2 Instructions for Schedule D (Form 1120-S) (2023)
• 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.

For details and other exceptions to these rules, see Pub. 

550.

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 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.

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.

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 2023 but the corporation didn’t get 

a 2023 Form 1099-B (or substitute statement) for it because 

the corporation entered into it 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 2023 

Form 1099-B (or substitute statement) that doesn't show the 

proceeds (sales price).

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.

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. 1212, Guide to Original Issue 

Discount Instruments, for more information on contingent 

payment debt instruments subject to the noncontingent bond 

method. See the Instructions for Form 8949 for detailed 

information about how to report the disposition of a 

contingent payment debt instrument.

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 and Pub. 550.

The wash sale rules don’t apply to a redemption of shares 

in a floating-NAV (net asset value) money market fund 

(MMF). For redemptions of shares in any MMF after October 

2, 2023, the wash sale rules don't apply.

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.

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. Also see section 165(g).

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 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.

Deferral of gain invested in a qualified opportunity fund 

(QOF). If the corporation realized gain from an actual, or 

deemed, sale or exchange with an unrelated person and 

during the 180-day period beginning on the date the 

corporation realized the gain, invested an amount of the gain 

in a QOF, the corporation may be able to elect to temporarily 

defer part or all of the gain that would otherwise be included 

in income. If the corporation makes the election, the gain is 

included in income only to the extent, if any, the amount of 

Instructions for Schedule D (Form 1120-S) (2023) 3
realized gain exceeds the aggregate amount invested in a 

QOF during the 180-day period beginning on the date gain is 

realized. The corporation may also be able to permanently 

exclude the gain from the sale or exchange of any investment 

in a QOF if the investment is held for at least 10 years. For 

more information, see section 1400Z-2.

Qualified opportunity fund (QOF). A QOF is any 

investment vehicle that is organized as either a corporation or 

partnership for the purpose of investing in eligible property 

that is located in a qualified opportunity zone and that 

satisfies the ownership requirements of section 1400Z-2.

Eligible gain. Gain that is eligible to be deferred if it is 

invested in a QOF includes any amount treated as a capital 

gain for federal income tax purposes. See section 1400Z-2 

for more details on QOFs and the special rules. Also, see 

IRS.gov/credits-deductions/businesses/opportunity-zones.

How to report. If applicable, report the eligible gain on 

Schedule D as it would otherwise be reported if the 

corporation were not making the election. See the 

Instructions for Form 8949 for information on how to report 

the deferral. You will also need to annually attach to your tax 

return Form 8997, Initial and Annual Statement of Qualified 

Opportunity Fund (QOF) Investments, until you dispose of the 

QOF investment. For more information, see Form 8997 and 

its instructions.

Bonds and other debt instruments. See Pub. 550.

Collectibles gain (28% rate gain) or loss. Report any 

28% rate gain or loss on Form 1120-S, Schedule K, line 8b 

(and each shareholder's share in box 8b of Schedule K-1 

(Form 1120-S)). 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, 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.

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).

Disposition of converted wetland or highly erodible 

cropland. Any loss on the disposition of converted wetland 

or highly erodible cropland that is first used for farming after 

March 1, 1986, is reported as a long-term capital loss on 

Form 8949, but any gain on such a disposition is reported as 

ordinary gain on Form 4797. See section 1257 for details.

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 section 

166(d) and Nonbusiness Bad Debts in Pub. 550 for details.

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.

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.

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 must also separately state the 

amount of the gain rolled over on qualified stock 

under section 1045 on Form 1120-S, Schedule K, 

line 10. Each shareholder must determine if they qualify 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 1120-S, Schedule K, line 10).

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:

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, RIC, REIT, real estate 

mortgage investment conduit (REMIC), financial asset 

securitization investment trust (FASIT), or cooperative.

CAUTION

!

4 Instructions for Schedule D (Form 1120-S) (2023)
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 field of health, law, 

engineering, architecture, accounting, actuarial science, 

performing arts, consulting, athletics, financial services, or 

brokerage services.

• 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.

For more details about limits and additional requirements 

that may apply, see Pub. 550 or section 1202.

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 amounts 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 must generally 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 for Form 8949 applies. However, if a trader 

made the 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.

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 1120-S.

A trader may also hold securities for investment. The rules 

for investors will generally 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 Form 1120-S, 

Schedule K, line 12b; and in box 12 of Schedule K-1 (Form 

1120-S) using code H.

Transactions with respect to applicable partnership interests. 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 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.

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 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.

Disposal of QOF Investment

If you disposed of any investment in a QOF during the tax 

year, check the box on the top of Schedule D and see the 

Instructions for Form 8949 for additional reporting 

requirements.

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 checkbox in box 2 of Form 1099-B (or 

substitute statement) isn't checked;

• The QOF checkbox in box 3 of Form 1099-B (or substitute 

statement) 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.

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.

Instructions for Schedule D (Form 1120-S) (2023) 5
Figure gain or loss on each line. 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 12 

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 2023 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).

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).

Example 2—basis not reported to the 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 12 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 12 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).

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.

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.

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:

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.

6 Instructions for Schedule D (Form 1120-S) (2023)
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 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.

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 

1120-S.

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 Form 1120-S, 

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 (NOL) 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 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 alternative minimum tax (AMT) credit 

limitation in section 53(c), as modified by Regulations section 

1.1374-6(b).

The AMT refundable credit provisions do not apply to 

S corporations. See sections 1371(b)(1) and 1374(b)

(3)(B).

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 1120-S, 

line 12.

CAUTION

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Instructions for Schedule D (Form 1120-S) (2023) 7