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Department of the Treasury
Internal Revenue Service
2023

Instructions for Schedule D

(Form 1120-S)

Capital Gains and Losses and Built-in Gains

Section references are to the Internal Revenue Code unless • Election to defer a qualified section 1231 gain invested in a
otherwise noted. qualified opportunity fund (QOF).
Use Form 4684, Casualties and Thefts, to report
Future Developments involuntary conversions of property due to casualty or theft.
For the latest information about developments related to Use Form 6781, Gains and Losses From Section 1256
Schedule D (Form 1120-S) and its instructions, such as Contracts and Straddles, to report gains and losses from
legislation enacted after they were published, go to IRS.gov/ section 1256 contracts and straddles.
Form1120S. Additional information. For more information, see the
instructions for the forms listed above. Also, see Pub. 544,
General Instructions Sales and Other Dispositions of Assets, and Pub. 550,
Investment Income and Expenses.
Purpose of Schedule
Capital Assets
Use Schedule D to report the following.
• The overall capital gains and losses from transactions Each item of property the corporation held (whether or not
reported on Form 8949, Sales and Other Dispositions of connected with its trade or business) is a capital asset except
Capital Assets. the following.
• Certain transactions the corporation doesn't have to report • Stock in trade or other property included in inventory or
on Form 8949. held mainly for sale to customers. However, see the Note
• Capital gains from Form 6252, Installment Sale Income. below.
• Capital gains and losses from Form 8824, Like-Kind • Accounts or notes receivable acquired in the ordinary
Exchanges. course of the trade or business for services rendered or from
• Gains on distributions to shareholders of appreciated the sale of stock in trade or other property included in
capital assets. inventory or held mainly for sale to customers.
• Capital gain distributions. • Depreciable or real property used in the trade or business,
• Tax on built-in gains. See Part III. Built-in Gains Tax, later. even if it is fully depreciated.
• Certain copyrights; literary, musical, or artistic
Other Forms the Corporation May compositions; letters or memoranda; or similar property.
However, see the Note below.
Have To File • Certain patents, inventions, models, or designs (whether
Use Form 8949 to report the sale or exchange of a capital or not patented); secret formulas or processes; or similar
asset (defined later) not reported on another form or property.
schedule and to report the deferral or exclusion of capital • U.S. Government publications, including the
gains. See the Instructions for Form 8949. Complete all Congressional Record, that the corporation received from the
necessary pages of Form 8949 before you complete line 1b, government, other than by purchase at the normal sales
2, 3, 8b, 9, or 10 of Schedule D. See Lines 1a and price, or that the corporation got from another taxpayer who
8a—Transactions Not Reported on Form 8949, later, for more had received it in a similar way, if the corporation's basis is
information about when to use Form 8949. determined by reference to the previous owner's basis.
• Certain commodities derivative financial instruments held
Use Form 4797, Sales of Business Property, to report the by a dealer in connection with its dealer activities.
following. • Certain identified hedging transactions entered into in the
• The sale, exchange, or distribution of real property used in normal course of the trade or business.
a trade or business. • Supplies regularly used in the trade or business.
• The sale, exchange, or distribution of depreciable and
For details, see section 1221(a).
amortizable property.
• The sale or other disposition of securities or commodities Note. The corporation can elect to treat as capital assets
held in connection with a trading business, if the corporation certain musical compositions or copyrights in musical works
made a mark-to-market election. it sold or exchanged. See section 1221(b)(3) and Pub. 550
• The involuntary conversion (from other than casualty or for details.
theft) of property used in the corporation's trade or business
and capital assets held in connection with a trade or business Short- or Long-Term Gain or Loss
or a transaction entered into for profit. Report short-term gains or losses in Part I. Report long-term
• The disposition of noncapital assets other than inventory gains or losses in Part II. The holding period for short-term
or property held primarily for sale to customers in the ordinary capital gains and losses is generally 1 year or less. The
course of the corporation's trade or business. holding period for long-term capital gains and losses is

Jan 4, 2024 Cat. No. 64419L

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generally more than 1 year. However, an exception applies checked). Enter “X” in column (f). Enter the amount of the
for certain sales of applicable partnership interests. See exclusion as a negative number (in parentheses) in column
Transactions with respect to applicable partnership interests, (g). Complete all remaining columns. See the Instructions for
later. Form 8949 for details.
For more information about holding periods, see the Report the sale or exchange of DC Zone business
Instructions for Form 8949. property on Form 4797. See the Instructions for Form 4797
for details.
Items for Special Treatment Exclusion of gain from qualified community assets. If
Note. For more information, see Pub. 544. the corporation sold or exchanged a qualified community
Gain from installment sales. If the corporation sold asset acquired after 2001 and before 2010, it may be able to
property at a gain and it will receive a payment in a tax year exclude any qualified capital gain that the corporation would
after the year of sale, it must generally report the sale on the otherwise include in income. The exclusion applies to an
installment method unless it elects not to. However, the interest in, or property of, certain renewal community
installment method may not be used to report sales of stock businesses.
or securities traded on an established securities market. Qualified community asset. A qualified community
asset is any of the following.
Use Form 6252 to report the sale on the installment
method. Also, use Form 6252 to report any payment received • Qualified community stock.
during the tax year from a sale made in an earlier year that • Qualified community partnership interest.
was reported on the installment method. Enter gain from the • Qualified community business property.
installment sales on Schedule D, line 4 or line 11, as Qualified capital gain. Qualified capital gain is any gain
applicable. See the instructions for Form 6252. recognized on the sale or exchange of a qualified community
asset, but doesn't include any of the following.
To elect out of the installment method, report the full • Gain treated as ordinary income under section 1245.
amount of the gain on Form 8949 for the year of the sale on a • Section 1250 gain figured as if section 1250 applied to all
return filed by the due date (including extensions). If the depreciation rather than the additional depreciation.
original return was filed on time without making the election, • Gain attributable to real property, or an intangible asset,
the corporation can make the election on an amended return that isn't an integral part of a renewal community business.
filed no later than 6 months after the original due date of the • Gain from a related-party transaction. See Sales and
return (excluding extensions). Enter “Filed pursuant to Exchanges Between Related Persons in chapter 2 of Pub.
section 301.9100-2” at the top of the amended return. 544.
Gain on distributions of appreciated property. Generally, • Gains attributable to periods after December 31, 2014.
gain (but not loss) is recognized on a nonliquidating See section 1400F (as in effect before its repeal) for more
distribution of appreciated property to the extent that the details and special rules.
property's fair market value (FMV) exceeds its adjusted How to report. If applicable, report the sale or exchange
basis. See section 311. on Form 8949, Part II, as the corporation otherwise would
Exclusion of gain from DC Zone assets. If the corporation without regard to the exclusion (with the appropriate box
sold or exchanged a District of Columbia Enterprise Zone checked). Enter “X” in column (f) and enter the amount of the
(DC Zone) asset acquired after 1997 and before 2012, and excluded gain as a negative number (in parentheses) in
held for more than 5 years, it can exclude any qualified column (g). Complete all remaining columns. See the
capital gain that the corporation would otherwise include in Instructions for Form 8949.
income. The exclusion applies to an interest in, or property of, Report the sale or exchange of qualified community
certain businesses operating in the District of Columbia. business property on Form 4797. See the Instructions for
DC Zone asset. A DC Zone asset is any of the following. Form 4797 for more details.
• DC Zone business stock. Gain on the constructive sale of certain appreciated fi-
• DC Zone partnership interest. nancial positions. Generally, the S corporation must
• DC Zone business property. recognize gain (but not loss) on the date it enters into a
Qualified capital gain. Qualified capital gain is any gain constructive sale of any appreciated position in stock, a
recognized on the sale or exchange of a DC Zone asset, but partnership interest, or certain debt instruments as if the
doesn't include any of the following. position were disposed of at FMV on that date.
• Gain attributable to periods before 1998 and after 2016.
• Gain treated as ordinary income under section 1245. The S corporation is treated as making a constructive sale
• Gain attributable to unrecaptured section 1250 gain on the of an appreciated position when it (or a related person, in
sale of an interest in a partnership that is a DC Zone some cases) does one of the following.
business. See the instructions for Form 1120-S, Schedule K, • Enters into a short sale of the same or substantially
line 8c, for information on how to report unrecaptured section identical property (that is, a “short sale against the box”).
1250 gain. • Enters into an offsetting notional principal contract relating
• Gain on the sale or exchange of an interest in a to the same or substantially identical property.
partnership attributable to real property or an intangible asset • Enters into a futures or forward contract to deliver the
that isn't an integral part of a DC Zone business. same or substantially identical property.
• Gain from a related-party transaction. See Sales and • Acquires the same or substantially identical property (if the
Exchanges Between Related Persons in chapter 2 of Pub. appreciated position is a short sale, an offsetting notional
544. principal contract, or a futures or forward contract).
Exception. Generally, constructive sale treatment doesn't
How to report. If applicable, report the sale or exchange
apply if:
on Form 8949, Part II, as the corporation otherwise would
without regard to the exclusion (with the appropriate box

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

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• The S corporation closed the transaction before the end of the noncontingent bond method may be treated as an
the 30th day after the end of the tax year in which it was ordinary loss rather than as a capital loss. See Regulations
entered into, section 1.1275-4(b) and Pub. 1212, Guide to Original Issue
• The S corporation held the appreciated position to which Discount Instruments, for more information on contingent
the transaction relates throughout the 60-day period starting payment debt instruments subject to the noncontingent bond
on the date the transaction was closed, and method. See the Instructions for Form 8949 for detailed
• At no time during that 60-day period was the S information about how to report the disposition of a
corporation's risk of loss reduced by holding certain other contingent payment debt instrument.
positions.
Loss from a sale or exchange between the corporation
For details and other exceptions to these rules, see Pub. and a related person. Except for distributions in complete
550. liquidation of a corporation, no loss is allowed from the sale
Gain from certain constructive ownership transactions. or exchange of property between the corporation and certain
Gain in excess of the net underlying long-term gain the related persons. See section 267.
corporation would have recognized if it had held a financial Loss from a wash sale. A wash sale occurs if the
asset directly during the term of a derivative contract must be corporation acquires (by purchase or exchange), or has a
treated as ordinary income. See section 1260. contract or option to acquire, substantially identical stock or
Gain on disposition of market discount bonds. In securities within 30 days before or after the date of the sale or
general, a capital gain upon the disposition of a market exchange. The corporation can’t deduct a loss from a wash
discount bond is treated as interest income to the extent of sale of stock or securities (including contracts or options to
accrued market discount as of the date of disposition. See acquire or sell stock or securities) unless the corporation is a
sections 1276 through 1278 and Pub. 550 for more dealer in stock or securities and the loss was sustained in a
information on market discount. See the Instructions for Form transaction made in the ordinary course of the corporation's
8949 for detailed information about how to report the trade or business. For more information on wash sales, see
disposition of a market discount bond. section 1091 and Pub. 550.
The wash sale rules don’t apply to a redemption of shares
Gain or loss on distribution of property in complete liq-
in a floating-NAV (net asset value) money market fund
uidation. Generally, gain or loss is recognized on property
(MMF). For redemptions of shares in any MMF after October
distributed in a complete liquidation. Treat the property as if it
2, 2023, the wash sale rules don't apply.
had been sold at its FMV. See section 336.
Report the transaction as the corporation otherwise would
Gain or loss on an option to buy or sell property. See on Form 8949, Part I or II (depending on how long the
sections 1032 and 1234 for the rules that apply to a corporation owned the stock or securities). Check the
purchaser or grantor of an option or a securities futures appropriate box. Enter “W” in column (f). Enter the
contract (as defined in section 1234B). See Pub. 550 for nondeductible loss as a positive number in column (g).
details. Complete all remaining columns. See the Instructions for
Gain or loss from a short sale of property. Report the Form 8949.
gain or loss on Form 8949 to the extent that the property Loss from securities that are capital assets that become
used to close the short sale is considered a capital asset in worthless during the year. Except for securities held by a
the hands of the taxpayer. Report any short sale in the year bank, treat the loss as a capital loss as of the last day of the
the sale closes. tax year. See section 582 for the rules on the treatment of
If a short sale closed in 2023 but the corporation didn’t get securities held by a bank. Also see section 165(g).
a 2023 Form 1099-B (or substitute statement) for it because
Undistributed long-term gains from a regulated invest-
the corporation entered into it before 2011, report it on Form
ment company (RIC) or real estate investment trust (RE-
8949 in Part I with box C checked or Part II with box F
IT). Report the corporation's share of long-term gains from
checked (whichever applies). In column (a), enter (for
Form 2439, Notice to Shareholder of Undistributed
example) “100 sh. XYZ Co.—2010 short sale closed.” Fill in
Long-Term Capital Gains, on Form 8949, Part II (with box F
the other columns according to their instructions. Report the
short sale the same way if the corporation received a 2023 checked). Enter “From Form 2439” in column (a). Enter the
Form 1099-B (or substitute statement) that doesn't show the gain in column (h). Leave all other columns blank. See the
proceeds (sales price). Instructions for Form 8949.
Gain on certain short-term federal, state, and municipal NAV method for money market funds. Report capital gain
obligations (other than tax-exempt obligations). If a or loss determined under the NAV method with respect to
short-term governmental obligation (other than a tax-exempt shares in a money market fund on Form 8949, Part I, with box
obligation) that is a capital asset is acquired at an acquisition C checked. Enter the name of each fund followed by “(NAV)”
discount, a portion of any gain realized is treated as ordinary in column (a). Enter the net gain or loss in column (h). Leave
income and any remaining balance is treated as a short-term all other columns blank. See the Instructions for Form 8949.
capital gain. See section 1271. Deferral of gain invested in a qualified opportunity fund
(QOF). If the corporation realized gain from an actual, or
Contingent payment debt instruments. Any gain
recognized on the sale, exchange, or retirement of a deemed, sale or exchange with an unrelated person and
during the 180-day period beginning on the date the
contingent payment debt instrument subject to the
noncontingent bond method is generally treated as interest corporation realized the gain, invested an amount of the gain
in a QOF, the corporation may be able to elect to temporarily
income rather than as capital gain. In certain situations, all or
a portion of a loss recognized on the sale, exchange, or defer part or all of the gain that would otherwise be included
retirement of a contingent payment debt instrument subject to 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

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realized gain exceeds the aggregate amount invested in a Real estate subdivided for sale. Certain lots or parcels
QOF during the 180-day period beginning on the date gain is that are part of a tract of real estate subdivided for sale may
realized. The corporation may also be able to permanently be treated as capital assets. See section 1237.
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 Rollover of gain from qualified small business (QSB)
more information, see section 1400Z-2. stock. If the corporation sold QSB stock (defined below) it
Qualified opportunity fund (QOF). A QOF is any held for more than 6 months, it can postpone gain if it
investment vehicle that is organized as either a corporation or purchased other QSB stock during the 60-day period that
partnership for the purpose of investing in eligible property began on the date of the sale. The corporation must
that is located in a qualified opportunity zone and that recognize gain to the extent the sale proceeds exceed the
satisfies the ownership requirements of section 1400Z-2. cost of the replacement stock. Reduce the basis of the
Eligible gain. Gain that is eligible to be deferred if it is replacement stock by any postponed gain.
invested in a QOF includes any amount treated as a capital If the corporation chooses to postpone gain, report the
gain for federal income tax purposes. See section 1400Z-2 entire gain realized on the sale on Form 8949, Part I or II (with
for more details on QOFs and the special rules. Also, see the appropriate box checked). Enter “R” in column (f). Enter
IRS.gov/credits-deductions/businesses/opportunity-zones. the amount of the postponed gain as a negative number (in
How to report. If applicable, report the eligible gain on parentheses) in column (g). Complete all remaining columns.
Schedule D as it would otherwise be reported if the See the Instructions for Form 8949.
corporation were not making the election. See the The corporation must also separately state the
Instructions for Form 8949 for information on how to report ! amount of the gain rolled over on qualified stock
the deferral. You will also need to annually attach to your tax CAUTION under section 1045 on Form 1120-S, Schedule K,
return Form 8997, Initial and Annual Statement of Qualified line 10. Each shareholder must determine if they qualify for
Opportunity Fund (QOF) Investments, until you dispose of the the rollover at the shareholder level. Also, the corporation
QOF investment. For more information, see Form 8997 and must separately state on that line (and not on Form 8949) any
its instructions. gain that could qualify for the section 1045 rollover at the
Bonds and other debt instruments. See Pub. 550. shareholder level instead of the corporate level (because a
shareholder was entitled to purchase replacement stock). If
Collectibles gain (28% rate gain) or loss. Report any the corporation had a gain on qualified stock that could
28% rate gain or loss on Form 1120-S, Schedule K, line 8b qualify for the exclusion under section 1202, report that gain
(and each shareholder's share in box 8b of Schedule K-1 on Form 8949 (and on Form 1120-S, Schedule K, line 10).
(Form 1120-S)). A collectibles gain or loss is any long-term
gain or deductible long-term loss from the sale or exchange To be QSB stock, the stock must meet all of the following
of a collectible that is a capital asset. tests.
Collectibles include works of art, rugs, antiques, metals • It must be stock in a C corporation.
(such as gold, silver, and platinum bullion), gems, stamps, • It must have been originally issued after August 10, 1993.
coins, alcoholic beverages, and certain other tangible • As of the date the stock was issued, the corporation was a
property. qualified small business. A qualified small business is a
domestic C corporation with total gross assets of $50 million
Report any 28% rate gain or loss from a sale or exchange or less (a) at all times after August 9, 1993, and before the
of a collectible on Form 8949, Part II (with the appropriate box stock was issued; and (b) immediately after the stock was
checked). See the Instructions for Form 8949. issued. Gross assets include those of any predecessor of the
Also include gain (but not loss) from the sale or exchange corporation. All corporations that are members of the same
of an interest in a partnership or trust held more than 1 year parent-subsidiary controlled group are treated as one
and attributable to unrealized appreciation of collectibles. corporation.
See Regulations section 1.1(h)-1. Also, attach the statement • The corporation must have acquired the stock at its
required under Regulations section 1.1(h)-1(e). original issue (either directly or through an underwriter),
Disposition of converted wetland or highly erodible either in exchange for money or other property or as pay for
cropland. Any loss on the disposition of converted wetland services (other than as an underwriter) to the corporation. In
or highly erodible cropland that is first used for farming after certain cases, the corporation may meet the test if it acquired
March 1, 1986, is reported as a long-term capital loss on the stock from another person who met this test (such as by
Form 8949, but any gain on such a disposition is reported as gift or inheritance) or through a conversion or exchange of
ordinary gain on Form 4797. See section 1257 for details. QSB stock held by the corporation.
• During substantially all the time the corporation held the
Nonbusiness bad debts. A nonbusiness bad debt must be stock:
treated as a short-term capital loss and can be deducted only
1. The issuer was a C corporation;
in the year the debt becomes totally worthless. See section
166(d) and Nonbusiness Bad Debts in Pub. 550 for details. 2. At least 80% of the value of the issuer's assets were
used in the active conduct of one or more qualified
Nonrecognition of gain on sale of stock to an employee businesses (defined below); and
stock ownership plan (ESOP) or an eligible cooperative.
See section 1042 and Temporary Regulations section 3. The issuing corporation wasn't a foreign corporation,
1.1042-1T for rules under which the corporation can elect not domestic international sales corporation (DISC), former
to recognize gain from the sale of certain stock to an ESOP DISC, corporation that has made (or that has a subsidiary
or an eligible cooperative. that has made) a section 936 election, RIC, REIT, real estate
mortgage investment conduit (REMIC), financial asset
securitization investment trust (FASIT), or cooperative.

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

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Note. A specialized small business investment company Schedule K, line 12b; and in box 12 of Schedule K-1 (Form
(SSBIC) is treated as having met test 2 above. 1120-S) using code H.
A qualified business is any business other than the Transactions with respect to applicable partnership in-
following. terests. The long-term holding period for gains and losses
• One involving services performed in the field of health, law, with respect to applicable partnership interests is more than 3
engineering, architecture, accounting, actuarial science, years. If the holding period is 3 years or less, gains and
performing arts, consulting, athletics, financial services, or losses with respect to applicable partnership interests are
brokerage services. treated as short term. An applicable partnership interest is
• One whose principal asset is the reputation or skill of one any interest in a partnership that, directly or indirectly, is
or more employees. transferred to (or is held by) the taxpayer in connection with
• Any banking, insurance, financing, leasing, investing, or the performance of substantial services by the taxpayer, or
similar business. any other related person, in any applicable trade or business.
• Any farming business (including the raising or harvesting See section 1061 and Pub. 541 for details.
of trees).
Figure gains and losses with respect to the applicable
• Any business involving the production of products for
partnership interest on Form 8949 by applying the special
which percentage depletion can be claimed.
holding period rules discussed above. See the Instructions
• Any business of operating a hotel, motel, restaurant, or
for Form 8949.
similar business.
For more details about limits and additional requirements
that may apply, see Pub. 550 or section 1202. Specific Instructions
Sale of a partnership interest. A sale or other disposition Complete all necessary pages of Form 8949 before
of an interest in a partnership owning unrealized receivables completing line 1b, 2, 3, 8b, 9, or 10 of Schedule D.
or inventory items may result in ordinary gain or loss. See
Pub. 541, Partnerships. Rounding Off to Whole Dollars
Special rules for traders in securities. Traders in Cents can be rounded to whole dollars on Schedule D. If
securities are engaged in the business of buying and selling cents are rounded to whole dollars, all amounts must be
securities for their own account. To be engaged in a business rounded. To round, drop amounts under 50 cents and
as a trader in securities, the corporation: increase amounts from 50 to 99 cents to the next dollar. For
• Must seek to profit from daily market movements in the example, $1.49 becomes $1 and $2.50 becomes $3.
prices of securities and not from dividends, interest, or capital If two or more amounts have to be added to figure the
appreciation; amount to enter on a line, include cents when adding the
• Must be involved in a trading activity that is substantial; amounts and round off only the total.
and
• Must carry on the activity with continuity and regularity. Disposal of QOF Investment
The following facts and circumstances should be If you disposed of any investment in a QOF during the tax
considered in determining if a corporation's activity is a year, check the box on the top of Schedule D and see the
business. Instructions for Form 8949 for additional reporting
• Typical holding periods for securities bought and sold. requirements.
• The frequency and dollar amounts of the corporation's
trades during the year. Parts I and II
• The extent to which the shareholders pursue the activity to
produce income for a livelihood. Lines 1a and 8a—Transactions Not Reported on
• The amount of time devoted to the activity. Form 8949
Like an investor, a trader must generally report each sale The corporation can report on line 1a (for short-term
of securities (taking into account commissions and any other transactions) or line 8a (for long-term transactions) the
costs of acquiring or disposing of the securities) on Form aggregate totals from any transactions (other than sales of
8949 unless one of the exceptions described under collectibles) for which:
Exceptions to reporting each transaction on a separate row in • The corporation received a Form 1099-B (or substitute
the Instructions for Form 8949 applies. However, if a trader statement) that shows basis was reported to the IRS and
made the mark-to-market election (see the Instructions for doesn't show any adjustments in box 1f or box 1g;
Form 4797), each transaction is reported in Part II of Form • The Ordinary checkbox in box 2 of Form 1099-B (or
4797 instead of on Form 8949. substitute statement) isn't checked;
The limitation on investment interest expense that applies • The QOF checkbox in box 3 of Form 1099-B (or substitute
to investors doesn't apply to interest paid or incurred in a statement) isn’t checked; and
trading business. A trader reports interest expense and other • The corporation doesn't need to make any adjustments to
expenses (excluding commissions and other costs of the basis or type of gain or loss reported on Form 1099-B (or
acquiring and disposing of securities) from a trading business substitute statement), or to its gain or loss.
on page 1 of Form 1120-S. See How To Complete Form 8949, Columns (f) and (g) in
A trader may also hold securities for investment. The rules the Instructions for Form 8949 for details about possible
for investors will generally apply to those securities. If they adjustments to the corporation's gain or loss.
apply, allocate interest and other expenses between the If the corporation chooses to report these transactions on
corporation's trading business and investment securities. lines 1a and 8a, don’t report them on Form 8949. Also, the
Report investment interest expense on Form 1120-S, corporation doesn’t need to attach a statement to explain the
entries on lines 1a and 8a.

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  Figure gain or loss on each line. Subtract the cost or other     1. An S corporation that was a C corporation before it 
basis in column (e) from the proceeds (sales price) in column    elected to be an S corporation.
(d). Enter the gain or loss in column (h). Enter negative          2. An S corporation that acquired an asset with a basis 
amounts in parentheses.                                          determined (in whole or in part) by reference to its basis (or 
  Example 1—basis reported to the IRS.    The                    the basis of any other property) in the hands of a C 
corporation received a Form 1099-B reporting the sale of         corporation (a transferred-basis acquisition). See section 
stock held for 3 years, showing proceeds (in box 1d) of          1374(d)(8).
$6,000 and cost or other basis (in box 1e) of $2,000. Box 12 
                                                                   An S corporation may owe the tax if it has net recognized 
is checked, meaning that basis was reported to the IRS. The 
                                                                 built-in gain during the applicable recognition period. For 
corporation doesn't need to make any adjustments to the 
                                                                 computation details, see Regulations section 1.1374-1(a).
amounts reported on Form 1099-B or enter any codes. This 
was the corporation's only 2023 transaction. Instead of            The applicable recognition period is the 5-year period 
reporting this transaction on Form 8949, the corporation can     beginning:
enter $6,000 on Schedule D, line 8a, column (d); $2,000 in       • For an asset held when the S corporation was a C 
column (e); and $4,000 ($6,000 − $2,000) in column (h).          corporation, on the first day of the first tax year for which the 
  If the corporation had a second transaction that was the       corporation is an S corporation; or
same except that the proceeds were $5,000 and the basis          • For a transferred-basis acquisition, on the date the asset 
was $3,000, combine the two transactions. Enter $11,000          was acquired by the S corporation.
($6,000 + $5,000) on Schedule D, line 8a, column (d); $5,000       A corporation described in both (1) and (2) above must 
($2,000 + $3,000) in column (e); and $6,000 ($11,000 −           figure the built-in gains tax separately for the group of assets 
$5,000) in column (h).                                           it held at the time its S election became effective and for each 
  Example 2—basis not reported to the IRS. The                   group of transferred-basis acquisitions. For details, see 
corporation received a Form 1099-B showing proceeds (in          Regulations section 1.1374-8.
box 1d) of $6,000 and cost or other basis (in box 1e) of           Certain transactions involving the disposal of timber, coal, 
$2,000. Box 12 isn't checked, meaning that basis wasn't          or domestic iron ore under section 631 aren’t subject to the 
reported to the IRS. Don’t report this transaction on line 1a or built-in gains tax. See Rev. Rul. 2001-50, which is on 
line 8a. Instead, report the transaction on Form 8949.           page 343 of Internal Revenue Bulletin 2001-43 at
Complete all necessary pages of Form 8949 before                 IRS.gov/pub/irs-irbs/irb01-43.pdf.
completing line 1b, 2, 3, 8b, 9, or 10 of Schedule D.
  Example 3—adjustment.     The corporation received a           Line 16
Form 1099-B showing proceeds (in box 1d) of $6,000 and           Generally, enter the amount that would be the taxable income 
cost or other basis (in box 1e) of $2,000. Box 12 is checked,    of the corporation for the tax year if only recognized built-in 
meaning that basis was reported to the IRS. However, the         gains (including any carryover of gain under section 1374(d)
basis shown in box 1e is incorrect. Don’t report this            (2)(B)) and recognized built-in losses were taken into 
transaction on line 1a or line 8a. Instead, report the           account.
transaction on Form 8949. See the instructions for Form 
8949, columns (f), (g), and (h). Complete all necessary            Generally, recognized built-in gain includes the following 
pages of Form 8949 before completing line 1b, 2, 3, 8b, 9, or    items.
10 of Schedule D.                                                  1. Any gain recognized during the applicable recognition 
                                                                 period on the sale, distribution, or other disposition of any 
Lines 1b, 2, 3, 8b, 9, and 10, Column                            asset, except to the extent the corporation establishes that:
(h)—Transactions Reported on Form 8949                             a. The asset wasn't held by the corporation as of the 
Figure gain or loss on each line. First, subtract cost or other  beginning of the applicable recognition period, or
basis in column (e) from proceeds (sales price) in column (d).     b. The gain exceeds the excess of the FMV of the asset 
Then, combine the results with any adjustments in column         as of the beginning of the applicable recognition period over 
(g). Enter the results in column (h). Enter negative amounts in  the adjusted basis of the asset at that time.
parentheses.                                                       2. Any item of income that is properly taken into account 
  Example 1—gain.      Column (d) is $6,000 and column (e)       during the applicable recognition period but is attributable to 
is $2,000. Enter $4,000 in column (h).                           periods before the applicable recognition period.
  Example 2—loss.      Column (d) is $6,000 and column (e)         Generally, recognized built-in loss includes the following 
is $8,000. Enter ($2,000) in column (h).                         items.
  Example 3—adjustment.     Column (d) is $6,000, column           1. Any loss recognized during the applicable recognition 
(e) is $2,000, and column (g) is ($1,000). Enter $3,000          period on the disposition of any asset to the extent the 
($6,000 − $2,000 − $1,000) in column (h).                        corporation establishes that:
                                                                   a. The asset was held by the corporation as of the 
Line 13. Capital Gain Distributions                              beginning of the applicable recognition period; and
Enter the total capital gain distributions paid to the 
                                                                   b. The loss doesn't exceed the excess of the adjusted 
corporation during the year.
                                                                 basis of the asset as of the beginning of the applicable 
Part III. Built-in Gains Tax                                     recognition period, over the FMV of the asset as of that time.
Section 1374 provides for a tax on built-in gains. The built-in    2. Any amount that is allowed as a deduction during the 
gains tax may apply to the following S corporations.             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)

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For details, see section 1374(d) and Regulations section carryforward (to the extent of net capital gain included in
1.1374-4. recognized built-in gain for the tax year) either arising in tax
The corporation must show on an attachment its total net years for which the corporation was a C corporation or
recognized built-in gain and list separately any capital gain or acquired in a transferred-basis acquisition (defined earlier).
loss and ordinary gain or loss. The section 1374(b)(2) deduction must be figured and
applied separately for each separate group of assets. See
Line 17 section 1374(b)(2) and Regulations section 1.1374-5.
Figure taxable income by completing lines 1 through 28 of
Line 22
Form 1120. Follow the Instructions for Form 1120. Enter the
amount from line 28 of Form 1120 on line 17 of Schedule D. Enter the section 1374(b)(3) credit. Generally, this is any
Attach to Schedule D the Form 1120 computation or other general business credit arising in tax years for which the
worksheet used to figure taxable income. corporation was a C corporation or acquired in a
transferred-basis acquisition (defined earlier). The section
For corporations figuring the built-in gains tax for separate 1374(b)(3) credit must be figured and applied separately for
groups of assets, taxable income must be apportioned to each separate group of assets. Section 1374(b)(3) business
each group of assets in proportion to the net recognized credit and minimum tax credit carryforwards from C
built-in gain for each group of assets. For details, see corporation years are subject to the business credit limitation
Regulations section 1.1374-8. in section 38(c) and the alternative minimum tax (AMT) credit
Note. Taxable income is figured as provided in section limitation in section 53(c), as modified by Regulations section
1375(b)(1)(B) and is generally figured in the same manner as 1.1374-6(b).
taxable income for line 9 of the Excess Net Passive Income The AMT refundable credit provisions do not apply to
Tax Worksheet for Line 22a in the Instructions for Form ! S corporations. See sections 1371(b)(1) and 1374(b)
1120-S. CAUTION (3)(B).

Line 18
Line 23
If, for any tax year in the recognition period, the amount on
The built-in gains tax is treated as a loss sustained by the
line 16 exceeds the taxable income on line 17, the excess is
corporation during the same tax year. The character of the
treated as a recognized built-in gain in the succeeding tax
deemed loss is determined by allocating the loss
year. This carryover provision applies only in the case of an S
proportionately among the net recognized built-in gains
corporation that made its election to be an S corporation after
giving rise to the tax and attributing the character of each net
March 30, 1988. See section 1374(d)(2)(B).
recognized built-in gain to the allocable portion of the loss.
For corporations figuring the built-in gains tax for separate Deduct the tax attributable to the following.
groups of assets, don’t use the amount from Form 1120-S, • Short-term capital gain as short-term capital loss on
Schedule B, line 8. Instead, figure the amount of net Schedule D, line 6.
unrealized built-in gain separately for each group of assets. • Long-term capital gain as long-term capital loss on
Schedule D, line 14.
Line 19 • Ordinary income as a deduction for taxes on Form 1120-S,
Enter the section 1374(b)(2) deduction. Generally, this is any line 12.
net operating loss (NOL) carryforward or capital loss

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

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