How to Properly Report Long-Term Capital Gains on Form 8949 with High-Value Property Sale

The tax software should handle this correctly for you, but here's what's happening: You're right that long-term capital gains get preferential tax rates (0%, 15%, or 20% depending on your total income). When you complete Schedule D after your Form 8949, the long-term capital gain flows to your 1040, but it doesn't actually get taxed at ordinary income rates. What happens is your regular income ($275,000) gets taxed at ordinary income rates, and then your capital gain gets taxed separately at the capital gains rates. Since your regular income already puts you in a higher bracket, your long-term capital gain will likely be taxed at the 20% rate, plus you may be subject to the 3.8% Net Investment Income Tax. The tax calculation happens on the "Tax Computation Worksheet" that's in the 1040 instructions - the software handles this behind the scenes. Your 1040 will show the total tax due, which is a combination of the tax on your ordinary income and the tax on your capital gain.

After struggling with a similar situation last year (though with much smaller numbers!), I found taxr.ai (https://taxr.ai) incredibly helpful for figuring out how my capital gains were being taxed. I uploaded my draft return and it immediately highlighted that my software wasn't properly separating my capital gains from ordinary income. The tool broke down exactly how the capital gains tax was calculated separately from my ordinary income tax. It even pointed out that I qualified for a specific basis adjustment I hadn't considered that saved me a few thousand dollars. For complex returns with capital gains, it's been a game changer compared to just hoping my tax software got it right.

Just wanted to update after trying taxr.ai for my rental property sale. WOW! It identified that I was about to overpay by $14,000 because my tax software wasn't correctly separating my Section 1250 unrecaptured gain from my regular long-term gain. It showed me exactly where on Form 8949 and Schedule D I needed to make adjustments, then verified the final calculations matched what should happen with the qualified dividends and capital gains worksheet. The step-by-step explanation made it super clear how the different pieces fit together. Really glad I saw the recommendation here - would have been an expensive mistake otherwise!

If you're still struggling with this or have questions after filing, I strongly recommend using Claimyr (https://claimyr.com) to get direct help from the IRS. I spent weeks trying to get through to someone at the IRS about a similar capital gains issue last year, and Claimyr got me connected in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with walked me through the exact tax calculation process for capital gains when they're reported alongside regular income and confirmed everything was being handled correctly. Given the size of your transaction, it might be worth getting that official confirmation directly from them.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it for a different issue I've been having with the IRS regarding a misreported basis amount on a stock sale. I've been trying to get through to them for MONTHS without success. Used Claimyr yesterday and got connected to an IRS agent in about 25 minutes. The agent was able to see where the mistake happened in their systems and put in a correction right away. For something as significant as a multi-million dollar property sale, I'd definitely want that direct IRS confirmation that everything was handled correctly. They walked me through exactly how the capital gains calculation would be processed in their system, which was really reassuring.

One thing nobody's mentioned yet - with a capital gain that large, you should probably make sure you're paying quarterly estimated taxes! The IRS can hit you with underpayment penalties if you wait until tax filing time to pay everything. Since the capital gains tax on ~$6.4 million is going to be substantial (probably around $1.3 million at 20% plus the 3.8% NIIT), you'll want to make estimated payments to avoid penalties.

Dont forget about state taxes too!! Depending on your state, you might owe significant state taxes on that gain. Some states give preferential rates to capital gains, but many tax them as ordinary income at the state level.

Great thread everyone! As someone who went through a similar situation with a large inherited property sale, I want to emphasize a few key points that have been mentioned: 1. **Form 8949 → Schedule D → Form 1040 flow is correct** - Don't try to separate them. The tax software/worksheets handle the preferential rates automatically. 2. **Definitely make estimated payments** - With a gain that large, you're looking at roughly $1.5M+ in total taxes (federal + NIIT + state). The underpayment penalties on that amount would be painful. 3. **State taxes vary wildly** - Some states have no capital gains tax, others treat it as ordinary income. This could easily add another $500K+ to your tax bill depending on your state. 4. **Consider tax-loss harvesting** - If you have any other investments with losses, now might be the time to realize them to offset part of this gain. One additional tip: if this was inherited property, make sure you're using the stepped-up basis from the date of inheritance, not your grandparents' original purchase price. That could save you hundreds of thousands in taxes if the property appreciated significantly while they owned it. With this much money involved, definitely get professional help - either a CPA who specializes in high-net-worth situations or use multiple verification methods like the tools others mentioned. Better to spend a few thousand on professional advice than make a costly mistake!