Schedule D: Capital Gains and Losses for H-1B Visa Holders

Schedule D is where all your capital gains and losses — from RSU sales, ESPP dispositions, stock trades, and Indian investments — come together. Understanding the rates, the Net Investment Income Tax, and how Form 8949 feeds into Schedule D is essential for accurate filing.

What Is Schedule D?

Schedule D (Form 1040) — "Capital Gains and Losses" — is the IRS form where you summarize all capital asset transactions for the year. It is not where you list individual sales — that happens on Form 8949. Schedule D aggregates the totals from Form 8949 and computes your net capital gain or loss.

Think of it this way: Form 8949 is the detailed ledger. Schedule D is the summary that feeds into Form 1040 Line 7 (capital gain or loss).

Short-Term vs Long-Term Rates

The tax rate on capital gains depends entirely on how long you held the asset before selling:

For most H-1B holders at tech companies, the relevant long-term rate is 15%. The 0% rate applies only to taxable income below $49,025 (single) or $98,050 (MFJ) in 2026 — unlikely for most H-1B salaries. The 20% rate kicks in above $539,900 (single) or $607,350 (MFJ).

How Form 8949 Feeds Into Schedule D

Schedule D has two parts:

• Part I — Short-Term: Totals from Form 8949 for assets held one year or less. These go on Schedule D Lines 1a through 7.
• Part II — Long-Term: Totals from Form 8949 for assets held more than one year. These go on Schedule D Lines 8a through 15.

Each section of Form 8949 (Box A, B, or C for short-term; Box D, E, or F for long-term) maps to a specific line on Schedule D. The totals for proceeds, cost basis, adjustments, and gain/loss carry forward automatically.

Net Investment Income Tax (3.8% Surtax)

Beyond the regular capital gains rates, high earners face an additional 3.8% tax under IRC Section 1411 — the Net Investment Income Tax (NIIT). This applies when your Modified Adjusted Gross Income exceeds:

• $200,000 for single filers
• $250,000 for married filing jointly

The 3.8% applies to the lesser of: (a) your net investment income (capital gains, dividends, interest, rental income), or (b) the amount by which your MAGI exceeds the threshold.

Wash Sale Rules

If you sell a stock at a loss and repurchase the same (or "substantially identical") security within 30 days before or after the sale, the loss is disallowed under IRC Section 1091. The disallowed loss gets added to the basis of the replacement shares.

This is particularly relevant for H-1B holders with RSU vesting schedules. If you sell company stock at a loss and your RSUs vest within 30 days (acquiring the same stock), the wash sale rule applies. The loss is deferred, not permanently lost — it increases the basis of the newly vested shares.

Wash sale adjustments appear on Form 8949 with code "W" in column (f). The disallowed loss amount is entered as a positive number in column (g), which reduces the reported loss to zero.

H-1B Specific Scenarios

When Is Schedule D Required?

You must file Schedule D if you have any of the following:

• Capital gains or losses from stock sales (including RSU and ESPP)
• Capital gain distributions from mutual funds (reported on 1099-DIV Box 2a)
• A gain or loss from Form 4797 (sale of business property — rare for H-1B)
• Capital loss carryforward from a prior year

There is one exception: if your only capital gains are capital gain distributions (from mutual funds) and you have no capital losses, you can report them directly on Form 1040 Line 7 without filing Schedule D.

Common Mistakes

1. Mixing up short-term and long-term. The holding period for RSUs starts at vesting, not at grant. For ESPP, the holding period for capital gains purposes starts at the purchase date.
2. Ignoring wash sales from RSU vesting. If you sell company stock at a loss and RSUs vest within 30 days, the wash sale rule applies. Many filers miss this because they did not "buy" anything — but vesting is treated as an acquisition.
3. Forgetting the NIIT. With a tech salary plus capital gains, many H-1B holders exceed the $200,000 threshold. Failing to file Form 8960 triggers an IRS notice.
4. Not reporting Indian stock sales. As a US tax resident, your worldwide capital gains go on Schedule D. Selling stocks in India and not reporting them is a compliance failure.
5. Exceeding the $3,000 loss deduction. If net losses exceed $3,000, you can only deduct $3,000 against ordinary income. The remainder carries forward. Some filers claim the full loss, triggering an IRS correction.

How Our Platform Handles This

H1B TaxFile generates Schedule D automatically from your transaction data:

• All Form 8949 transactions are automatically classified as short-term or long-term and routed to the correct Schedule D section.
• RSU basis corrections, ESPP adjustments, and wash sale codes are propagated through to Schedule D totals without manual intervention.
• The platform calculates whether the Net Investment Income Tax applies and generates Form 8960 if needed.
• Capital loss carryforwards from prior years can be entered and are applied correctly on Schedule D Line 14.
• Indian stock sales are converted from INR to USD using the IRS average annual rate and included in the correct Schedule D section.