This glossary contains SCHEDULE D terminology as defined by the IRS. We are displaying the terms here for your convenience. You may also view these terms directly on the IRS Website here or view the IRS Publication 550, Investment Income and Expenses.

Remember SCHEDULE D 4 DONE fills out the SCHEDULE D form for you including matching all your trade transactions, calculating wash sales and more.

Accrual method:
An accounting method under which you report your income when you earn it, whether or not you have received it. You generally deduct your expenses when you incur a liability for them, rather than when you pay them.

At-risk rules:
Rules that limit the amount of loss you may deduct to the amount you risk losing in the activity.

Basis:
Basis is the amount of your investment in property for tax purposes. The basis of property you buy is usually the cost. Basis is used to figure gain or loss on the sale or disposition of investment property.

Below-market loan:
A demand loan (defined later) on which interest is payable at a rate below the applicable federal rate, or a term loan where the amount loaned is more than the present value of all payments due under the loan.

Call:
An option that entitles the purchaser to buy, at any time before a specified future date, property such as a stated number of shares of stock at a specified price.

Capital Asset:
Most property you own and use for personal purposes, pleasure, or investment is a capital asset. For example, your house, furniture, car, stocks, and bonds are capital assets. A capital asset is any property held by you except the following:
1. Stock in trade or other property included in inventory or held mainly for sale to customers.
2. Accounts or notes receivable for services performed in the ordinary course of your trade or business or as an employee, or from the sale of stock in trade or other property held mainly for sale to customers.
3. Depreciable property used in your trade or business, even if it is fully depreciated.
4. Real estate used in your trade or business.
5. Copyrights, literary, musical, or artistic compositions, letters or memoranda, or similar property: (a) created by your personal efforts; (b) prepared or produced for you (in the case of letters, memoranda, or similar property); or (c) that you received from someone who created them or for
whom they were created, as mentioned in (a) or (b), in a way (such as by gift) that entitled you to the basis of the previous owner.
6. U.S. Government publications, including the Congressional Record, that you received from the government, other than by purchase at the normal sales price, or that you got from someone who had received it in a similar way, if your basis is determined by reference to the previous owner’s basis.
7. Certain commodities derivative financial instruments held by a dealer. See section 1221(a)(6).
8. Certain hedging transactions entered into in the normal course of your trade or business. See section 1221(a)(7).
9. Supplies regularly used in your trade or business.

Capital Gain Distributions:
These distributions are paid by a mutual fund (or other regulated investment company) or real estate investment trust from its net realized long-term capital gains. Distributions of net realized short-term capital gains are not treated as capital gains. Instead, they are included on Form 1099-DIV as ordinary dividends. Enter on line 13 the total capital gain distributions paid to you during the year, regardless of how long you held your investment. This amount is shown in box 2a of Form 1099-DIV. If there is an amount in box 2b, include if you complete line 19 of Schedule D. If there is an amount in box 2c, see Exclusion of Gain on Qualified Small Business (QSB) Stock on page D-4. If there is an amount in box 2d, include that amount on line 4 of the 28% Rate Gain Worksheet on page D-7 if you complete line 18 of Schedule D. If you received capital gain distributions as a nominee (that is, they were paid to you but actually belong to someone else), report on line 13 only the amount that belongs to you. Attach a statement showing the full amount you received and the amount you received as a nominee. See the Instructions for Schedule B for filing requirements for Forms 1099-DIV and 1096.

Cash method:
An accounting method under which you report your income in the year in which you actually or constructively receive it. You generally deduct your expenses in the year you pay them.

Commodities trader:
A person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade designated as a contract market by the Commodities Futures Trading Commission.

Commodity future:
A contract made on a commodity exchange, calling for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price.

Conversion transaction:
Any transaction that you entered into after April 30, 1993, that meets both of these tests. Substantially all of your expected return from the transaction is due to the time value of your net investment. The transaction is one of the following: A straddle, including any set of offsetting positions on stock. Any transaction in which you acquire property (whether or not actively traded) at substantially the same time that you contract to sell the same property or substantially identical property at a price set in the contract. Any other transaction that is marketed or sold as producing capital gains from a transaction described in (1).

Cost or Other Basis:
In general, the cost or other basis is the cost of the property plus purchase commissions and improvements, minus depreciation, amortization, and depletion. If you inherited the property, got it as a gift, or received it in a tax-free exchange, involuntary conversions, or “wash sale” of stock, you may not be able to use the actual cost as the basis. If you do not use the actual cost, attach an explanation of your basis.

Demutualization of Life Insurance Companies:
Demutualization of a life insurance company occurs when a mutual life insurance company changes to a stock company. If you were a policyholder or annuitant of the mutual company, you may have received either stock in the stock company or cash in exchange for your equity interest in the mutual company. The basis of your equity interest in the mutual company is considered to be zero. If the demutualization transaction qualifies as a tax-free reorganization, no gain is recognized on the exchange of your equity interest in the mutual company for stock. The company can advise you if the transaction is a tax-free reorganization. Because the basis of your equity interest in the mutual company is considered to be zero, your basis in the stock received is zero. Your holding period for the new stock includes the period you held an equity interest in the mutual company. If you received cash in exchange for your equity interest, you must recognize a capital gain in an amount equal to the cash received. If you held the equity interest for more than 1 year, report the gain as a long-term capital gain on line 8. If you held the equity interest for 1 year or less, report the gain as a short-term capital gain on line 1. If the demutualization transaction does not qualify as a tax-free reorganization, you must recognize a capital gain in an amount equal to the cash and fair market value of the stock received. If you held the equity interest for more than 1 year, report the gain as a long-term capital gain on line 8. If you held the equity interest for 1 year or less, report the gain as a short-term capital gain on line 1. Your holding period for the new stock begins on the day after you received the stock.

Dividend:
A distribution of money or other property made by a corporation to its shareholders out of its earnings and profits.

Equity option:
Any option: To buy or sell stock, or that is valued directly or indirectly by reference to any stock or narrow-based security index.

Fair market value:
The price at which property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.

Forgone interest:
The amount of interest that would be payable for any period if interest accrued at the applicable federal rate and was payable annually on December 31, minus any interest payable on the loan for that period.

Forward contract:
A contract to deliver a substantially fixed amount of property (including cash) for a substantially fixed price.

Futures contract:
An exchange-traded contract to buy or sell a specified commodity or financial instrument at a specified price at a specified future date. See also Commodity future.

Gain or Loss From Options:
Report on Schedule D gain or loss from the closing or expiration of an option that is not a section 1256 contract but is a capital asset in your hands. If an option you purchased expired, enter the expiration date in column (c) and enter “EXPIRED” in column (d). If an option that was granted (written) expired, enter the expiration date in column (b) and enter “EXPIRED” in column (e). Fill in the other columns as appropriate. See Pub. 550 for details.

Gift loan:
Any below-market loan where the forgone interest is in the nature of a gift.

Installment Sales:
If you sold property (other than publicly traded stocks or securities) at a gain and you will receive a payment in a tax year after the year of sale, you generally must report the sale on the installment method unless you elect not to. Use Form 6252 to report the sale on the installment method. Also use Form 6252 to report any payment received in 2006 from a sale made in an earlier year that you reported on the installment method. To elect out of the installment method, report the full amount of the gain on Schedule D on a timely filed return (including extensions) for the year of the sale. If your original return was filed on time, you may make the election on an amended return filed no later than 6 months after the due date of your return (excluding extensions). Write “Filed pursuant to section 301.9100-2” at the top of the amended return.

Interest:
Compensation for the use or forbearance of money.

Investment interest:
The interest you paid or accrued on money you borrowed that is allocable to property held for investment.

Limited partner:
A partner whose participation in partnership activities is restricted, and whose personal liability for partnership debts is limited to the amount of money or other property that he or she contributed or may have to contribute.

Listed option:
Any option that is traded on, or subject to the rules of, a qualified board or exchange.

Marked to market rule:
The treatment of each section 1256 contract (defined later) held by a taxpayer at the close of the year as if it were sold for its fair market value on the last business day of the year.

Mark-To-Market Election for Traders:
A trader may make an election under section 475(f) to report all gains and losses from securities held in connection with a trading business as ordinary income (or loss), including those from securities held at the end of the year. Securities held at the end of the year are “marked to market” by treating them as if they were sold (and reacquired) for fair market value on the last business day of the year. Generally, the election must be made by the due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. To be effective for 2006, the election must have been made by April 15, 2006.

Starting with the year the election becomes effective, a trader reports all gains and losses from securities held in connection with the trading business, including securities held at the end of the year, in Part II of Form 4797. If you previously made the election, see the Instructions for Form 4797. For details on making the 550 or Rev. Proc. 99-17, 1999-1 C.B. 503. You can find Rev. Proc. 99-17 on page 52 of Internal Revenue Bulletin 1999-7 at www.irs.gov/pub/irs-irbs/irb99-07.pdf. If you hold securities for investment, you must identify them as such in your records on the day you acquired them (for example, by holding the securities in a separate brokerage account). Securities held for investment are not marked-to-market.

Market discount:
The stated redemption price of a bond at maturity minus your basis in the bond immediately after you acquire it. Market discount arises when the value of a debt obligation decreases after its issue date.

Market discount bond:
Any bond having market discount except: Short-term obligations with fixed maturity dates of up to 1 year from the date of issue, Tax-exempt obligations that you bought before May 1, 1993, U.S. savings bonds, and Certain installment obligations.

Nominee:
A person who receives, in his or her name, income that actually belongs to someone else.

Nonequity option:
Any listed option that is not an equity option, such as debt options, commodity futures options, currency options, and broad-based stock index options.

Options dealer:
Any person registered with an appropriate national securities exchange as a market maker or specialist in listed options.

Original issue discount (OID):
The amount by which the stated redemption price at maturity of a debt instrument is more than its issue price.

Passive activity:
An activity involving the conduct of a trade or business in which you do not materially participate and any rental activity. However, the rental of real estate is not a passive activity if both of the following are true. More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate.

Portfolio income:
Gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. It includes gains from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment.

Premium:
The amount by which your cost or other basis in a bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest).

Private activity bond:
A bond that is part of a state or local government bond issue of which: More than 10% of the proceeds are to be used for a private business use, and More than 10% of the payment of the principal or interest is: Secured by an interest in property to be used for a private business use (or payments for the property), or Derived from payments for property (or borrowed money) used for a private business use.

Put:
An option that entitles the purchaser to sell, at any time before a specified future date, property such as a stated number of shares of stock at a specified price.

Real estate mortgage investment conduit (REMIC):
An entity that is formed for the purpose of holding a fixed pool of mortgages secured by interests in real property, with multiple classes of interests held by investors. These interests may be either regular or residual.

Regulated futures contract:
A section 1256 contract that: Provides that amounts that must be deposited to, or may be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and Is traded on, or subject to the rules of, a qualified board of exchange, such as a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission or any board of trade or exchange approved by the Secretary of the Treasury.

Restricted stock:
Stock you get for services you perform that is nontransferable and is subject to a substantial risk of forfeiture. Section 1256 contract: Any: Regulated futures contract, Foreign currency contract as defined in chapter 4 under Section 1256 Contracts Marked to Market, Nonequity option, Dealer equity option, or Dealer securities futures contract.

Schedule D:
Use the Schedule D form 1040 to report the following:
1. The sale or exchange of a capital asset not reported on another form or schedule.
2. Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit.
3. Capital gain distributions not reported directly on Form 1040 line 13.
4. Non-business bad debts.

Securities futures contract:
A contract of sale for future delivery of a single security or of a narrow-based security index.
You may download the SCHEDULE D form from the IRS Website here.

Short sale:
The sale of property that you generally do not own. You borrow the property to deliver to a buyer and, at a later date, you buy substantially identical property and deliver it to the lender.

Short Sales:
A short sale is a contract to sell property you borrowed for delivery to a buyer. At a later date, you either buy substantially identical property and deliver it to the lender or deliver property that you held but did not want to transfer at the time of the sale. Usually, your holding period is the amount of time you actually held the property eventually delivered to the lender to close the short sale. However, your gain when closing a short sale is short term if you (a) held substantially identical property for 1 year or less on the date of the short sale or (b) acquired property substantially identical to the property sold short after the short sale but on or before the date you close the short sale. If you held substantially year on the date of a short sale, any loss realized on the short sale is a long-term capital loss, even if the property used to close the short sale was held 1 year or less.

Short Term or Long Term:
Separate your capital gains and losses according to how long you held or owned the property. The holding period for short-term capital gains and losses in 1 year or less. The holding period for long-term capital Gains and losses is more than 1 year. To Figure the holding period, begin counting on the day after you received the property and include the day you disposed of it. If you disposed of property that you acquired by inheritance, report the disposition as long-term gain or loss, regardless of how long you held the property. A non-business bad debt must be treated for what qualifies as a non-business bad debt and how to enter it on Schedule D.

Straddle:
Generally, a set of offsetting positions on personal property. A straddle may consist of a purchased option to buy and a purchased option to sell on the same number of shares of the security, with the same exercise price and period.

Stripped preferred stock:
Stock that meets the following tests. There has been a separation in ownership between the stock and any dividend on the stock that has not become payable. The stock: Is limited and preferred as to dividends, Does not participate in corporate growth to any significant extent, and has a fixed redemption price.

Term loan:
Any loan that is not a demand loan.

Wash sale:
A sale of stock or securities at a loss within 30 days before or after you buy or acquire in a fully taxable trade, or acquire a contract or option to buy, substantially identical stock or securities. A wash sale occurs when you sell or otherwise dispose of stock or securities (including a contract or option to acquire or sell stock or securities) at a loss and, within 30 days before or after the sale or disposition, you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, or Enter into a contract or option to acquire substantially identical stock or securities. You cannot deduct losses from wash sales unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities. The basis of the substantially identical property (or contract or option to acquire such property) is its cost increased by the disallowed loss. For more details on wash sales, see Pub. 550. Report a wash sale transaction on line 1 or 8. Enter the full amount of the (loss) in column (f). Directly below the line on which you reported the loss, enter “Wash Sale” in column (a), and enter as a positive amount in column (f) the amount of the loss not allowed.