N-35 Sch. D: Capital Gains and Losses and Built-in Gains (Form N-35) (2024)

Who files this form

S corporations use Schedule D (Form N-35) to report sales or exchanges of capital assets and gains from distributing appreciated capital assets to shareholders. The schedule also identifies the gains attributable to Hawaii and the net capital gain that flows through to shareholders.

Generally, an S corporation with net recognized built-in gain on assets attributable to Hawaii is liable for the built-in gains tax, figured in Part III. Assets are attributable to Hawaii if they are physically located in Hawaii, used in a Hawaii business, or are intangible assets of an S corporation with its commercial domicile in Hawaii.

What you'll need

Have the corporation’s name, federal employer identification number, and the following information or documents, as applicable:

• Property descriptions, acquisition and sale dates, gross sales prices, cost or other basis, selling expenses, and gain or loss attributable to Hawaii.
• Federal Form 6252 for installment-sale gains.
• Federal Form 8824 for each like-kind exchange. Complete and attach it to the corporation’s return.
• An explanation if you use a basis other than the property’s actual cash cost.
• Computation schedules for Part III, lines 16 and 17. For line 17, attach the Form N-30 computation or other worksheet used to figure taxable income.

For built-in gains, attach the required breakdown of net recognized built-in gain attributable to Hawaii. Qualified corporations must separately list gains or losses from capital assets held six months or less and dispositions producing ordinary income or loss. Nonqualified corporations must separately list capital and ordinary gains or losses.

How to file

File Schedule D with Form N-35.

For like-kind exchanges, attach federal Form 8824 for each exchange and report the exchange on Schedule D or Schedule D-1, whichever applies. At the top of Schedule D, write “Like-Kind Exchange” or, if a related party was involved, “Related Party Like-Kind Exchange.”

Transfer the schedule’s results as directed:

• Line 7: Enter the net short-term capital gain or loss on Form N-35, Schedule K, line 7 or line 10.
• Line 15: Enter the net long-term capital gain or loss on Form N-35, Schedule K, line 8 or line 10.
• Line 21: Enter the built-in gains tax on Form N-35, page 2, line 22b.

Common mistakes

• Do not apply the special federal election under section 311 of the Taxpayer Relief Act of 1997 for capital assets acquired in tax years beginning before January 1, 2001. The printed note says this election was not available for Hawaii tax purposes.
• Read the instructions before completing Part III, as the form directs.
• Do not enter more on line 18 than the excess, if any, of net unrealized built-in gain attributable to Hawaii over net recognized built-in gain attributable to Hawaii for prior years.

Questions people ask

What is the difference between short-term and long-term capital gains?

Report capital assets held one year or less in Part I. Report capital assets held more than one year in Part II.

Do I report an exchange if there is no gain or loss?

Generally, yes. The instructions say to report sales and exchanges, including like-kind exchanges, even if there is no gain or loss. For like-kind exchanges, they refer to federal Publication 544 for exceptions.

Which dates should I use for stock and bond transactions?

For stocks and bonds traded on an exchange or over-the-counter market, use the trade dates for acquisition and sale.

Do selling expenses affect the gain or loss?

Yes. Before entering the cost or other basis in column (e), increase it by selling expenses such as broker’s fees, commissions, option premiums, and state and local transfer taxes.

How is the built-in gains tax calculated on the form?

Subtract line 19 from line 18 and enter the result on line 20. If the result is zero or less, enter zero on lines 20 and 21. Otherwise, line 21 is 6.4% of line 20.

Official sources

• https://files.hawaii.gov/tax/forms/2024/n35schd_i.pdf