Updated October 24, 2026. Quick answer: Line 5 of the Pennsylvania PA-40 is where you report your net gain or loss from selling, exchanging or disposing of property. The booklet sends the detail to PA Schedule D and tells you to fill in the oval if the result is an overall loss. The line 5 result then feeds the total on line 9. This page walks through what the booklet and the form print for line 5.
What this line does
The booklet’s instruction heading for this line is “NET GAIN OR LOSS FROM THE SALE, EXCHANGE, OR DISPOSITION OF PROPERTY”. On the form, line 5 sits on the first side, the page marked Side 1, and reads “Net Gain or Loss from the Sale, Exchange, or Disposition of Property.”
The instruction opens with “Report your gain (loss) from the sale, exchange, or disposition of any kind of intangible property and any real or tangible property.” Line 4, covered on Pennsylvania Form PA-40 line 4, comes just before it. For the whole sequence see Pennsylvania Form PA-40 line by line.
Who it applies to
The booklet ties line 5 to anyone with a sale, exchange or disposition to report, including partners and S corporation members: “Report your share of the gains (losses) from a partnership or PA S corporation in which you are a member.”
Home sellers are addressed in their own paragraph: “If you sold your principal residence in 2025 and meet the requirements for the 100 percent gain exclusion, do not report the sale on your tax return.” For a broader look at how the state treats home sale profit, see whether Pennsylvania taxes home sale profit.
Mutual fund holders are told where their distributions go: “Report capital gains distributions received from mutual funds as PA-taxable dividend income, even though you report such distributions as capital gains on federal Schedule D.” Federal capital gain reporting is covered on Schedule D (Form 1040) and Form 1040 line 7.
What the instructions say
| Line | What the form says |
|---|---|
| Form, line 5 | “Net Gain or Loss from the Sale, Exchange, or Disposition of Property.” |
| What to report | “Report your gain (loss) from the sale, exchange, or disposition of any kind of intangible property and any real or tangible property.” “Report your share of the gains (losses) from a partnership or PA S corporation in which you are a member.” |
| Which schedule | “Report your total net gains (losses) on PA Schedule D.” |
| Long term, short term and related parties | “PA law does not distinguish between long-term and short term gains (losses) or have provisions relating to casualty losses, or sales to related parties.” |
| Like kind exchanges | “The deferral of tax due on gains from like kind exchanges of property are allowed.” |
| A net loss | “If you realize an overall net loss, fill in the oval next to Line 5 on your PA-40.” |
| Married filers | “If one spouse has a net profit, income or gain and the other spouse has a net loss, report only the net income on the appropriate line.” |
| Sales listed for Schedule D | “Land and buildings”; “Properties held for investment, including rental properties”; “Stocks and bonds”; “Ownership interests in partnerships and business enterprises”. These are bullets under “On PA Schedule D, report gains (losses) from selling:” |
| Inherited property | “Sales of inherited property. The basis of inherited property is its fair market value at the date of death.” |
| Residence that does not qualify | “A nonqualifying sale of your principal residence” is listed, followed by “obtain PA Schedule 19, Sale of a Principal Residence.” |
| Loss on the Disposition of Property | “PA law recognizes a loss only on a transaction entered into for profit, and only in the year in which an identifiable event closed and completed the transaction and fixed the amount of the loss so there is no possibility of any eventual recovery.” |
| Property not acquired for profit | “Do not report a loss on the sale of property that you did not acquire for profit, such as a personal car, furniture, or a qualifying sale of your principal residence.” |
| Capital Gains Distributions | “Report capital gains distributions received from mutual funds as PA-taxable dividend income, even though you report such distributions as capital gains on federal Schedule D.” |
| Involuntary Conversions | “that are not required to be reported for federal income tax purposes under IRC Section 1033 are not required to be reported for PA personal income tax purposes on transactions occurring after Sept. 11, 2016.” |
| Exchange of Insurance Contracts | “Do not report the gain (loss) on the sale, exchange, or disposition of any insurance contracts that are tax-exempt for federal income tax purposes under IRC Section 1035.” |
| Exempt obligations issued before Feb. 1, 1994 | “Do not report the gain (loss) realized on the sale, exchange, or disposition of the following obligations, if the original issue date was before Feb. 1, 1994, regardless of the date you acquired the obligation:” |
| Exempt obligations issued on or after Feb. 1, 1994 | “Report the gain (loss) realized on the sale, exchange, or disposition of the above PA tax-exempt obligations, if the original issue date was on or after Feb. 1, 1994.” “You must report all such gains” |
| Sale of Your Principal Residence | “If you sold your principal residence in 2025 and meet the requirements for the 100 percent gain exclusion, do not report the sale on your tax return.” “This exclusion is not identical to the federal exclusion.” |
| Residence used partly for business | “If you used a portion of your principal residence for business purposes during your ownership, you may have gain or loss to report on the sale.” |
| Residence, no exclusion | “If you sold your principal residence, but you do not qualify for the exclusion, report your gain or enter zero if you realized a loss on PA Schedule D.” |
The figures the form prints
The home sale paragraph states its test in one sentence: “Generally, if during the five years preceding the sale of your home, you owned it for at least two years, and used it as your principal residence for at least two years, you are eligible for this exclusion.”
The exempt obligations paragraphs turn on an issue date, printed as “if the original issue date was before Feb. 1, 1994” in one paragraph and “if the original issue date was on or after Feb. 1, 1994” in the other.
Where the result goes next
The form’s line 9 picks up line 5 only when it is a gain: “Total PA Taxable Income. Add only the positive income amounts from Lines 1c, 2, 3, 4, 5, 6, 7, and 8.” The booklet adds “DO NOT ADD any losses reported on Lines 4, 5, or 6.” Line 9 is covered on Pennsylvania Form PA-40 line 9.
For the state’s wider treatment of investment gains see whether Pennsylvania taxes capital gains, and for the overview of how Pennsylvania treats retirees see Pennsylvania retirement taxes.
Edition and line numbers
This page reads 2025 PA Personal Income Tax Return Instructions (PA-40 IN), Pennsylvania Department of Revenue, and 2025 Form PA-40, Pennsylvania Income Tax Return, Pennsylvania Department of Revenue, for tax year 2025, the current files the Pennsylvania Department of Revenue served on 2026-10-24. Check the edition printed on your own form and use that edition’s line numbers.
Common mistakes
- Reporting a loss on personal property. The booklet says “Do not report a loss on the sale of property that you did not acquire for profit, such as a personal car, furniture, or a qualifying sale of your principal residence.”
- Putting mutual fund capital gains distributions on line 5. The booklet directs “Report capital gains distributions received from mutual funds as PA-taxable dividend income” instead.
- Letting a spouse’s loss reduce the other spouse’s gain. The booklet says “If one spouse has a net profit, income or gain and the other spouse has a net loss, report only the net income on the appropriate line.”
Related: whether Pennsylvania taxes home sale profit, Schedule D (Form 1040), Form 1040 line 7, whether Pennsylvania taxes capital gains, and Pennsylvania retirement taxes.
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Answer againSources
- 2025 PA Personal Income Tax Return Instructions (PA-40 IN), Pennsylvania Department of Revenue: www.pa.gov
- 2025 Form PA-40, Pennsylvania Income Tax Return, Pennsylvania Department of Revenue: www.pa.gov
- Related official page (not quoted): Pennsylvania Department of Revenue, personal income tax forms and publications: www.pa.gov
Read from the state revenue documents linked above on October 24, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the state revenue department is the right place to confirm anything consequential.