REG Capital Gains · Updated November 2026
Capital Gain and Loss Netting: What Gets Netted First?
Separate short-term and long-term items before combining anything.
Short-term group
Net short-term capital gains and losses together.
Long-term group
Net long-term capital gains and losses together.
Then combine
The interaction of the net short-term and net long-term positions determines the overall capital result.
Net capital loss
Individuals can generally deduct only a limited amount of net capital loss against ordinary income each year, with excess carried forward. Use current law for the exact limit.
Do not mix Section 1231 automatically
Business-property gains and losses can follow the Section 1231 process before their ultimate character is determined.
The takeaway
Short-term with short-term. Long-term with long-term. Then combine the buckets.
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FAQ
Can an individual deduct unlimited capital losses against wages?
No.
Do unused capital losses disappear?
Generally they can carry forward subject to applicable rules.
Is every asset sale a capital transaction?
No.