Capital loss limits and carryovers

You can deduct capital losses up to the amount of your capital gains. For you as a noncorporate taxpayer, an extra loss deduction is available when sales or exchanges of capital assets produce more losses than gains, subject to the following limits. Your additional deduction is the lower of $3,000 or the amount by which your capital losses exceed your capital gains. If you are married filing separately, you use $1,500 instead of $3,000.

You therefore apply the $3,000 limit to the excess of your losses over your gains. You do not apply it as a ceiling on all capital losses you can deduct against capital gains. Your deduction can include losses equal to your capital gains plus the permitted additional amount.

You must keep the smaller amount rule in view. If your excess losses are below your applicable dollar limit, your additional deduction stops at those excess losses. You cannot deduct the full $3,000, or the full $1,500 for a separate married return, unless you have enough excess capital losses.

You figure your allowable capital loss deduction on Schedule D of Form 1040. Your deduction is the lesser of your total net loss on line 16 or $3,000. If you are married and file a separate return, your dollar limit is $1,500.

You can use your deductible net capital loss to reduce your income dollar for dollar, within your applicable limit. The amount of the loss you deduct is an income reduction. You remain subject to the smaller of your net loss and the applicable $3,000 or $1,500 ceiling.

You have two amounts to distinguish when reading these rules. Your capital losses can offset your capital gains. Your remaining net capital loss is then subject to the limit on the additional deduction. Schedule D expresses that additional deduction by comparing your line 16 net loss with your applicable dollar limit.

On a separate married return, $1,500 is the maximum extra loss amount you may claim. You still compare that ceiling with your excess capital losses. Your deduction is limited to the smaller amount, even when your losses exceed your gains by less than $1,500.

Your $1,500 limit applies to the additional deduction after accounting for capital gains. You retain the ability to offset the full amount of gains with capital losses. The separate return limit changes how much excess loss you can deduct beyond those gains.

If you are a taxpayer other than a corporation and have a net capital loss for a taxable year, your excess net short term capital loss over net long term capital gain becomes a short term capital loss in the next taxable year, and your excess net long term capital loss over net short term capital gain becomes a long term capital loss in the next taxable year. Your current deduction limit therefore does not necessarily prevent you from using the excess later. The Schedule D instructions direct you to the instructions for line 21 for details about losses above the limit.

For harvested investment losses, you can carry losses that cannot be applied in a given tax year forward indefinitely to offset future income and capital gains. Your use of losses against ordinary income remains subject to the annual deduction limit. You must also retain the $1,500 exception if you are married filing separately.

You can use harvested losses against capital gains and up to $3,000 of ordinary income annually, subject to your applicable limit. Carrying unused losses into another year does not remove the limit on your annual additional deduction. Your available excess losses and your filing status still determine how much of that deduction you can take.

For your 2025 return, you must report all your capital gains and losses even if you cannot use all your losses in 2025. Your reporting obligation includes losses above the amount you can currently deduct. You do not omit those losses merely because your current deduction is limited.

If you have a capital loss when you dispose of an interest in a passive activity, your loss may be limited. As an individual, your capital loss deduction is limited to your capital gains plus the lower of your excess capital losses or $3,000. For your separate married return, substitute $1,500 for the $3,000 figure in this comparison.

When you determine 28 percent rate gain, the statutory calculation includes certain capital losses. You start with the sum of collectibles gain and section 1202 gain. You compare that amount with the sum of collectibles loss, net short term capital loss, and long term capital loss carried to the year under section 1212(b)(1)(B).

Your 28 percent rate gain is the excess, if any, of the first sum over the second. A long term capital loss carryover covered by that provision therefore enters this calculation alongside collectibles loss and net short term capital loss. You include all three loss components specified by the rule.

If you are determining a corporation's net capital loss treatment under section 1212(a)(1), its deductible capital losses cannot exceed its capital gains, and the statute provides carrybacks and carryovers with specified time limits. You generally carry the loss back to each of the three taxable years before the loss year. That carryback is available only to the extent the loss is not attributable to a foreign expropriation capital loss.

You must also apply the restriction involving net operating losses. Your corporate capital loss carryback cannot increase or produce a net operating loss, as defined in section 172(c), in the year receiving the carryback. Both this restriction and the foreign expropriation restriction limit the available carryback.

For your corporation's net capital loss, the ordinary carryover period covers each of the next five taxable years. For the portion attributable to a foreign expropriation loss, you instead apply the provision allowing a carryover to each of the ten succeeding taxable years. You treat the carried loss as a short term capital loss in each applicable year.

You carry the entire net capital loss to the earliest taxable year eligible to receive it. For each other eligible year, you carry the excess, if any, of that loss over the total capital gain net income for prior eligible years. You therefore account for those earlier years when determining the amount carried to a later year.

When you calculate capital gain net income for a prior eligible year, you disregard the net capital loss for the loss year and any later taxable year. If the net operating loss restriction prevents you from carrying the loss back in full, another limitation applies. You treat that prior year's capital gain net income as no greater than the amount of loss you can carry back under that restriction.