Net your gains and losses, apply the $3,000 limit, and see what carries to next year
Updated October 2026
Enter this year’s net short-term and net long-term results, gains as positive numbers and losses as negative ones. Your broker’s Form 1099-B (or 1099-DA for digital assets) summarizes them; on the return they are Schedule D lines 1a–5 (short-term) and 8a–13 (long-term). Last year’s carryovers come from last year’s Capital Loss Carryover Worksheet, lines 8 and 13, and go on this year’s Schedule D lines 6 and 14. Taxable income means your income after deductions but before any capital loss deduction. The bracket only drives the tax-saved estimate.
First the netting: short-term results minus any short-term carryover give Schedule D line 7; long-term results minus any long-term carryover give line 15; together they give line 16. A net loss is deductible up to the smaller of the loss or $3,000 ($1,500 married filing separately). The IRS Capital Loss Carryover Worksheet then splits what is left. For the default case:
| Worksheet line | What it holds | Default case |
|---|---|---|
| 1 | Taxable income after the deduction | $82,000 |
| 2 | Deduction taken (Schedule D line 21) | $3,000 |
| 3–4 | Deduction that actually reduced taxable income | $3,000 |
| 5–8 | Short-term loss, less what was used; line 8 = short-term carryover | $0 |
| 9 | Long-term loss | $12,000 |
| 10–12 | Short-term gain plus deduction not covered by short-term loss | $82,0002 |
| 13 | Long-term carryover (line 9 minus line 12) | $82,0003 |
The $2,000 short-term gain absorbs part of the long-term loss in netting, the $3,000 deduction absorbs more, and $12,000 − $2,000 − $3,000 = $7,000 carries over as long-term loss. The IRS’s own example in Publication 550 works the same way: a married couple with a $7,000 loss and $26,000 of taxable income deducts $3,000 and carries over $4,000; with a $2,000 loss they would deduct $2,000 and carry nothing.
| Situation | Net (line 16) | Deduction | Short-term carryover | Long-term carryover | Tax saved this year |
|---|---|---|---|---|---|
| $12,000 long-term loss, $2,000 short-term gain (default) | −$10,000 | $3,000 | $0 | $7,000 | $660 |
| $20,000 long-term carryover, $1,000 long-term gain, $4,000 short-term loss | −$23,000 | $3,000 | $1,000 | $19,000 | $660 |
| Harvest a $5,000 short-term loss, no gains, 24% bracket | −$5,000 | $3,000 | $2,000 | $0 | $720 |
| Same harvest, married filing separately | −$5,000 | $1,500 | $3,500 | $0 | $360 |
| $9,000 of losses but only $1,200 of taxable income | −$9,000 | $3,000 | $4,800 | $3,000 | $120 |
The second row shows a carryover at work: last year’s $20,000 long-term loss first wipes out this year’s $1,000 long-term gain. The last row shows the taxable-income limit in the worksheet: only $1,200 of the deduction lowered taxable income, so the unused $1,800 of the deduction is not lost but carries over too.
The limit is $3,000 a year, or $1,500 if you are married filing separately, as stated in IRS Topic 409 (reviewed September 2026) and Publication 550. Assets held more than one year produce long-term gains or losses; one year or less, short-term. Carryovers have no expiration while you are alive: the IRS says you can carry the unused part to later years until it is completely used up. A carryover keeps its character: a long-term carryover reduces next year’s long-term gains before short-term gains. Short-term losses are used first when you figure the carryover. A loss carried to a decedent’s final return can be used there but cannot pass to the estate. If spouses who filed jointly later file separately, a joint carryover can be deducted only by the spouse who had the loss.
You cannot deduct a loss on stock or securities if, within 30 days before or after the sale, you buy substantially identical stock or securities, acquire them in a fully taxable trade, acquire a contract or option to buy them, or buy them in your IRA or Roth IRA. A purchase by your spouse or a corporation you control also counts. The disallowed loss is added to the basis of the new shares, so it is deferred rather than lost, except when the replacement was bought in an IRA. Publication 550 states the rule for stock and securities; the IRS treats digital assets as property, and its publication does not apply the wash sale rule to them, but confirm the current rules with a tax professional before relying on that for crypto.
Harvesting example for 2026: selling a stock with a $5,000 short-term loss when you have no other gains lets you deduct $3,000 against ordinary income, worth $720 in the 24% bracket, and carry $2,000 forward. Selling only the amount that offsets gains you already have can be worth more, because a short-term gain would otherwise be taxed at your ordinary rate.
It does not compute the tax on capital gains (see the capital gains calculator), the 28% rate on collectibles, unrecaptured section 1250 gain, section 1256 contracts, losses on personal-use property (never deductible), worthless securities or the wash sale adjustment itself. State treatment varies, so check your state’s return separately. For carryovers from several years, a joint-to-separate change, or a large realized gain, a CPA or enrolled agent can check your Schedule D.
Forgetting last year’s carryover. Software usually carries it forward, but a change of preparer or software often drops it. Rebuild it from last year’s worksheet lines 8 and 13.
Selling in an IRA to “harvest.” Losses inside an IRA are not deductible, and buying the same stock in an IRA within 30 days of a taxable loss sale permanently disallows that loss.
Buying back in a spouse’s account. A spouse’s purchase within the 30-day window is still a wash sale.
Low-income years. If taxable income is below the deduction, the worksheet keeps the unused amount in the carryover, as the scenario table shows.
Mixing up character. Long-term carryovers offset long-term gains first; entering everything as short-term can shift which gains are taxed at ordinary rates.