How it's calculated
This follows the netting order on IRS Schedule D and the Capital Loss Carryover Worksheet (see IRS Topic 409 and Publication 550):
1. Net short-term (ST) = ST gains − ST losses − ST carryover
Net long-term (LT) = LT gains − LT losses − LT carryover
2. If one is a gain and the other a loss, they offset each other.
3. If the combined result is a loss:
deduction against ordinary income = min(loss, $3,000) ($1,500 if married filing separately)
the deduction uses net ST loss first, then LT loss
4. Whatever is left carries forward to next year, keeping its ST or LT character.
Estimated tax with losses = taxable ST gain × ordinary rate + taxable LT gain × LT rate − deduction × ordinary rate
Estimated tax without losses = ST gains × ordinary rate + LT gains × LT rate
Estimated difference = without − with
- It's an estimate. Real tax depends on brackets, the 0% long-term rate band, the 3.8% Net Investment Income Tax, state taxes, AMT and more. A flat rate is a simplification.
- Assumes your taxable income is large enough to absorb the deduction. If taxable income is near or below zero, the IRS worksheet carries more loss forward than shown here.
- Doesn't check the wash sale rule (a loss is disallowed if you buy substantially identical securities within 30 days before or after the sale), and doesn't handle collectibles (28%), unrecaptured Section 1250 gain, or losses on personal-use property (not deductible).
- The projection assumes no new gains or losses in later years and uses the same ordinary rate. Individual capital loss carryovers have no expiration date while you are alive.
- Verified two ways: hand-worked examples in our automated tests, and a separate Python program that follows the IRS carryover worksheet line by line.
Worked examples
1. More losses than gains
Short-term: $2,000 gains, $6,000 losses (net −$4,000). Long-term: $5,000 gains, $12,000 losses (net −$7,000). Total net loss: $11,000. You deduct $3,000.00 against ordinary income (taken from the short-term loss first) and carry forward $1,000.00 short-term + $7,000.00 long-term. At 22% ordinary and 15% long-term rates, the estimated tax difference is $1,850.00: $1,190.00 of tax on the gains is avoided, plus $660.00 from the $3,000 deduction. The carryforward would be used up over 3 more years with no new gains. Load this example
2. A loss that partly offsets a gain
$10,000 long-term gain and a $4,000 short-term loss. The loss offsets the gain, leaving a $6,000.00 taxable long-term gain and nothing to carry forward. At a 15% long-term rate, tax on the gains drops from $1,500.00 to $900.00, an estimated $600.00 difference. Load this example
3. Married filing separately
$1,000 short-term and $5,000 long-term losses, no gains, filing separately. The deduction limit is $1,500.00: it uses the $1,000 short-term loss and $500 of the long-term loss, so $4,500.00 of long-term loss carries forward. Load this example
Frequently asked questions
How much capital loss can I deduct against ordinary income?
Under US federal rules, after losses offset all your capital gains, up to $3,000 of net capital loss per year ($1,500 if married filing separately) can be deducted from other income. The rest carries forward.
How does a capital loss carryover work?
Unused net capital loss carries to the next tax year, keeping its short-term or long-term character. There it first offsets that year's gains, then up to $3,000 of ordinary income, and so on until it is used up.
Do short-term losses offset long-term gains?
Yes. Losses first offset gains of the same type (short against short, long against long). A net loss of one type then offsets a net gain of the other type.
What is the wash sale rule?
If you sell at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is generally disallowed for now and added to the cost basis of the new shares. This calculator doesn't check for wash sales.
Is the $3,000 capital loss limit adjusted for inflation?
No. The $3,000 limit ($1,500 married filing separately) is set in the tax code and is not indexed to inflation. Check IRS Topic 409 for the current rules.
Can this tell me my exact tax savings?
No. It's an educational estimate using flat rates you enter. Brackets, state taxes, the Net Investment Income Tax and other rules can change the real number. For your actual return, use tax software or a tax professional.