Retirement Literacy Foundation · Seller Tax Education

Capital Loss Carryover: How Losses Offset a Big Gain

By Hans Goldstein, founder, Retirement Literacy Foundation · Updated October 8, 2026

Short answer: Capital losses first offset capital gains in the same year. If losses are larger, up to $3,000 a year ($1,500 married filing separately) can offset other income, and the rest is a capital loss carryover to future years, with no expiration during your lifetime. A large carryover can wipe out much of the gain on a future sale of a business, building or land.

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The order losses are used

Short-term losses offset short-term gains, and long-term losses offset long-term gains.
Any net loss in one group offsets net gain in the other.
A remaining net loss offsets up to $3,000 of ordinary income.
Anything left carries forward, keeping its short-term or long-term character. The IRS worksheet for this is in the Schedule D instructions.

Why a carryover matters before a big sale

If you have a large carryover from past stock or business losses, a sale with a large gain is the place to use it: the carryover offsets the gain dollar for dollar. That can make a lump-sum sale cheaper than expected, or change how much it is worth spreading the gain over years. Run the numbers both ways with the capital gains tax calculator.

Losses that are not capital losses

Suspended passive losses from rentals follow their own release rules on a sale. See suspended passive losses.
Net operating losses (from a business) are separate. For individuals, losses arising after 2020 carry forward indefinitely but generally offset only 80% of taxable income in a year.
Section 1231 losses on business property can be ordinary losses, which is usually better than a capital loss.

Traps

Death: unused capital loss carryovers can be used on the final joint return but do not pass to heirs or the estate.
Wash sales: a loss on stock or securities is disallowed if you buy substantially identical securities within 30 days before or after.
Related parties: a loss on a sale to a close relative or controlled entity is generally not allowed.
States: most follow the federal rules, but not all; Pennsylvania, for one, does not allow capital loss carryovers.

Common questions

How much capital loss can I deduct per year?

Losses offset all of your capital gains, plus up to $3,000 of other income ($1,500 if married filing separately). The rest carries forward.

Do capital loss carryovers expire?

Not for individuals during their lifetime. They end at death after the final return.

Can a capital loss carryover offset gain from selling a business?

Yes. It offsets capital gain from any source, including the sale of a business, real estate or land.

More for sellers: Suspended Passive Losses When You Sell a Rental Property · Real Estate Professional Status Explained · Unrecaptured Section 1250 Gain Explained · Converting a Rental to a Primary Residence, or a Home to a Rental · QSBS

Education only; nothing is sold here. The Retirement Literacy Foundation is a 501(c)(3) nonprofit. Tax rules depend on your facts; check with a CPA or tax attorney before you sell.