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Last updated: April 8, 2026

Quick Answer: Yes, you can offset long-term capital gains with short-term capital losses in the United States. This is because the IRS allows you to net all your capital gains and losses, regardless of their holding period, to arrive at a single net capital gain or loss figure for the tax year.

Key Facts

Short-term capital losses can be used to reduce or eliminate long-term capital gains.
Net losses from short-term trades can offset net gains from long-term trades.
Any remaining net capital losses can be used to offset ordinary income up to $3,000 per year.
Unused capital losses can be carried forward to future tax years.
The order of netting is: short-term losses against short-term gains, then long-term losses against long-term gains, and finally, net short-term losses against net long-term gains (and vice versa).

Overview

Navigating the world of capital gains and losses can seem complex, especially when considering the tax implications. A common question among investors is whether short-term capital losses can be used to reduce the tax burden on long-term capital gains. The good news is that the U.S. tax system is designed to allow for this offsetting, which can significantly benefit taxpayers. Understanding this mechanism is crucial for effective tax planning and maximizing your after-tax investment returns.

Capital gains and losses are categorized based on how long you held an asset before selling it. Short-term assets are those held for one year or less, while long-term assets are held for more than one year. The tax rates for these two categories differ, with long-term capital gains generally taxed at lower rates than short-term capital gains, which are taxed as ordinary income.

How It Works

Netting Process: The IRS employs a specific netting process to calculate your overall capital gain or loss for the tax year. First, you net your short-term capital gains against your short-term capital losses. Similarly, you net your long-term capital gains against your long-term capital losses.
Offsetting Different Categories: Once you have determined your net short-term capital gain or loss and your net long-term capital gain or loss, you then net these two figures against each other. This is where the crucial offsetting occurs. If you have a net short-term capital loss, it can be used to reduce your net long-term capital gain. Conversely, if you have a net long-term capital loss, it can be used to reduce your net short-term capital gain.
Deducting Against Ordinary Income: If, after all the netting, you are left with an overall net capital loss, you can use a portion of this loss to offset your ordinary income, such as wages or salary. The maximum amount you can deduct against ordinary income in any given tax year is $3,000 (or $1,500 if you are married filing separately).
Carryover Provisions: Any net capital loss that exceeds the $3,000 deduction limit can be carried forward to future tax years. This means you don't lose out on the benefit of your losses; they can be used to offset capital gains or ordinary income in subsequent years until they are fully utilized.

Key Comparisons

Feature	Short-Term Losses	Long-Term Losses
Offsetting Against Short-Term Gains	Yes, dollar-for-dollar	Yes, after short-term losses are exhausted
Offsetting Against Long-Term Gains	Yes, dollar-for-dollar, after exhausting short-term gains	Yes, dollar-for-dollar
Deduction Against Ordinary Income (Annual Limit)	Yes, up to $3,000 (after offsetting all capital gains)	Yes, up to $3,000 (after offsetting all capital gains)
Carryover to Future Years	Yes, any unused portion	Yes, any unused portion

Why It Matters

Tax Liability Reduction: The ability to offset long-term capital gains with short-term capital losses is a powerful tax-saving strategy. By strategically realizing losses, you can effectively reduce your overall taxable income, leading to a lower tax bill. This is particularly beneficial if you have significant gains in one category and losses in another.
Investment Flexibility: Understanding these rules provides investors with greater flexibility. It allows you to make informed decisions about when to sell assets that have declined in value (to realize a loss) without necessarily impacting your long-term investment strategy. You can strategically harvest losses to offset gains.
Year-End Planning: As the end of the tax year approaches, investors often review their portfolios to identify opportunities for tax-loss harvesting. This involves selling investments that have depreciated to generate capital losses that can then be used to offset any capital gains realized during the year.

In conclusion, the IRS regulations permit the offsetting of long-term capital gains with short-term capital losses, a vital aspect of tax management for any investor. This feature of the tax code encourages strategic investing and can lead to significant tax savings. Always consult with a qualified tax professional to ensure you are leveraging these rules to your best advantage and complying with all relevant tax laws.