Yes. Short-term capital losses can offset long-term capital gains, dollar for dollar, with no cap on the amount. The IRS just requires you to net inside each holding-period category first — short-term against short-term, long-term against long-term — and then let whatever loss remains in one category cross over to reduce the gain in the other.
How the Netting Actually Works
The calculation runs in two stages on Schedule D.
First, combine everything within each category. Add up your short-term gains and subtract your short-term losses to get one net short-term figure. Do the same for your long-term transactions.1Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
Second, if one category ends up negative and the other positive, the loss reduces the gain. That is where a net short-term loss knocks down a net long-term gain. Say you finish the year with a net short-term loss of $8,000 and a net long-term gain of $12,000. You pay tax on $4,000 of long-term gain, and that surviving $4,000 keeps its long-term character and qualifies for the preferential rates.
If the short-term loss is larger than the long-term gain, the gain is wiped out entirely and you are left with a net capital loss, which has its own rules described further down.
Why Offsetting a Long-Term Gain With a Short-Term Loss Is Worth Doing
Short-term gains are taxed as ordinary income, at rates as high as 37%. Long-term gains get preferential rates of 0%, 15%, or 20% depending on your taxable income and filing status.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, the brackets are:3Internal Revenue Service. Revenue Procedure 2025-32
- 0% on taxable income up to $49,450 single or married filing separately, $98,900 married filing jointly or surviving spouse, $66,200 head of household.
- 15% above that up to $545,500 single, $306,850 married filing separately, $613,700 married filing jointly or surviving spouse, $579,600 head of household.
- 20% above the 15% threshold.
Because the two rate schedules differ, the actual tax savings from the offset depend on where the long-term gain would have been taxed. A short-term loss that erases a long-term gain sitting in the 20% bracket delivers real money. The same loss applied to a long-term gain that would have fallen in the 0% bracket saves nothing in current tax, though it may still be worth taking if it produces a carryover you can use later.
There is a second layer for higher earners. Net investment income, capital gains included, picks up an additional 3.8% Net Investment Income Tax when modified adjusted gross income exceeds $200,000 single, $250,000 married filing jointly, or $125,000 married filing separately. Those thresholds are not indexed for inflation.4Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax5Internal Revenue Service. Topic No. 559, Net Investment Income Tax Cutting your long-term gain with a short-term loss also cuts the amount exposed to the 3.8%. For a taxpayer in the top capital gains bracket who also owes NIIT, the combined federal rate on long-term gains reaches 23.8%, so each dollar of offset is worth that much.
When Losses Exceed Gains
If the short-term loss is bigger than the long-term gain, the excess still has value. After the netting wipes out all your gains for the year, you can deduct up to $3,000 of the remaining loss against ordinary income — wages, interest, self-employment earnings, and the like. The limit is $1,500 for married taxpayers filing separately.6Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses The $3,000 figure is set by statute and does not adjust for inflation.
Anything still left over carries forward to future tax years with no expiration date. The carryover keeps its original character: a short-term loss stays short-term next year, a long-term loss stays long-term.7Office of the Law Revision Counsel. 26 USC 1212 – Capital Loss Carrybacks and Carryovers8eCFR. 26 CFR 1.1212-1 – Capital Loss Carryovers and Carrybacks Each year, you run the same netting process, apply up to $3,000 against ordinary income, and roll the rest forward again. The Schedule D instructions include a Capital Loss Carryover Worksheet that splits the unused amount into its short-term and long-term pieces; those numbers land on line 6 and line 14 of the next year’s Schedule D.9Internal Revenue Service. Instructions for Schedule D (Form 1040)
A worked example. You have $15,000 of short-term losses and $10,000 of long-term gains. The short-term loss cancels the full $10,000 gain, leaves $5,000 of net capital loss, $3,000 of which comes off your ordinary income this year. The remaining $2,000 short-term loss carries into next year and starts that year’s netting on the short-term side.
One limit on carryovers matters for older or seriously ill taxpayers: unused capital losses die with the taxpayer. They can only be used on the decedent’s final return. The estate cannot claim them, and heirs cannot inherit them.10Internal Revenue Service. Publication 559, Survivors, Executors, and Administrators
The Wash Sale Rule Can Cancel Your Loss
If you sell a security at a loss and buy the same or substantially identical security within 30 days before or after the sale, the loss is disallowed under the wash sale rule.11Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The full window is 61 days: 30 before, the sale date, and 30 after. Buying anywhere inside that window triggers the rule, even in a different brokerage account or in an IRA.
In most cases the disallowed loss is not lost permanently. It shifts onto the cost basis of the replacement shares, so you recognize it when you eventually sell those, provided you don’t wash-sale into them too. The exception is when the replacement purchase happens inside an IRA; there is no taxable basis to adjust, and the loss disappears for good.
This matters directly for anyone trying to harvest a short-term loss to soak up a long-term gain. Sell the position and stay out for the full 30 days, or move into something that tracks a similar but not identical exposure — for instance, a different fund in the same sector rather than the same index fund at another broker.
Reporting on Schedule D
Your broker issues Form 1099-B for each sale, marking it short-term or long-term and, when available, reporting the cost basis and proceeds.12Internal Revenue Service. Instructions for Form 1099-B (2026) Those figures move onto Schedule D of Form 1040. Short-term transactions occupy lines 1 through 7 and long-term transactions lines 8 through 15; the form then walks the two categories through the netting sequence and produces the single number that flows to your 1040.
If the 1099-B does not show basis — which happens with older lots, some reinvested mutual fund shares, and non-covered securities — you are responsible for supplying it. When you hold multiple lots of the same stock bought at different prices, you can pick which specific shares you are selling by identifying them to your broker at the time of sale. Without that instruction, the IRS defaults to first-in, first-out.13Internal Revenue Service. Stocks (Options, Splits, Traders) Specific identification is often how you engineer a short-term loss in the first place: choose the lot with the biggest paper loss and a holding period of one year or less.