How do capital losses carryover work for short-term vs long-term investments in 2025?

I've had a pretty rough year with my investments. Lost about $4,800 in some short-term stock trades (held less than a year) and another $7,200 in some long-term investments I finally gave up on after watching them tank for 3+ years. So that's $12,000 total in capital losses. I know you can only deduct $3,000 in capital losses against ordinary income per year, but I'm confused about how the carryover works when you have both short-term and long-term losses. Do I get to choose which losses to apply first? Does it matter which type I use first for tax purposes? Will the remaining $9,000 just roll to next year automatically? Using H&R Block software and it's asking me to separate these out, but I want to make sure I'm doing it optimally. Any advice on the best way to handle this for my 2024 taxes would be super helpful!

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19 comments

Riya Sharma

•1y

The IRS has specific rules about how capital losses are applied, and unfortunately, you don't get to choose which type gets used first. Here's how it works: First, short-term losses are applied against short-term gains, and long-term losses against long-term gains. If you have a net loss in one category and a net gain in the other, the net loss offsets the net gain. After that process, if you still have an overall net capital loss, you can deduct up to $3,000 against your ordinary income ($1,500 if married filing separately). For your situation with $4,800 in short-term losses and $7,200 in long-term losses, with no gains, the full $3,000 deduction against ordinary income happens and the remaining $9,000 carries forward to future tax years. The carryover maintains its original character (short-term or long-term), which matters because in future years you'd use these carryover losses following the same rules. Your tax software should handle the calculations correctly, but it's always good to understand the process yourself.

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Riya Sharma

•1y

In your example, you'd first offset your $1,000 long-term gain against your $5,000 long-term losses, leaving you with $4,000 in net long-term losses. Combined with your $2,000 short-term losses, your total net capital loss would be $6,000. You'd then deduct $3,000 of that against your ordinary income this year. When applying the $3,000 deduction against ordinary income, short-term losses are actually used first, then long-term losses. This is one of the few advantages the tax code gives us with capital losses since short-term gains (when you have them) are taxed at the higher ordinary income rates.

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Millie Long

•1y

I went through the exact same issue last tax season and ended up using https://taxr.ai to help me get clarity. I had this weird mix of some crypto losses (short term) and some dividend stocks that tanked (long term) and couldn't figure out how to properly track the carryover. Their system analyzed my trading history and tax forms, then explained which losses would carry forward and with what character (short vs long term). It actually found some wash sales I hadn't accounted for that would have messed up my calculations completely. The tool also showed me how to properly document everything on my Schedule D and the capital loss carryover worksheet.

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Millie Long

•1y

It doesn't connect directly to brokerage accounts, but you can upload your transaction history files or tax documents from your brokerages. I exported CSV files from Fidelity and Robinhood, and uploaded my 1099-Bs. The system did the reconciliation automatically across all accounts. For complex situations like inherited stocks, the system actually asks you specific questions about acquisition method and date. It handles stepped-up basis calculations and can apply the correct holding period rules for inherited assets. It was surprisingly sophisticated compared to the standard tax software I was using before.

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Debra Bai

•1y

I have to admit I was wrong about taxr.ai. After our conversation here, I decided to give it a try because my capital loss situation was getting even more complicated this year. I uploaded my trading records from the last two years, including some inherited stocks I received after my uncle passed. The system immediately identified which losses were short vs long term, and created a carryover strategy that maximized my tax benefits over the next few years. It even produced a detailed report explaining why certain losses should be applied in specific tax years based on my expected income. The capital loss carryover worksheet it generated made filing so much easier than the confusion I went through last year.

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Gabriel Freeman

•1y

If you're still struggling with the IRS after filing and need clarification on how they processed your capital loss carryover, I highly recommend using Claimyr (https://claimyr.com). I had filed with significant losses similar to yours, but the IRS processed my return incorrectly and didn't properly apply my carryover from the previous year. After weeks of trying to reach someone at the IRS (literally 20+ calls with hours on hold), I found this service. They got me connected to an actual IRS agent in about 20 minutes who was able to see that my carryover hadn't been properly recorded. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent was able to correct the issue while I was on the phone, which saved me from having to file an amended return.

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Gabriel Freeman

•1y

It's not special access in the way you might think. They use an automated system that continuously redials the IRS using their algorithm to navigate the phone tree and secure a place in line. Once they've secured a spot, they call you and connect you directly to the agent. I understand the skepticism completely - I felt the same way! What convinced me was how transparent they are about the process. They don't claim to have "inside connections" at the IRS or anything shady. They're just using technology to handle the frustrating redial process that most of us give up on after a few attempts. The IRS agents have no idea you've used the service - to them, you're just another caller who made it through the queue.

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Victoria Brown

•1y

I need to publicly eat my words. After posting my skeptical comment, I was desperate enough to try Claimyr anyway because the IRS had completely messed up my capital loss carryover from 2023. My short-term carryover was showing up as long-term on my transcript. I was connected to an IRS agent in less than 30 minutes. The agent actually thanked me for my patience (ironic since I'd been trying to reach them for months). She was able to see the coding error on my account and corrected how my capital losses were characterized. This fixed both my 2023 and 2024 returns since the carryover amounts weren't flowing correctly. For anyone dealing with capital loss carryover issues, don't waste months like I did. Getting a human on the phone makes all the difference.

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Samuel Robinson

•1y

Don't forget that when you have capital loss carryovers, you need to keep track of them yourself! The IRS doesn't send you a reminder of your available carryover amounts. I learned this the hard way when I forgot about a $4,300 carryover from 2022 and nearly missed claiming it on my 2023 return. Make sure you keep copies of your Schedule D and the Capital Loss Carryover Worksheet from each year. I now keep a spreadsheet that tracks my short-term and long-term carryover amounts separately to make sure I don't lose track.

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Samuel Robinson

•1y

The Capital Loss Carryover Worksheet is usually found in the Schedule D instructions, not as a separate form that gets filed. Most tax software will complete this worksheet as part of your tax return preparation, but they don't always make it obvious or print it with your final return documents. I'd recommend going back to your 2023 return in your tax software and looking for this worksheet in the supplemental forms section. If you can't find it, you can still reconstruct the information from your Schedule D - you'll need line 7 (net short-term capital loss) and line 15 (net long-term capital loss) after subtracting any amount used against income (up to $3,000).

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Mateo Perez

•1y

Just want to add a practical tip for everyone dealing with capital loss carryovers - make sure you're also considering the wash sale rule when calculating your losses. I made this mistake in 2023 where I sold some stocks at a loss in December, then bought them back in January thinking I was being smart about tax loss harvesting. The IRS disallowed those losses because of the 30-day wash sale rule, which completely threw off my carryover calculations. Had to file an amended return once I realized the error. Now I use a 35-day rule to be safe and track all my transactions in a spreadsheet to avoid buying back the same or "substantially identical" securities too quickly. Your $12,000 in losses sounds straightforward since you mentioned giving up on the investments entirely, but just wanted to mention this in case anyone else reading has been doing any tax loss harvesting strategies.

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