Capital Loss Carryover 2026: $3,000 Limit, Worksheet, Death Rule

What the Code and the regulation say

The cap comes from section 1211(b): capital losses are “allowed only to the extent of the gains from such sales or exchanges, plus (if such losses exceed such gains) the lower of” $3,000 ($1,500 for a married individual filing a separate return) or the excess of losses over gains. Section 1212(b) carries the leftover forward. The excess of the net short-term loss over the net long-term gain is a short-term loss in the next year, and the excess of the net long-term loss over the net short-term gain is a long-term loss. Section 1212(b)(2) says the amount treated as short-term gain in making that calculation is the lower of the section 1211(b) deduction or "adjusted taxable income" (taxable income increased by the deduction and the section 151 amount). That is why a year with no taxable income uses up less of the loss (case D below).

The regulation adds the mechanics: a short-term carryover is “carried over to the succeeding taxable year and treated as a short-term capital loss sustained in such succeeding taxable year,” and a long-term carryover is treated the same way (Treas. Reg. 1.1212-1(b)(1)). Its paragraph (c) is headed “Husband and wife” and deals with carryovers on joint and separate returns. We found no sentence about death in the saved text of the regulation.

IRS Worksheet 4-1, line by line

Publication 550 (2025) gives the worksheet and says to “complete Worksheet 4-1 to determine the part of your capital loss that you can carry over.” You have a carryover only if the loss on Schedule D line 21 is smaller than the loss on line 16, or if Form 1040 line 15 would be below zero if it could be entered as a negative. For a carryover to 2026, the Instructions for Schedule D (2025) say you will use the worksheet in the 2026 Instructions for Schedule D and need a copy of your 2025 Form 1040 and Schedule D; until then Publication 550 has the same worksheet.

Four worked cases (our arithmetic)

The worksheet is mechanical. These four cases use made-up numbers run through every line. Amounts are in dollars; "taxable income" is Form 1040 line 15.

• Case A. Line 4 is 3,000. The short-term loss (line 5, 8,000) uses it first, so line 7 is 3,000 and the short-term carryover is 5,000. The long-term loss is untouched (line 11 is zero), so 17,000 carries. The 22,000 total is the 25,000 net loss less the 3,000 deducted.
• Case B. The short-term loss is only 2,000, so it is used up and 1,000 of the cap spills over to the long-term loss (line 11 is 1,000). The long-term carryover is 20,000 less 1,000, or 19,000.
• Case C. The 4,000 short-term gain (line 10) and the 3,000 on line 11 total 7,000 absorbed against the 10,000 long-term loss, leaving 3,000 to carry. Net loss 6,000 less 3,000 deducted is the same 3,000.
• Case D. Taxable income is already below zero, so line 3 is 1,000 (negative 2,000 plus 3,000), not 3,000. Only 1,000 of the loss counts as used and 7,000 carries, where a person with positive income would carry 5,000. This is the low-income or retired year: the form shows a $3,000 deduction but no tax is saved, and the carryover does not shrink by the full $3,000.

Publication 550's own example is simpler: Bob and Shelly sold securities, had a $7,000 capital loss and taxable income of $26,000, so they deduct $3,000 and carry over $4,000. With a loss of only $2,000 they deduct all of it and carry nothing.

How long $3,000 a year takes, and what gains do instead (our arithmetic)

Every figure below is the carryover divided by the annual cap, rounded up, with no gains and no change in the cap.

Against gains the same loss is worth much more. Publication 550 lists maximum capital gain rates of 0%, 15%, 20%, 25% and 28%. At an illustrative 15%, $100,000 of long-term gain absorbed by a $100,000 carryover avoids about $15,000 of federal tax in one year. The $3,000 deduction at an assumed 24% ordinary rate is worth $720 a year. Both rates are examples, not a check of the 2026 brackets.

The death rule: what happens to a carryover when the taxpayer dies

Two IRS publications state the rule; both are saved with this page.

• Publication 550 (2025), Decedent's capital loss: a capital loss sustained by a decedent in the last tax year, or carried over to that year, “can be deducted only on the final income tax return filed for the decedent.” The same paragraph says the estate “cannot deduct any of the loss or carry it over to following years.”
• Publication 559 (2025), Deduction for Losses: “any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return.” It adds: “You can't deduct any unused NOL or capital loss on the estate's income tax return.”

In our reading, the carryover belongs to the person: heirs and the estate get no loss to use. For what heirs do receive, see our step-up in basis guide.

Publication 550's decedent paragraph adds that “the capital loss limits discussed earlier still apply in this situation.” So even on the final return the $3,000 cap holds, and a large balance is simply lost.

The real estate crowdfunding angle: where these losses come from

Most of our readers hold non-traded REITs, BDCs, interval funds, DSTs and syndication interests, and the capital loss often comes from selling or writing one off. The table sorts the sources and what the IRS text says about each.

Two takeaways for a real estate investor. A sale below cost helps only if there is income or gains to absorb it, and the carryover runs through Schedule D, not the K-1 rental lines (see our Form 8582 passive loss page). And the wash sale rule is a timing trap for fund shares: a repurchase inside 30 days defers the loss instead of creating a carryover, which our wash sale guide for REIT, BDC and interval fund tenders works through. For platform-specific losses see our tax-loss harvesting guide and the worthless stock deduction page; for reporting the sales, the Form 8949 and Schedule D guide.

What a reader can do with this

• Find your number. Get last year's Form 1040 and Schedule D and run Worksheet 4-1 from Publication 550 or the Schedule D instructions. The carryover is the line 8 and line 13 amounts, not the $3,000 you deducted.
• Check the character. Short-term and long-term carryovers absorb different gains. A long-term carryover reduces long-term gains before short-term gains (Publication 550).
• Compare the two ways to use it. Gains absorb losses dollar for dollar; income takes only $3,000 a year. A planned sale of a rental, a rebalance or a fund redemption with a gain is where the carryover is worth most. Our capital gains tax on real estate page and net investment income tax page cover the gain side.
• Do not count on it passing on. The IRS texts above describe the decedent's final return as the end of the line.
• Check the filing status. Married filing separately halves the cap to $1,500, and a carryover from a joint return is deducted only by the spouse who had the loss.
• Plan the estate side. The estate's own income tax return is covered on our trust tax brackets page.

Which gains to realize, how much in one year, and how that fits the rest of your return and estate plan depends on your whole situation; that is a conversation for a tax adviser.

FAQ

Sources, read and saved on October 23, 2026: IRS Publication 550 (2025), Investment Income and Expenses, including Worksheet 4-1; IRS Publication 559, Survivors, Executors, and Administrators; Instructions for Schedule D (2025) and 26 U.S.C. 1211 and 1212, law.cornell.edu; Treas. Reg. 1.1212-1, law.cornell.edu; IRS Publication 559 (2025). Worked examples labelled “our arithmetic” are ours. This is analysis of public documents, not investment, legal or tax advice.