Netting of Long term and Short term Capital Gains and Losses

Netting of Long term and Short term Capital Gains and Losses

These groups of capital gains are netted against one another according to the following rules in § 1221.

1. Long-term capital gains are netted against long-term loses.
2. Short-term capital gains are netted against short-term losses.
3. If the results of the first two netting procedures have the same sign (that is, both are losses or both are gains for the taxpayer), then the taxpayer has that amount of each type of net gain or loss, and each is treated accordingly by the Internal Revenue Code and the Internal Revenue Service. 
1. However, if the results of the first two netting procedures have opposite signs (that is, if one is a net gain and the other a net loss), those two outcomes are netted against each other.
2. This final result of this netting has the character of whatever type of gain or loss “sticks out” after the netting procedures regarding capital gains are finished