Capital Gain Netting Process
Combining Gains and Losses
Capital gains and losses are combined through a netting process. Short-term gains and losses are first netted separately from long-term gains and losses before determining the taxpayer's overall capital gain or loss.
- Net all short-term gains and losses.
- Net all long-term gains and losses.
- Combine the resulting net amounts.
- Determine the final capital gain or loss.
Note
The netting process is commonly tested using multi-step computational questions.
Summary
Understanding the sequence of capital gain netting is critical for accurate tax reporting.