Treatment of Capital Losses: Business Property Sales (2025 IRS Guide)
This guide covers “Treatment of Capital Losses” within business property sales. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.
Adapted from Publication 544 (2025), Sales and Other Dispositions of Assets, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.
Treatment of Capital Losses
If your capital losses are more than your capital gains, you can deduct the difference as a capital loss deduction even if you do not have ordinary income to offset it. The yearly limit on the amount of the capital loss an individual can deduct is $3,000 ($1,500 if you are married and file a separate return).
Table 4-2. Holding Period for Different Types of Acquisitions
| Type of acquisition: | When your holding period starts: |
|---|---|
| Stocks and bonds bought on a securities market | Day after trading date you bought security. Ends on trading date you sold security. |
| U.S. Treasury notes and bonds | If bought at auction, day after notification of bid acceptance. If bought through subscription, day after subscription was submitted. |
| Nontaxable exchanges | Day after date you acquired old property. |
| Gift | If your basis is giver’s adjusted basis, same day as giver’s holding period began. If your basis is FMV, day after date of gift. |
| Real property bought | Generally, day after date you received title to the property. |
| Real property repossessed | Day after date you originally received title to the property, but does not include time between the original sale and date of repossession. |
Capital loss carryover.
Generally, you have a capital loss carryover if either of the following situations applies to you.
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Your net loss is more than the yearly limit.
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Your taxable income is less than zero.
Example.
You and your spouse sold property in 2025. The sale resulted in a capital loss of $7,000. There were no other capital transactions. On your joint 2025 return, you and your spouse can deduct $3,000, the yearly limit. You have taxable income of $2,000. The unused part of the loss, $4,000 ($7,000 − $3,000), is carried over to 2026.
If the capital loss had been $2,000, it would not have been more than the yearly limit. The capital loss deduction would have been $2,000. There would be no carryover to 2026.
Short-term and long-term losses.
When you carry over a loss, it retains its original character as either long term or short term. A short-term loss you carry over to the next tax year is added to short-term losses occurring in that year. A long-term loss you carry over to the next tax year is added to long-term losses occurring in that year. A long-term capital loss you carry over to the next year reduces that year’s long-term gains before its short-term gains.
If you have both short-term and long-term losses, your short-term losses are used first against your allowable capital loss deduction. If, after using your short-term losses, you have not reached the limit on the capital loss deduction, use your long-term losses until you reach the limit.
Joint and separate returns.
On a joint return, the capital gains and losses of spouses are figured as the gains and losses of an individual. If you are married and filing a separate return, your yearly capital loss deduction is limited to $1,500. Neither you nor your spouse can deduct any part of the other’s loss.
If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. However, if you and your spouse once filed jointly and are now filing separately, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss.
Death of taxpayer.
Capital losses cannot be carried over after a taxpayer’s death. They are deductible only on the final income tax return filed on the decedent’s behalf. The yearly limit discussed earlier still applies in this situation. Even if the loss is greater than the limit, the decedent’s estate cannot deduct the difference or carry it over to following years.
Corporations.
A corporation can deduct capital losses only up to the amount of its capital gains. In other words, if a corporation has a net capital loss, it cannot be deducted in the current tax year. It must be carried to other tax years and deducted from capital gains occurring in those years. For more information, see Pub. 542.
Using the guidance
Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.
Sources and further reading
- Publication 544 (2025), Sales and Other Dispositions of Assets: Reporting Gains and Losses — Schedule D and Form 8949 — Treatment of Capital Losses — Internal Revenue Service; 2025 edition.
The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.