NETTING RULES

Capital gains and losses recognized in a single tax year (calendar year in the case of an individual) are aggregated together through a netting process.

First, gains and losses are separated into two categories - short-term and long-term.

Any short-term capital losses offset short-term capital gains, yielding a net short-term position.

Any long-term capital losses offset long-term capital gains, yielding a net long-term position. 

If the net positions in each category are opposite (i.e., a net gain and a net loss), the loss is netted against the gain.

For example, if an individual has a $10k short-term loss and a $6k long-term gain, the remaining $4k loss is considered short-term. If the net positions in each category are the same (i.e. both gains or both losses), there is no further netting to be done.

Tax treatment of capital gains and losses is dependent on the net position(s) after playing the netting rules.

Robert W. Baird & Co. Incorporated. Baird nor the Stevanovic Metz Group provide tax advice. Contact your tax professional.