Updated October 24, 2026. Quick answer: Tax Topic 409 is the IRS page on capital gains and losses. It says a gain or loss is the difference between your adjusted basis and the amount realized, that holding more than one year makes it long term, and that losses can offset income only up to a limit.
Quick reference
| Item | What the IRS topic says |
|---|---|
| Gain or loss | “When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.” |
| Long term | “Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term.” |
| Short term | “If you hold it one year or less, your capital gain or loss is short-term.” |
| Loss limit | “the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses.” |
| Where to report | “Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, Sales and Other Dispositions of Capital Assets, then summarize capital gains and deductible capital losses on Schedule D (Form 1040).” |
What a capital gain or loss is
The topic starts by defining the asset. The IRS topic says “Almost everything you own and use for personal or investment purposes is a capital asset.” Examples it gives are “a home, personal-use items like household furnishings, and stocks or bonds held as investments.”
On the result of a sale, it says “You have a capital gain if you sell the asset for more than your adjusted basis.” and “You have a capital loss if you sell the asset for less than your adjusted basis.” It adds one limit: “Losses from the sale of personal-use property, such as your home or car, aren’t tax deductible.”
Short term, long term and the rates
The classification depends on time held. The topic says “Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term.” On counting the days, it says “To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset.”
On rates, the topic says “Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%.” It also lists higher maximums: “Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.” Short-term gains are handled separately: “Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.” The topic lists the 0%, 15% and 20% income thresholds by filing status; our capital gains tax calculator and long term capital gains brackets page work with them.
Losses, carryovers and reporting
If losses are larger than gains, the topic says “If your net capital loss is more than this limit, you can carry the loss forward to later years.” It points to “You may use the Capital Loss Carryover Worksheet found in Publication 550 or in the Instructions for Schedule D (Form 1040)”. Our capital loss carryover worksheet page walks through it.
On reporting, the topic says “Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, Sales and Other Dispositions of Capital Assets”. See Form 8949 and Schedule D. It also says “If you have a taxable capital gain, you may be required to make estimated tax payments.” It points to Topic no. 559 for the net investment income tax and to Topic no. 701 and Topic no. 703 for a main home sale.
Where this comes from
This page describes the IRS page titled Topic no. 409, Capital gains and losses, as served on irs.gov on October 24, 2026. The IRS page shows that it was last reviewed or updated on 24 Sep 2026. The IRS can change a topic after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Deducting a loss on a personal item. The topic says such losses “aren’t tax deductible”
- Counting from the day of purchase. The topic says you “count from the day after the day you acquired the asset”
- Treating a year and a day as short term. The topic says “one year or less” is short term and more than one year is long term
- Assuming a big loss is fully deductible in one year. The topic says the excess loss is limited and you “can carry the loss forward to later years”
- Treating every gain as taxed at the same rate. The topic says collectibles are “taxed at a maximum 28% rate”
Related: IRS tax topics by number, Form 8949, Schedule D (Form 1040), Capital loss carryover worksheet, Capital gains tax calculator, Long term capital gains brackets, and Capital gains harvest window.
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- IRS, Topic no. 409, Capital gains and losses (irs.gov): https://www.irs.gov/taxtopics/tc409
- IRS, Tax topics index (irs.gov): https://www.irs.gov/taxtopics
Read from the IRS pages linked above on October 24, 2026. General information, not tax or legal advice. The IRS topic page and the instructions for your own form control, and your own facts decide the outcome.