Lost 100 euros and earned 100 euros? You may still owe tax

Imagine a very simple situation. During the year, we lose 100 euros selling a share and, over the same period, receive 100 euros in dividends. Economically, the result seems obvious: we lost 100 and earned 100, so our overall gross balance is zero. We are not even one euro richer. Yet under Italian tax rules, those two results cannot necessarily be offset against each other. The 100-euro dividend may be taxed while the 100-euro loss remains separate, potentially available to offset certain future capital gains. The examples in this article concern an individual tax-resident in Italy investing outside a business activity, under the self-assessment or intermediary-administered regime, except for the section on the managed-portfolio regime.

This is not a bank error and does not depend on some setting in the securities account. It follows directly from how Italian law divides financial returns into different categories. The Italian Income Tax Code (TUIR) distinguishes income from capital (redditi di capitale) from miscellaneous financial income (redditi diversi di natura finanziaria), and that distinction determines which gains can be reduced using accumulated losses. Current-account interest and profits from holdings in companies expressly fall within income from capital; gains from selling shares and many other financial instruments instead fall within miscellaneous income. Savers may find this classification artificial because, from their perspective, there is only one pool of wealth. If the portfolio loses 1,000 euros on one side and gains 1,000 on the other, intuitively the result is zero. For tax purposes, however, there is not always a single result: different income categories follow different rules.

First category: income from capital

Income from capital includes, among other things, interest on deposits and current accounts, interest and other bond income, and profits distributed by companies, namely ordinary dividends. Articles 44 and 45 of the TUIR apply a particular approach: income from capital generally consists of the proceeds received, without deducting expenses and without the possibility of subtracting a financial loss belonging to the miscellaneous-income category. Consider a savings account: we deposit money and receive 1,000 euros in interest. That interest is income from capital. Or we hold shares distributing 1,000 euros in dividends: these too are income from capital. For an individual investing outside a business activity, the ordinary tax rate on much of this financial income is 26%, subject to statutory exceptions such as the preferential treatment of certain government bonds.

The key point, however, is less the rate than what happens to losses: a financial loss cannot normally be used to reduce a dividend or interest classified as income from capital. So if I receive 100 euros in dividends and simultaneously realise a 100-euro loss selling a share, I cannot simply tell the tax authorities: “my result is zero”. The two amounts belong to different categories. Our examples ignore commissions, any foreign taxes and other factors that may affect the actual outcome, in order to isolate this mechanism.

Second category: miscellaneous financial income

The situation changes when we buy a security at a particular price and later sell it. Imagine buying a share for 100 euros and selling it for 120: we have realised a capital gain of 20 euros. If we buy the same share at 100 and sell it at 80, we have realised a capital loss of 20 euros. Gains from selling shares and numerous other financial instruments fall within miscellaneous financial income under Article 67 of the TUIR. For the ordinary categories considered here, substitute tax at 26% applies. It is within compatible tax categories that losses become useful: if I sell one share at a gain of 100 euros and another at a loss of 100, the results can offset each other when the required conditions are met, reducing the taxable gain to zero. Under the intermediary-administered regime, however, transaction order also matters, as we will see later; merely occurring in the same year is not enough. A further problem arises when the positive return instead belongs to income from capital.

The same wealth, a different tax result

Consider two investors. The first realises a gain of 1,000 euros selling one share and an eligible loss of 1,000 euros selling another. Economically, the gross result is zero and, simplifying the case and observing the chosen regime's rules, the taxable amount can also fall to zero. The second investor instead realises a loss of 1,000 euros on shares and receives 1,000 euros in dividends in the same year. Their overall gross economic result is also zero, but dividends are income from capital while the loss belongs to miscellaneous income. The loss cannot be used directly against those dividends. If 26% applies, 260 euros is withheld from the 1,000 euros: the investor has had a zero gross result but has still suffered 260 euros in tax.

The second investor's loss is not necessarily wasted: it may be used, within the prescribed limits and time frame, against future compatible miscellaneous income. But it is clear why the mechanism can seem counterintuitive. Adding gains and losses describes the economic result, but does not by itself determine the base on which tax is charged. Moving from one to the other requires knowing the tax classification of each component.

The tax-loss carryforward record: what it really contains

When a security is sold at a loss, people often say the bank puts the loss in the “tax backpack” (zainetto fiscale). This is a useful expression, but its technical meaning needs to be understood: it is not an account containing money and is not a tax credit that we can ask the authorities to refund. It is essentially a record of tax losses available to reduce certain future gains. Suppose we sell some shares in 2026, generating a loss of 5,000 euros. If we subsequently realise an eligible gain of 2,000 euros, that 2,000 can use up part of the loss, leaving 3,000 in the record. Offsetting reduces taxable income; it does not return the 5,000 euros lost on the investment.

The time limit matters: the excess may be carried forward to subsequent tax periods, but no later than the fourth. Applying this rule, a loss generated in 2026 can be used until 2030; after expiry, any remaining balance loses its tax effect. Under self-assessment, carrying it forward also requires compliance with the reporting obligations in the return for the period in which the loss was realised. A loss can therefore have economic value, but simply calling it “a credit” is misleading: it has value only if we realise income against which the law permits its use, within the applicable deadline.

The ETF case

If the distinction between dividends and equity gains already seems unusual, ETF rules make the issue even clearer. ETFs, or exchange-traded funds, belong to collective investment undertakings (OICR). Under the ordinary treatment considered here, positive ETF returns are income from capital, even when they arise from selling units; a tax-relevant negative difference realised on sale instead produces a loss in the miscellaneous-income category. Consequently, under intermediary administration and self-assessment, positive income cannot be offset against prior losses. The examples refer to ETFs/OICRs subject to the ordinary treatment for Italian funds and foreign funds meeting the statutory requirements, such as common European UCITS ETFs (complying with European harmonised-fund rules). Not every foreign fund necessarily follows the same regime or rate.

Imagine holding two ETFs: on the first we realise a loss of 1,000 euros, while on the second we realise a positive return of 1,000 euros classified for tax purposes as income from capital. In wealth terms, we are essentially breaking even before costs and taxes. For tax purposes, however, the positive result may be taxed while the loss is added to the carryforward record, awaiting a future eligible gain. Selling an ETF at a profit is not tax-equivalent to selling a share at a profit. Nor does 26% apply indiscriminately to every component: funds investing in preferentially taxed government securities are subject to rules taking account of the portion attributable to those securities. Examples using 26% assume this reduction does not apply.

Bonds can also produce different categories of income

Bonds illustrate the distinction clearly. The coupon, meaning the periodic interest paid by a bond, normally represents income from capital. A positive or negative trading component may instead produce miscellaneous income, with accrued interest and other proceeds that the law classifies as income from capital, such as issue discount, kept separate. Imagine receiving 500 euros in coupons but realising a tax-relevant loss of 500 euros by selling another bond. Economically, the gross result may be zero, but for tax purposes the two components are not automatically treated as one result. The distinction does not necessarily follow the financial instrument: the same security can generate components belonging to different categories. Looking only at the portfolio's overall return is not enough to establish taxable income.

Which gains can losses offset?

Losses can be used against income belonging to compatible miscellaneous-income categories. In general terms, they may therefore offset gains from buying and selling shares, bonds and other securities, as well as certain positive results from certificates, derivatives and other financial instruments, depending on their structure and tax classification. A product's commercial name alone does not establish how all its cash flows will be treated. This explains why some investors, especially when their carryforward balance is substantial and nearing expiry, consider what type of return they are realising, not just how much they are earning. But one mistake must be avoided: buying a risky instrument solely to use up losses would make no sense. Saving 26% tax on a gain is not a good deal if obtaining it involves enough risk to lose far more than the tax benefit. Taxation should inform portfolio construction, but should not become its main objective.

A complete 10,000-euro example

Imagine having 10,000 euros in usable, unexpired losses. In the first scenario, we receive 10,000 euros in equity dividends: these remain income from capital and, assuming the ordinary 26% rate with no additional taxes, incur a charge of 2,600 euros. In the second, we realise 10,000 euros in equity gains eligible for offsetting: the losses can reduce taxable income to zero. In the third, we realise 10,000 euros in positive returns through an ETF fully subject to 26%: classification as income from capital again prevents use of prior losses. The table shows why three positive returns of the same amount can have different consequences.

26% does not apply to every investment

Discussions of Italian investment taxation often use the phrase “you pay 26%”. It is a useful general rule, but not universal. A major example is Italian government bonds and certain equivalent public securities, which benefit from a preferential 12.5% rate. This distinction also matters when managing losses: for miscellaneous income arising from preferentially taxed public securities, the rules require 48.08% of the realised amount to be taken into account, consistently with the ratio between 12.5% and 26%. A gain of 1,000 euros on a relevant public security therefore does not automatically use up 1,000 euros in ordinary losses: the relevant component for this mechanism is approximately 480.80 euros. Similarly, a loss on those securities is weighted for tax purposes. Knowing you have 1,000 euros in losses and 1,000 euros in gains is not enough: you need to know the instruments and components from which they arise.

The intermediary-administered regime: the bank keeps the loss record

Under the intermediary-administered investment tax regime (regime del risparmio amministrato), the authorised intermediary acts as withholding agent: it calculates and withholds tax due on the miscellaneous income covered by the regime and records available losses. Investment choices remain with the customer. This is convenient because much of the compliance is handled automatically, but calculating tax on individual transactions makes their timing important. Losses are used against subsequent positive results permitted by law. A loss realised after a gain has already been taxed does not lead to an automatic annual adjustment or refund of the earlier tax. It remains available for subsequent compatible transactions until expiry. Examples of offsetting under intermediary administration therefore assume the loss is already available for tax purposes when the gain is realised.

The carryforward record is not a savings pot from which the bank recovers every tax previously paid. Having accounts with several intermediaries also requires attention: there is not necessarily one balance automatically shared by all banks. In the cases provided for, such as account closure or revocation of the tax election, the intermediary certifies remaining losses so they can be used under the applicable rules. Transfer arrangements and documentation must be checked before assuming that a loss on one account can offset a gain realised on another.

A foreign broker does not make the problem disappear

Someone might think this structure can be avoided by using a foreign broker under the self-assessment regime (regime dichiarativo). But the tax categories come from Italian law, not the broker's location. With an intermediary that does not act as an Italian withholding agent, the taxpayer must determine and declare financial income, as well as meet any foreign-asset reporting obligations and pay taxes on foreign assets. For compatible miscellaneous income, self-assessment allows the result for the tax period to be determined annually, unlike intermediary administration's transaction-by-transaction sequence. This may alter the effect of sale order within the same year, but does not turn a dividend into an equity gain or make ETF income eligible for offsetting against losses. The person performing the calculations and the determination and payment methods change; the legal nature of the proceeds does not. Nor does a foreign location alone identify the regime: it is necessary to check whether the intermediary acts as an Italian withholding agent.

The managed-portfolio regime works differently

Alongside self-assessment and intermediary administration, there is the managed-portfolio tax regime (regime del risparmio gestito), governed by Article 7 of Legislative Decree 461/1997. Here, the investor gives an authorised intermediary an actual portfolio-management mandate and, if the tax option is elected, taxation is calculated on the portfolio's net accrued result for the tax period. The difference from intermediary administration is not just who chooses the securities: the tax result may include changes in value accrued without a sale. Positive components of income from capital and positive and negative components of miscellaneous income can enter the calculation, allowing broader offsetting. But exclusions and specific rules remain: not every item of income from capital necessarily enters the result, and merely owning a fund or ETF does not place an individual in this regime.

The manager determines the increase or decrease in the managed portfolio under statutory criteria, neutralising contributions and withdrawals and considering the charges and components permitted in the calculation. A negative result may be carried forward to reduce subsequent positive results, no later than the fourth tax period. The approach therefore differs from the typical loss record under intermediary administration: it considers the portfolio's overall accrued result, not just an individual loss realised by selling a security. This does not mean prior losses from an intermediary-administered account can be freely transferred and used against any income in the new managed portfolio. The regime is typical of individual discretionary portfolio management and is not the same as an ordinary securities account where the investor independently decides what to buy and sell. Costs, the service received, the instruments used and taxation on accrued returns must be considered together: broader offsetting does not automatically make it more advantageous.

Why does this distinction exist?

The distinction reflects the traditional view that income from capital is the yield from employing capital, while miscellaneous income includes financial results linked also to changes in an asset's value. A dividend is treated as income produced by the holding; an equity capital gain instead arises from the difference between tax cost and sale proceeds. Legally, the categories serve a specific purpose. Economically, however, they can produce counterintuitive outcomes when funds, ETFs, certificates, shares and bonds coexist in the same portfolio. Enabling Law No. 111/2023 identified rationalising financial-income rules and overcoming the current separation among its objectives. A reform objective, however, is not the same as an already applicable rule. This article describes the treatment applicable in 2026; the new consolidated code adopted by Legislative Decree 117/2026 provides for application from 1 January 2027. Reorganising statutory references should not be confused with an automatic ability to offset all financial proceeds freely.

Expiring losses and ETF-only portfolios

Suppose we have 20,000 euros in ordinary losses about to expire. If, as part of our investment decisions, we realise compatible gains of the same amount, we can avoid theoretical tax of 20,000 × 26% = 5,200 euros. This does not mean the loss record is automatically worth 5,200 euros. To obtain that benefit, we must realise enough eligible gains before expiry; if they do not materialise, the benefit is zero. It is therefore more accurate to describe a loss as a potential tax shield, not money already belonging to us. Expiry deserves attention, but does not by itself justify costly transactions or transactions inconsistent with the risk we can bear.

The ETF case is particularly relevant to people whose portfolios consist almost entirely of these instruments. Diversification and low costs can make this a financially sound choice, but realised ETF losses may add to the carryforward balance while subsequent positive returns from those same ETFs, under the regimes considered here, are not normally income eligible to use it up. We might have 5,000 euros in ETF losses and later realise 20,000 euros in positive returns on other ETFs, still paying tax without directly deducting those 5,000 euros. The point concerns realised, tax-relevant losses, not every downward fluctuation shown in the securities account. Economically, this asymmetry can be criticised; for tax purposes, it follows from classifying results in different categories.

Does this mean you should avoid dividends and ETFs?

No: that would be the wrong conclusion, because it would let taxation alone determine the investment strategy. An efficient global ETF does not suddenly become a bad investment because its loss-offsetting treatment is less favourable, and a company's quality does not change because it pays dividends. Taxation is a cost and, like other costs, must be considered, but an investment should not be selected solely to use up carried-forward losses. Risk, expected return, diversification, liquidity and time horizon come first. Among financially sensible strategies, one can then assess which is more tax-efficient, also considering commissions and additional risks. A potential tax benefit does not automatically compensate for a worse investment.

Conclusion

Yes: losing 100 euros on a share and receiving 100 euros in dividends can still result in tax on the dividend. In the ordinary 26% case, the zero gross economic balance becomes a negative net result of 26 euros, while the loss remains usable only in the permitted ways. We can also accumulate losses selling ETFs and pay tax on subsequent positive returns from other ETFs, or receive coupons while recording trading losses. The tax system does not ignore losses completely: it allows their use within compatible categories and time limits, but does not necessarily reconstruct the entire portfolio's economic result as a single sum.

The decisive distinction is therefore between the return shown on the account and the income the law treats as taxable. The nature of the proceeds, the tax regime, available losses and their expiry must be identified. The managed-portfolio regime follows a different approach and should not be confused with an ordinary securities account. To understand how much will remain in our pockets, we need to know not just how much we earned, but what type of return we generated and which losses we can actually use.

Rules checked on 5 October 2026 with reference to the 2026 tax period. Examples are hypothetical and simplified. Actual treatment depends on the instrument, the chosen regime and the taxpayer's circumstances.