When you sell an investment at a profit, you realise a capital gain; when the sale price is below the recognised tax cost, you generate a capital loss. So far, the mechanism seems simple. The more complicated part comes when trying to understand whether a loss can be used to reduce tax on future gains. In Italy, the answer depends on the income's tax category, the type of instrument and the regime used. Not all losses can be offset against all gains, and seeing two transactions both taxed at 26% is not enough to conclude that they can cancel each other out for tax purposes.
The fundamental principle is this: Italian investment taxation requires a distinction above all between investment income (redditi di capitale) and miscellaneous financial income (redditi diversi di natura finanziaria). Capital losses generally belong to the second category and can be used only within the limits laid down by the rules on miscellaneous income. The Italian Revenue Agency notes that capital gains and other miscellaneous financial income governed by Article 67 of the Italian Income Tax Code (TUIR) are subject, in the relevant ordinary cases, to a substitute tax of 26%.
What capital gains and capital losses are
Suppose we buy a share for 10,000 euros and subsequently sell it for 12,000 euros. Ignoring commissions and other tax-relevant items for simplicity, we have realised a capital gain of:
If we instead sold it for 8,000 euros, we would have a capital loss of:
The capital gain therefore represents a profit realised through disposal, while the capital loss represents a tax-relevant loss in the cases provided by law. The word realised matters: a simple fall in the price of a security still held does not normally generate a loss usable for tax purposes. If a share bought for 10,000 euros is now worth 7,000 but is not sold, there is a potential economic loss, not necessarily a tax loss already available.
Offsetting does not mean recovering the loss
This is the first important misconception. If we realise a capital loss of 1,000 euros, the government does not give us back 1,000 euros. Where the rules allow, the loss can be used to reduce the taxable base of subsequent eligible capital gains.
Imagine having a tax loss of 1,000 euros and subsequently an offsettable capital gain of 3,000 euros. Without the loss, tax at 26% would be calculated on the entire gain:
Using the loss, the remaining taxable base becomes:
and the tax:
The tax advantage produced by the loss is therefore 260 euros, not 1,000 euros. The economic loss remains a loss; what is recovered is only the tax that would otherwise have been paid on the offset portion of the gain.
The real issue: miscellaneous income and investment income
Understanding Italian investment taxation requires knowing this distinction.
Capital gains from, for example, disposing of equity holdings and various other financial instruments fall within miscellaneous financial income governed by Article 67 TUIR. Indeed, the Italian Revenue Agency dedicates Section T of the 730/2026 tax return specifically to capital gains and other miscellaneous financial income, including any remaining unused capital losses.
Investment income, by contrast, follows a different logic. Broadly speaking, it includes interest, dividends and other proceeds from the use of capital in the cases provided by the TUIR.
The practical consequence is crucial: a capital loss belonging to miscellaneous income cannot be used indiscriminately against any financial return.
Two gains that appear economically identical can therefore receive different tax treatment.
A simple example with shares
Suppose we buy shares in company A for 5,000 euros and sell them for 4,000 euros. This creates a tax loss of 1,000 euros, assuming ordinary conditions apply.
We subsequently buy shares in company B for 6,000 euros and sell them for 8,000 euros, generating a capital gain of 2,000 euros.
Since both transactions ordinarily generate miscellaneous financial income, the loss can reduce the gain:
The 26% substitute tax is therefore applied to 1,000 euros, giving tax of 260 euros.
Without the loss, the tax would have been 520 euros.
Why funds and ETFs are less intuitive
The taxation of funds and ETFs is one of the most confusing areas. In general terms, positive returns from collective investment undertakings (OICR) may qualify as investment income, while any negative components may contribute to miscellaneous income under the applicable rules.
This asymmetry has a counterintuitive effect: a previous capital loss cannot automatically offset every positive return generated by an ETF or fund merely because it is economically a financial gain.
This is precisely why, under Italian taxation, the statement “I have a capital loss, so I will offset it against the next ETF that rises” can be wrong.
The opposite oversimplification must also be avoided, however: the actual treatment depends on the product's structure, the applicable tax regime and the specific nature of the realised result. For significant transactions, it is therefore necessary to check the intermediary's certification and actual tax classification rather than relying exclusively on the commercial label “ETF” or “fund”.
Coupons and dividends do not automatically cancel capital losses
The same principle helps explain why receiving share dividends or coupons does not necessarily mean using previous capital losses.
The fact that a return is taxed does not imply that it belongs to the same tax category as the loss.
Imagine having 2,000 euros of remaining capital losses and receiving 1,000 euros in dividends. We cannot automatically conclude:
Offsetting works only between components that the legislation regards as compatible.
This is one of the clearest examples of why the tax rate and the income category are not the same thing.
Capital losses and government securities: watch the tax-relevant portion
The situation becomes more technical when instruments with preferential treatment are involved, such as certain Italian government securities and equivalent instruments.
These instruments generally benefit from the preferential tax rate of 12.5%, instead of the 26% ordinarily applied to many other investment returns. To allow offsetting against losses originating from instruments taxed at 26%, the legislation uses weighting mechanisms for the tax-relevant component.
It is therefore incorrect simply to reason in nominal amounts and say that 1,000 euros of capital gains on government securities necessarily absorb 1,000 euros of ordinary capital losses. The amount actually usable depends on the applicable tax-equivalence rules.
This is one area where it is sensible to rely on the intermediary's calculations or the tax instructions for the year concerned, because the percentages and operating procedures must be applied correctly.
How long can capital losses be used?
Another fundamental question concerns duration.
Tax rules allow unused financial capital losses to be carried forward for a limited period. Generally, the loss can offset eligible gains realised in subsequent tax periods, but no later than the fourth.
This means a capital loss does not remain available indefinitely.
Suppose we realise a loss in 2026. Generally speaking, the window extends through the following four tax periods; if no eligible gains are realised within that deadline, the remaining tax benefit is lost.
The Italian Revenue Agency therefore provides a specific section in tax returns for unused capital losses, where remaining losses still available for use are reported.
This expiry makes it useful to know not only the total amount of losses but also the year in which they arose.
An expiry example
Imagine having:
- 2023 capital loss: 1,000 euros;
- 2024 capital loss: 600 euros;
- 2026 capital loss: 800 euros.
Knowing that total losses amount to 2,400 euros is not enough. The loss from 2023 has a different remaining tax life from the one generated in 2026.
If eligible gains are limited, it can become important to check which losses are used and which are approaching expiry.
Under regimes administered by intermediaries, these calculations are generally managed by the entity applying the tax. Under the self-reporting regime, however, the taxpayer must pay greater attention to carrying losses forward correctly in tax returns.
The administered and self-reporting regimes
Managing capital losses also varies with the tax regime used.
Under the administered savings regime (regime del risparmio amministrato), typical of many accounts with Italian banks and intermediaries, the intermediary calculates taxes, records capital losses and uses them when eligible gains are realised within the same account relationship.
This makes management much simpler for the taxpayer.
Under the self-reporting regime (regime dichiarativo), the taxpayer instead determines and reports financial income and related capital losses under the applicable rules. Since 2025, the 730 tax return has also been able to include information on financial capital gains; Section T of the 730/2026 return contains dedicated subsections for gains, unused capital losses and related information.
The difference does not change the economic nature of a capital loss, but significantly changes how it must be managed.
Capital losses with different intermediaries
Another practical issue arises when investments are spread across several banks or brokers.
Suppose we have a capital loss at bank A and realise a gain at bank B. Bank B does not automatically know about the loss recorded with the other intermediary.
Under the administered regime, it may therefore be necessary to obtain the relevant capital-loss certificate from the original intermediary and transfer it in accordance with the prescribed procedures, normally after closure or termination of the relevant account relationship and subject to the applicable rules.
This means a person may have economically offsettable gains and losses yet not obtain automatic offsetting simply because the transactions occurred in separate accounts.
Portfolio tax management therefore also depends on how relationships with intermediaries are organised.
Pay attention to the tax cost basis
Determining gains and losses requires more than remembering what we “think” we paid for a security. The recognised tax cost, determined under the applicable rules, is needed.
Commissions, purchases made at different times, transfers between intermediaries and corporate actions can affect the value used for the tax calculation.
Suppose we buy the same share several times:
- 100 shares at 10 euros;
- 100 shares at 12 euros;
- 100 shares at 15 euros.
We cannot simply choose arbitrarily which lot to treat as sold. The tax regime and intermediary apply specific criteria to determine the recognised tax cost.
This is why the so-called tax cost basis can differ from the number the investor has mentally associated with the purchase.
An economic loss is not always a usable tax loss
This distinction is very important.
Legislation may provide cases in which a negative difference does not generate a recognised tax loss. The Italian Revenue Agency notes, for example, that in certain cases of revaluation of equity holdings through an appraisal, the revalued amount cannot be used to create a tax-relevant capital loss: if sale proceeds are below the appraised value, the difference does not automatically become an offsettable loss.
This is a useful principle beyond this specific case: an accounting loss, an economic loss and a tax capital loss are not necessarily the same thing.
Before treating a loss as usable, we must verify that the legislation actually classifies it as such.
Generating a loss solely to save tax makes no sense
The presence of capital losses can lead to distorted reasoning. For example, an investor might be tempted to sell a security at a loss solely to “recover the damage through tax”.
But the tax benefit is always smaller than the economic loss.
If we sell and generate a capital loss of 10,000 euros, we have not earned a tax credit of 10,000 euros. Even assuming the loss can be used in full against gains taxed at 26%, the maximum theoretical tax saving would be:
We have still suffered an economic loss of 10,000 euros.
Taxation can therefore cushion a loss, not turn it into an advantage.
The decision to sell should start with a financial assessment of the instrument and only then consider the tax effect.
Realising a gain solely to use a loss can be equally mistaken
The opposite problem is selling a sound investment solely because some capital losses are about to expire.
A tax advantage may exist, but it must be weighed against trading costs, spreads, any loss of market exposure and consistency with the overall strategy.
Taxation should be one variable in the decision, not its sole objective.
A financially irrational transaction does not automatically become worthwhile because it produces a tax saving.
A complete example
Suppose an investor realised an offsettable capital loss of 3,000 euros in 2025. In 2026, they sell shares with a capital gain of 5,000 euros.
Assuming the two components are compatible for tax purposes, the taxable base becomes:
With substitute tax at 26%:
Without the loss, tax would have been:
The tax saving is therefore:
which corresponds exactly to 26% of the 3,000-euro loss used.
The 3,000-euro loss has not been recovered: it has simply avoided 780 euros of future taxation.
This is the correct logic of offsetting.
Why tracking capital losses is worthwhile
Good financial management should also include a small portfolio tax archive, especially when using several intermediaries or the self-reporting regime.
For each capital loss, it is useful to know:
the remaining amount, year of origin, intermediary with which it is recorded and tax expiry date.
This makes it possible to identify losses approaching expiry and properly check the tax documentation produced by intermediaries.
The objective should not be artificial transactions solely to consume losses, but to avoid completely forgetting a tax asset that could have value.
26% does not apply to everything
One final clarification is essential. The 26% rate is very common in Italian investment taxation, but it is not the universal rate for every investment. Instruments such as certain Italian government securities and equivalents benefit from 12.5% taxation, alongside other cases governed by specific rules.
The Italian Revenue Agency does confirm, however, that capital gains and other miscellaneous financial income ordinarily covered by points c-bis) through c-quinquies) of Article 67 are subject, in current cases, to substitute tax at 26%.
The tax value of a capital loss must therefore also be understood in relation to the type of gain against which it is used.
Conclusion
Capital gains and capital losses seem simple: profits on one side, losses on the other. Italian taxation, however, introduces a fundamental distinction that completely changes how offsetting works: not all gains belong to the same tax category, and not all losses can be used against any return.
A capital loss is not a tax refund and does not automatically cancel future taxes. Where permitted, it reduces eligible gains and therefore creates a tax saving equal to the applicable rate on the offset portion.
To manage it correctly, you need to know: which instrument generated the loss, which tax category the subsequent gain falls into, the year the loss arose, where it is recorded and when it expires.
The right question is therefore not: “I have capital losses: what can I use to recover them?” but: “Which financial income is compatible with this specific capital loss for tax purposes, and how much longer can I use it?”
It is a technical distinction, but it can have very concrete economic consequences.