Expiration of capital losses: the four-year limit for offsetting
Managing capital losses pending offset requires strict control of the time limits established by tax regulations. A recent binding ruling from the Dirección General de Tributos (DGT) has delimited the scope of this right against the passage of time.
What the DGT has ruled
The inquiry asked whether it was possible to offset pending capital losses from the 2020 fiscal year against capital gains obtained in the 2025 fiscal year. The advisory body has determined that this is not possible due to the expiration of the period to exercise said right.
According to the DGT's criteria, capital losses from a specific fiscal year can be offset during the following four years. In the specific case of losses generated in 2020, the compensation period includes the 2021, 2022, 2023, and 2024 fiscal years. Upon reaching the 2025 tax period, the period established in the Personal Income Tax Law (LIRPF) has expired, preventing their application against new income.
What this means for you
This ruling directly affects individuals who maintain negative balances from previous years in their tax returns. If you have capital losses that you have not been able to offset in full in the years immediately following their origin, you must keep in mind that these are not permanent.
Failure to meet the deadlines results in the definitive loss of the ability to reduce the taxable base through these losses. This implies that a taxpayer who has not used their 2020 negative balances before the end of the 2024 fiscal year must pay tax on their 2025 gains without being able to apply that previous tax benefit.
What you should do
It is fundamental to perform rigorous monitoring of profit and loss balances in each tax return. To avoid losing these tax rights, it is necessary to verify that all pending losses are applied within the four-year margin set by the LIRPF. Since every tax situation is unique, it is recommended to assess your specific case to ensure that the offsetting deadlines are being correctly met.
Frequently asked questions
- How many years do I have to offset a capital loss?
- You have a period of four years following the fiscal year in which the loss occurred.
- What happens if I do not use my 2020 losses in 2024?
- The right to offset them expires and they cannot be applied in subsequent fiscal years such as 2025.