Holter, the short-term (ST) and long-term (LT) classifications do apply to both gains and losses for both current year and carryover usage, but in different ways.
As you seem to understand the difference in gains for each classification, I'll only discuss losses and how each classification is applied.
Let's say you have 4 stock sales in the current year that result in gains and losses as follows:
1. a ST gain of $200
2. a ST loss of $500
3. a LT gain of $1000
4. a LT loss of $500
You would figure your ST and LT gains/losses separately as follows:
ST: $200 gain - $500 loss = $300 ST loss
LT: $1000 gain - $500 loss = $500 LT gain
You would then combine these 2 classifications as follows:
Net gain/loss: $500 LT gain - $300 ST loss = $200 net LT gain
In that scenario, the $200 LT gain is taxed at 0% federal rate if your ordinary income tax rate is less than 25%, or at 15% if your ordinary income tax rate is 25% or greater.
Now, let's assume you had either a ST or LT loss carryover to next year. The ST or LT loss would be applied to the respective ST or LT gain/loss calculations for that year, as described above, but can still be used to offset gains from the other classification, as shown above.
The following statement is directly from IRS Publication 550 (Investment Income and Expenses), Capital Losses, page 65:
When you carry over a loss, it remains long-term or short-term. A long-term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains.
I hope this fully explains your remaining question.
...and on the 7th day, God turned off his Macintosh.
