What Changed in 2026 for Investors Facing a Large Capital Gain or High Ordinary Income
Selling a business, or a concentrated stock position, can create one of the largest tax bills of an investor’s life. High earners face a similar problem every year with ordinary income. Over the past several years, tax-aware long-short strategies have become one of the main ways sophisticated investors deal with both. Industry estimates put inflows into these strategies above $150 billion over the past three years.
These strategies don’t work by hunting for losses. A long-short portfolio can realize losses on both its long and short positions while deferring gains, especially short-term gains. The research is also clear that the tax benefit depends on the strategy earning returns before tax. If a strategy can’t cover its financing, trading, and fee costs, the tax savings alone don’t justify the leverage.
2026 Changed the Rules in Three Ways
$150B+
Estimated inflows over the past three years
$256K
2026 excess business loss threshold
2026-62
IRS notice reviewing ordinary-loss techniques
The loss cap is permanent and lower. The One Big Beautiful Bill Act made the excess business loss limitation permanent. It also lowered the threshold to $256,000, or $512,000 for joint filers. That limits how much ordinary loss can offset wages and other income in a single year.
The IRS is looking at certain techniques. In September, Treasury and the IRS issued Notice 2026-62. It identifies certain strategies that pair capital gains with ordinary losses as possible reportable transactions, potentially with retroactive effect. Conventional loss harvesting is expressly left alone, but strategies that produce ordinary losses now carry real regulatory risk.
Access has tightened. Major custodians have restricted or repriced access to leveraged long-short separate accounts.
In our new white paper, Tax-Aware Long-Short Investing, Managing Director John H. Nghiem compares two AQR approaches. The first is a commingled trader fund designed to produce ordinary losses. The second is a long-short separate account strategy built to offset capital gains from events like a business sale. The paper covers how each works, how the 2026 rules affect them, and the questions investors and advisors should ask before allocating.
White Paper | 53 Pages
Tax-Aware Long-Short Investing
Structures, tax characteristics, and the 2026 regulatory landscape for investors weighing tax-aware long-short strategies against large capital gains or high ordinary income.
- How long-short portfolios defer gains and realize losses
- A trader fund versus separate accounts, compared
- What the 2026 law and Notice 2026-62 change
- Questions to ask before allocating
Information is as of October 21, 2026. For informational purposes only; not investment, tax, or legal advice. Robertson Investment Management, LLC is an SEC-registered investment adviser. Robertson has an investment management agreement with AQR Capital Management, LLC, which serves as discretionary manager for certain Robertson client accounts. Robertson and AQR are not affiliated; Robertson earns advisory fees on client assets allocated to AQR strategies. Investing involves risk, including loss of principal. See the white paper and Robertson’s Form ADV Part 2A for full disclosures.
