---
title: "Set the tax rules your backtests use"
description: "Choose your tax residency, regime and rates under Fiscal profile in Simulation defaults, and see how each residency sets a realized loss against later gains."
canonical_url: "https://fincanva.com/docs/backtesting/set-the-tax-rules-your-backtests-use"
last_updated: "2026-10-07"
md_url: "https://fincanva.com/docs/backtesting/set-the-tax-rules-your-backtests-use.md"
---

# Set the tax rules your backtests use

Your tax rules — residency, regime and rates — are set together under **Fiscal profile** in **Settings → Simulation defaults**, and a [backtest](/glossary/backtest) applies them when its Taxes assumption is on.

## Steps

1. Open **[Simulation defaults](/docs/backtesting/set-your-simulation-defaults)** and go to **Fiscal profile**.
2. Choose your **[Tax residency](/glossary/tax-residency)**: **United States**, **Italy** or **Other**. The section re-seeds the regime and every rate from that residency, and marks each field it changed **Auto-updated**.
3. Under **Italy** or **Other**, choose the **[Tax regime](/glossary/tax-regime)**: **Declarative** or **Administered**. Under **United States** the field is not shown.
4. Under **United States** or **Other**, adjust **Short-term capital gains**, **Long-term capital gains** and **Dividend tax**, each up to 50%. Under **Italy** the short-term field is hidden and the other two rates are locked: "Set by Italian tax law for the selected regime."
5. Press **Save**. The section is saved whole — never a residency without the rates it re-seeded — and the toast reads `Tax settings saved`; **Cancel** puts back what was saved.
6. Press **Re-run** on your strategies, then switch **Taxes** on under **Include** in a [strategy](/glossary/strategy)'s results to read them after tax. With [Taxes](/glossary/taxes-toggle) off no rate applies, and [not every plan includes it](/docs/account-and-plan/what-each-plan-includes).

**Done.** The **Next simulation** summary names your residency — for example "taxed as a resident of Italy under the declarative regime" — and your strategies' after-tax results use these rules.

## What does changing tax residency change?

Picking a residency re-seeds the regime and every rate to the values that jurisdiction uses; every residency starts on the **Declarative** regime:

| Residency | Short-term capital gains | Long-term capital gains | [Dividend tax](/glossary/dividend-tax) |
|---|---|---|---|
| **United States** | 35% | 20% | 20% |
| **Italy** | *not applicable — field hidden* | 26% (locked) | 26% (locked) |
| **Other** | 20% | 20% | 15% |

Under **United States** and **Other** every rate is yours to change; under **Italy** the rates follow the law for the selected regime. Under **Other** the regime field is shown but the simulation taxes as under United States whichever regime you pick. A residency you have never saved follows your interface language: **United States** in English, **Italy** in Italian.

## Why does Fincanva suggest another tax residency?

Because your saved residency does not fit your language and results currency. **United States** is flagged when you use Italian or read results in EUR, and Fincanva suggests **Italy**; **Italy** is flagged when you use English and read results in USD, and it suggests **United States**; **Other** is never flagged, because it is a deliberate choice of your own rates.

The warning on **Simulation defaults** reads `Your tax residency is {residency}`, says which of the two facts point elsewhere — for example "You read results in euros and use Italian: switch to Italian tax rules?" — and offers `Switch to {residency}`. That button saves nothing: it puts the suggested residency into **Fiscal profile**, whose rates re-seed, and the warning then reads `You are switching it to {residency} below: confirm with Save.` The same case appears on the settings **Overview** under **Needs attention**, with a **Review** button that opens **Simulation defaults**.

## How does a loss reduce tax under United States and Other residency?

A realized loss is set against the gains you are taxed on, and what is left over carries forward with no time limit.

- A loss is first set against gains realized in the same year, whatever their character: a short-term loss can reduce a long-term gain, and a long-term loss a short-term gain.
- Whatever is left at the end of the year carries forward for as many years as the backtest runs.
- A carried loss **keeps its short-term or long-term character**: a carried short-term loss reduces short-term gains, a carried long-term loss reduces long-term gains, and it does not cross over.
- Fincanva does not model the annual deduction of net capital losses against ordinary income that US tax law allows: in a simulation a loss is only ever useful against [capital gains](/glossary/capital-gains-tax).

## How does a loss reduce tax under Italy residency?

A loss stays usable for **five years**, there is a single rate so no character to keep, and a gain on an ETF is never reduced by a loss. How the five years are counted follows the [tax regime](/glossary/tax-regime):

- **Declarative** — the year's losses are set against the same year's gains, and a net loss for the year can reduce net gains in the **five years that follow**.
- **Administered** — a loss reduces gains realized **after** it, in its own year and the **four years that follow**; a gain taxed before the loss happened is not revisited.

### Why the Italian ETF rule matters to your results

**A gain on an ETF cannot be reduced by any loss, same-year or carried, but a loss on an ETF reduces other gains.** In a strategy built mainly of ETFs your losses help you and your gains do not: every ETF gain is taxed in full, so an all-ETF strategy gets no netting on the gains side even in a year of large losses. The rule applies to instruments Fincanva classifies as ETFs; ETNs, ETCs and closed-end funds are ordinary instruments whose gains carried losses can reduce.

Fincanva is for education and illustration only. It is not personalised financial advice, and past or simulated results do not predict future ones. [Read the Terms Addendum](https://fincanva.com/terms/addendum#section-3)