I'm not sure if you're supposed to capitalize Race names, like say, Kurd, Human, or Elf. or if that's only for nationalities
I think the rule is to capitalize names of all races, nationalities and ethnic groups. But I may have just invented that rule. Yes, I'm that creative. I'd wait for confirmation from wiser members before betting my life on it.
It's depending on specification. Example, human is uncapitalized but if your story contains many species you might capitalize it.
okay, there are three races within the scope of this text: Human, Elf, and Naga. I came to a point where I have to reference the Naga and I don't know if it should be capitalized.
If you look at real-life examples, species' common names are never capitalized, including human. Same thing with races: we don't capitalize "white" or "black" when we talk about race, even though we do capitalize "Asian" or "Latino" or "European" because those refer to points of origin, not appearance. So if we suddenly found ourselves surrounded by elves, their species wouldn't have a capitalized name either (unless they came from somewhere called Elveria, where the term "Elves" would correspond with a place). However, if you look at history and such, different peoples, tribes, etc. have names that would be capitalized because they are the group's legitimate name, rather than a species. So if you look at history and such, words like Germans, Mongols, Visigoths, Phoenicians, Huns, etc. are capitalized. In the end, it's your choice. But it also depends upon why they're called elves. Is it a cultural term? Is it slang? Is it a species name? Or something else?
I think it's up to you. Do you think they should be capitalized? Tolkien, when writing the Lord of the Rings, capitalized "Man" and "Men" which seemed odd to me at first, but then I realized that all of his other races are capitalized, too.
Now you bring up an interesting point, the Elves in this story should properly be called Neranya(sing. Neran) since Elf is actually a term for a group of similar races. referencing them as just Elves is more of a cultural thing with the Rivian populace who don't really understand the fundamental differences between the various Elven races and group them all as Elf.
To be honest, it kind of annoys me when authors capitilize every other word, because it totally abuses the purpose of the capitilization: to set it off from other text, marking it as important. But follow the words of Aeschylus, and you will be led to the promise land of Not-Sucky Writing.