Short-Term Capital Gains
Profits from selling assets held for one year or less, taxed at ordinary income tax rates (10% to 37%). There is no preferential rate for short-term gains.
Short-term capital gains result from selling capital assets that you held for one year or less. The holding period starts the day after you acquire the asset and ends on the day you sell it. These gains are added to your ordinary income and taxed at your regular tax rates, which range from 10% to 37% in 2025.
Because short-term gains do not receive any preferential tax treatment, they can result in a significantly higher tax bill than long-term gains. For a taxpayer in the 32% bracket, a $10,000 short-term gain would cost $3,200 in federal tax, while the same gain held long-term might cost only $1,500 at the 15% long-term rate.
This tax difference is one reason many investors use a buy-and-hold strategy, waiting at least one year and one day before selling appreciated assets. Day traders and active investors with frequent short-term gains may benefit from strategies like tax-loss harvesting or holding positions in tax-advantaged retirement accounts.
How it works
Short-term capital gains come from selling a capital asset you held for one year or less, measured from the day after you acquired it to the day you sold it. Unlike long-term gains, short-term gains get no preferential tax rate at all — they're simply added to your other income and taxed at your ordinary income tax rates, which range from 10% to 37% in 2025 depending on your total taxable income.
You report short-term transactions on Form 8949, separately from long-term ones, and the total flows to Schedule D and then onto your Form 1040 as part of your ordinary taxable income. Your brokerage's Form 1099-B typically labels each sale as short-term or long-term based on the holding period it calculates, though you're responsible for verifying that classification is correct, especially for assets transferred between accounts or inherited.
The one-year holding period is precise — selling at exactly the one-year mark still counts as short-term, while waiting one more day crosses into long-term treatment. This makes the calendar a genuine tax-planning tool: investors sometimes deliberately hold a position a few extra days specifically to cross the one-year line and access long-term rates instead. Day traders and active investors who generate frequent short-term gains don't get this option and typically face a meaningfully higher tax bill than a buy-and-hold investor with identical dollar profits.
Example: short-term gain taxed at ordinary rates
A taxpayer in the 32% bracket buys a stock and sells it seven months later for a $10,000 profit — well inside the one-year holding period, so it's a short-term gain. Because short-term gains get no preferential rate, the entire $10,000 is taxed at their 32% ordinary rate, for $3,200 in federal tax.
Had the same taxpayer simply waited another five months to cross the one-year mark before selling, the identical $10,000 gain would instead qualify for long-term treatment, taxed at whichever of the 0%, 15%, or 20% long-term rates applies to their income — potentially cutting the tax bill by more than half.
2026 capital gains quick estimate
Estimate the additional federal tax caused by your gains. Uses the standard deduction; state tax is not included.
Assets held more than one year.
Assets held one year or less.
Federal tax caused by gains
$7,500Incremental estimate versus the same ordinary income with no gains.
Long-term gains tax
$7,500Top LTCG band reached: 15%
3.8% NIIT
$0No NIIT at these inputs.
Frequently asked questions
What tax rate applies to short-term capital gains?
How is the one-year holding period counted for short-term vs. long-term?
Why do investors avoid selling before the one-year mark?
Related Terms
Capital Gains
The profit from selling a capital asset (stocks, real estate, etc.) for more than its purchase price. Capital gains are classified as short-term or long-term based on holding period.
Long-Term Capital Gains
Profits from selling assets held for more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income.
Tax Bracket
A range of income taxed at a specific rate. The US uses a progressive system with seven brackets ranging from 10% to 37% for 2025.
Cost Basis
The original purchase price of an asset (plus adjustments like commissions and reinvested dividends), used to calculate capital gain or loss when you sell.