Short-Term Capital Gains Tax: Rates, Rules, and How to Reduce What You Owe

Last updated 05/27/2026 by

Ante Mazalin

Edited by

Andrew Latham

Fact checked by

Andy Lee

Summary:

Short-term capital gains tax applies to profits from selling assets held for one year or less. Those gains are taxed as ordinary income at the same rates as wages, currently ranging from 10% to 37% depending on total taxable income.

Because short-term rates match ordinary income rates, selling an appreciated asset too soon can cost significantly more in taxes than waiting to qualify for long-term treatment.

Ordinary income rates apply: A short-term gain of $50,000 is taxed at the same marginal rate as $50,000 of salary, which at higher income levels is more than double the long-term capital gains rate.
One-year holding period is the threshold: An asset must be held for more than 365 days to qualify for lower long-term rates — selling on day 365 rather than day 366 triggers the full ordinary income rate.
Losses offset gains: Short-term capital losses first offset short-term gains, then long-term gains, and up to $3,000 of net losses can offset ordinary income per year, with the remainder carried forward.

The difference between short-term and long-term capital gains treatment can be substantial. An investor in the 32% federal income bracket who sells a stock after 11 months pays 32% on the gain. Waiting two more months to cross the one-year threshold drops that rate to 15%. On a $100,000 gain, that is $17,000 in additional tax owed for selling early.

Short-term vs. long-term capital gains rates compared

Taxable Income (Single, 2025)	Short-Term Rate	Long-Term Rate
Up to $11,925	10%	0%
$11,926 to $48,350	12%	0%
$48,351 to $103,350	22%	15%
$103,351 to $197,300	24%	15%
$197,301 to $250,525	32%	15%
$250,526 to $533,400	35%	15%
Over $533,400	37%	20%

The gap between short-term and long-term rates widens at higher incomes. At the top bracket, the difference is 17 percentage points (37% vs. 20%). High earners may also owe the 3.8% Net Investment Income Tax on top of the long-term rate, but even then, the short-term rate exceeds long-term treatment by a wide margin.

What assets generate short-term capital gains

Any capital asset held one year or less and sold for a profit generates a short-term gain. The most common sources include:

Stocks, ETFs, and mutual fund shares sold within a year of purchase
Cryptocurrency is sold within a year of acquisition
Real estate sold within a year of purchase (including house flips)
Options contracts exercised or sold within a year
Collectibles, art, and other personal property sold at a gain

The holding period begins the day after the purchase date and ends on the sale date. For mutual funds, capital gains distributions paid to shareholders are classified by the fund based on its own holding period, not the investor’s holding period in the fund.

How capital gains netting works

The IRS requires taxpayers to net gains and losses within each category before applying rates. The process on Schedule D works as follows:

Total all short-term gains and losses to produce a net short-term figure.
Total all long-term gains and losses to produce a net long-term figure.
If both are positive, each is taxed at its respective rate.
If one is positive and the other is negative, they are netted against each other. A net short-term loss reduces a net long-term gain, lowering the total tax owed.
If the combined result is a net loss, up to $3,000 can be deducted against ordinary income per year. The remaining loss carries forward to future years indefinitely.

Pro Tip

Tax-loss harvesting — deliberately selling positions at a loss to offset gains — is most powerful when used to convert short-term gains into net long-term gains. Selling a losing position that has been held less than a year generates a short-term loss, which first offsets short-term gains taxed at ordinary income rates. This effectively converts your highest-taxed gains into zero-taxed losses. The wash-sale rule prohibits repurchasing the same or substantially identical security within 30 days before or after the sale, but you can immediately buy a similar (not identical) fund to maintain market exposure.

Short-term capital gains on house flips

Real estate investors who buy and sell properties within 12 months face short-term capital gains treatment on the profit. For a property that generates $80,000 in profit sold by an investor in the 24% bracket, short-term treatment costs $19,200 in federal tax. Long-term treatment at 15% would cost $12,000 — a $7,200 difference on that one transaction.

Unlike primary residences, flipped properties do not qualify for the Section 121 exclusion. Investors who frequently flip properties may also be classified by the IRS as dealers rather than investors, in which case profits are taxed as ordinary business income subject to self-employment tax, a higher burden than even short-term capital gains treatment.

See capital gains tax on real estate for the full rules on residential property sales.

How to Reduce Your Capital Gains Tax Bill

The strategy depends on what you’re selling. These guides cover the most common asset types where timing and structure can make a significant difference.

Avoiding capital gains tax on stocks covers holding period strategies, tax-loss harvesting, and account type selection.
Avoiding capital gains tax on rental property walks through 1031 exchanges, depreciation recapture, and the primary residence exclusion.
Avoiding capital gains tax on a business sale explains installment sales, opportunity zone investments, and how deal structure affects your tax exposure.

Short-term capital gains and cryptocurrency

The IRS classifies cryptocurrency as property, not currency. Every sale, trade, or exchange of crypto is a taxable event. Crypto held for one year or less and sold at a profit generates a short-term gain taxed as ordinary income.

This applies not only to selling crypto for cash but also to trading one cryptocurrency for another (e.g., swapping Bitcoin for Ethereum) and using crypto to purchase goods or services. Each transaction must be tracked individually, using the acquisition date and cost basis of the specific units sold.

Strategies to reduce short-term capital gains tax

Strategy	How It Helps	Key Limitation
Wait for long-term treatment	Cuts the rate from ordinary income to 0–20%	Requires holding at least 366 days
Tax-loss harvesting	Short-term losses offset short-term gains first	Wash-sale rule limits same-security repurchase
Max out tax-advantaged accounts	Gains inside an IRA or 401(k) are not currently taxable	Annual contribution limits apply
Charitable donation of appreciated assets	Avoid gains tax entirely; deduct fair market value	Best for long-term assets; limited to 30% of AGI for appreciated property
Installment sales	Spreads gain across multiple tax years, keeping each year below higher brackets	Requires seller financing; does not reduce rate, only timing

Good to know: Short-term capital gains do not have a separate line on your W-2 or 1099. They flow through Schedule D onto Form 1040 as part of your total income, which means a large short-term gain can push other income — including Social Security benefits and deductions subject to phase-outs — into a higher bracket or cause unexpected increases in Medicare premiums (IRMAA surcharges) for the following two years.

Frequently asked questions

Are short-term capital gains taxed twice?

No. Short-term capital gains are taxed once as ordinary income at the federal level. They are not subject to payroll taxes (Social Security and Medicare) because they are not earned income. Some states also tax capital gains as ordinary income, so state tax may apply separately — but the gain itself is only taxed once at the federal level.

Do short-term capital gains affect my tax bracket for other income?

Yes. Short-term gains are added to your other ordinary income and can push the combined total into a higher marginal bracket. If your salary already places you near the top of the 22% bracket, a large short-term gain could push the excess into the 24% or 32% bracket. This is why estimating the total tax impact before selling is worthwhile, particularly for gains over $50,000.

How is the holding period counted for inherited assets?

Inherited assets are automatically treated as long-term, regardless of how long you actually held them after inheriting. This means selling inherited stock the day after receiving it still qualifies for long-term capital gains rates. The inherited asset also receives a stepped-up basis equal to fair market value at the date of death, which often reduces or eliminates the taxable gain entirely.

Can short-term capital losses carry over to future years?

Yes. If total capital losses exceed total capital gains plus the $3,000 annual deduction limit, the excess carries forward indefinitely. In future years, carried-forward losses retain their character — a carried short-term loss first offsets short-term gains, then long-term gains, in the year it is used.

Are short-term capital gains taxed differently in states?

Most states that have an income tax treat short-term capital gains as ordinary income, consistent with the federal approach. A handful of states, including Arkansas and Montana, offer preferential rates on long-term gains. Nine states have no income tax at all, so neither short-term nor long-term gains are taxed at the state level for residents of those states.

Key takeaways

Short-term capital gains apply to assets held one year or less and are taxed as ordinary income at rates from 10% to 37%.
Waiting one additional day past the one-year mark to sell converts a short-term gain into a long-term gain, which is taxed at 0%, 15%, or 20%.
Short-term losses offset short-term gains first, then long-term gains; up to $3,000 of net losses are deducted against ordinary income annually, with the rest carried forward.
House flippers, active crypto traders, and short-term stock sellers face some of the highest effective tax rates on investment income due to short-term treatment.
Holding appreciated assets inside a tax-advantaged account such as an IRA or 401(k) avoids short-term capital gains tax entirely on gains within the account.

For help managing investment tax obligations or resolving unexpected tax bills, compare vetted tax advisory services at SuperMoney’s tax relief reviews.

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