What Is the Short-Term Capital Gains Tax Rate?
Gains on assets held for a year or less are taxed as ordinary income. Understand how this key distinction from long-term gains affects your tax calculation.
When you sell an asset for a profit, that income is known as a capital gain. These assets can include property you own for personal use or for investment, such as stocks, bonds, or real estate. The tax implications for these gains are determined by how long you owned the asset before selling it. This holding period dictates whether the profit is classified as short-term or long-term, a distinction that affects the tax rate applied to your gain.
Defining Short-Term Capital Gains
A short-term capital gain is the profit from the sale of a capital asset owned for one year or less. The holding period is a strict measure, beginning on the day after you acquire the asset and ending on the day you sell it. For instance, if you purchased a stock on March 15, 2024, and sold it on March 15, 2025, the gain is short-term.
An asset must be held for more than one year to be classified as a long-term capital gain. Using the same example, selling the stock on March 16, 2025, would result in a long-term gain. This distinction is important because long-term gains are taxed at lower rates.
For securities traded on an established market, your holding period begins the day after the trade date of purchase and ends on the trade date of the sale. This rule is important for accurately classifying your gains and losses for tax purposes.
How Short-Term Capital Gains Are Taxed
The tax rate on short-term capital gains is a direct reflection of your overall income level. Unlike long-term gains, which benefit from lower tax rates, short-term gains are taxed as ordinary income. This means the profit is added to your other income, like wages, and taxed according to the standard federal income tax brackets.
For the 2024 tax year, these brackets range from 10% to 37%, depending on your taxable income and filing status. For example, if your total taxable income, including the gain, places you in the 24% tax bracket, your short-term capital gain will also be taxed at that 24% rate.
To illustrate the difference, long-term capital gains are taxed at rates of 0%, 15%, or 20%, based on your income. For 2024, a single filer with taxable income up to $47,025 would pay 0% on long-term gains. The same individual would pay either 10% or 12% on a short-term gain. High-income earners may also be subject to a 3.8% Net Investment Income Tax (NIIT) on their capital gains.
Calculating Your Net Capital Gain or Loss
To determine your final taxable amount, you must first calculate the gain or loss for each asset sale. This is done by subtracting your cost basis from the sale proceeds. The cost basis is what you paid for the asset, including any commissions or fees associated with the purchase.
Next, you must combine all your short-term gains and losses to arrive at a net short-term capital gain or loss. Similarly, you must net all your long-term gains and losses to find your net long-term capital gain or loss.
If you have a net short-term gain and a net long-term gain, they are taxed separately at their respective rates. If one category shows a gain and the other a loss, you must net these results against each other. For example, a net short-term loss would be used to offset a net long-term gain.
If the netting process results in an overall net capital loss for the year, you can deduct up to $3,000 of this loss ($1,500 if married filing separately) against your ordinary income annually. Any loss amount that exceeds this limit can be carried forward to future tax years to offset future gains or be deducted until the full amount is used.
Reporting Capital Gains on Your Tax Return
You must report these figures to the IRS using specific tax forms. The process begins when you receive Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” from your brokerage firm. This document provides a summary of your asset sales, including proceeds, cost basis, and whether the gain or loss was short-term or long-term.
Using the information from Form 1099-B, you will then complete Form 8949, “Sales and Other Dispositions of Capital Assets.” This form is where you list the details of each transaction, reconciling the amounts with what your broker reported and separating them into short-term and long-term categories.
The totals from Form 8949 are then transferred to Schedule D, “Capital Gains and Losses,” which summarizes the net figures and calculates your final net capital gain or loss. The result from Schedule D is carried to Form 1040. In some cases, if Form 1099-B shows the cost basis was reported to the IRS and no adjustments are needed, you may report totals directly on Schedule D without filing Form 8949.
Special Considerations for Capital Gains
The wash-sale rule is an IRS regulation that prevents you from claiming a capital loss on the sale of a security if you purchase a “substantially identical” security within 30 days before or after the sale. This 61-day window is designed to stop investors from creating artificial losses for tax purposes while maintaining their investment position.
The tax treatment of collectibles, such as art, antiques, and coins, also follows a unique set of rules. While short-term gains on collectibles are taxed at ordinary income rates, long-term gains are taxed at a maximum rate of 28%.
Finally, capital gains are often subject to state-level taxation in addition to federal taxes. Most states impose their own tax on investment income, and the specific rules and rates can vary significantly from one state to another. You should review your state’s tax regulations to understand the full tax impact.