Short-Term Capital Gains
Tax Glossary Term
Definition
Short-term capital gains are profits 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. If you buy stock on March 1, 2026 and sell it on March 1, 2027, that is exactly one year, still short-term. You would need to sell on March 2 or later for it to qualify as long-term. Short-term gains receive no preferential tax treatment. They are taxed as ordinary income, meaning they stack on top of your other income and are taxed at whatever bracket they fall into, potentially up to 37.0%. This is a significant difference from long-term capital gains, which are taxed at 0.0%, 15.0%, or 20.0%. For a taxpayer in the 32.0% bracket, a $10,000 short-term gain costs $3,200 in federal tax, while the same gain held long-term would cost only $1,500 at the 15.0% rate — a $1,700 difference. High-income taxpayers may also owe the 3.8% Net Investment Income Tax on short-term gains. Because of the tax disadvantage, financial advisors generally recommend holding investments for at least a year and a day before selling, unless there is a compelling non-tax reason to sell sooner. Day traders and frequent traders should be especially aware that all their gains are short-term and taxed at full ordinary rates.
Example
Bought stock for $10,000 on Jan 15, 2026
Sold for $13,000 on Aug 15, 2026 (7 months, short-term)
Short-term gain: $3,000
Taxed at 24.0% marginal rate: $720 tax
(If held 1+ year, long-term rate of 15.0% = $450 tax)