Short-Term vs. Long-Term Capital Gains

Why this matters

Two investors can make exactly the same gain and pay very different tax on it, simply because one held the investment a little longer. The difference between short-term and long-term gains is one of the biggest levers in investment taxes, and one of the easiest to use.

The one-year line

If you hold an investment for more than one year before selling, the gain or loss is long-term. If you hold it for one year or less, it's short-term.¹ That's the holding period, and it matters because the two kinds of gain are taxed differently:

• Short-term gains are taxed as ordinary income at your regular rates, like wages.¹
• Long-term gains are taxed at lower rates: 0%, 15%, or 20%, depending on your taxable income.¹

Long-term rates for 2026

Rate	Single	Married filing jointly
0%	Up to $49,450	Up to $98,900
15%	Up to $545,500	Up to $613,700
20%	Above $545,500	Above $613,700

Thresholds from Revenue Procedure 2025-32.² A few kinds of gain, such as on collectibles, have different maximum rates.¹

Ordinary rates, and how brackets work

Short-term gains are added to your other income and taxed at ordinary rates. Those rates rise in steps, called tax brackets, and each rate applies only to the income within its step. Moving into a higher bracket doesn't raise the tax on the income below it.

Rate	Single, up to	Married filing jointly, up to
10%	$12,400	$24,800
12%	$50,400	$100,800
22%	$105,700	$211,400
24%	$201,775	$403,550
32%	$256,225	$512,450
35%	$640,600	$768,700
37%	Above that	Above that

Taxable income is income after deductions. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.²

Jamie is single, with $80,000 of taxable income before the gain, and sells shares for a $10,000 gain.

Held	Rate on the gain	Federal tax on the gain
11 months (short-term)	22%, Jamie's ordinary bracket	$2,200
13 months (long-term)	15%	$1,500

Two more months of holding saved $700 on the same gain. Before state taxes, using the 2026 tables above.

The extra 3.8% at higher incomes

A 3.8% net investment income tax applies on top of the regular rates for people with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly). It's charged on the smaller of your net investment income, which includes interest, dividends, and capital gains, or the amount your income is over the threshold.³

Key takeaways

• Held more than one year: long-term. One year or less: short-term.
• Short-term gains are taxed at ordinary rates, 10% to 37%. Long-term gains are taxed at 0%, 15%, or 20%.
• For 2026, a single filer's long-term gains are taxed at 0% up to $49,450 of taxable income and 15% up to $545,500.
• Each bracket's rate applies only to income within it. A 3.8% net investment income tax can apply at higher incomes.

Check your understanding

You've held shares for exactly one year and sell them at a gain. How is the gain classified?

1. Long-term, because you've held the shares for a full year.
2. Long-term, as long as the shares paid a dividend in the year.
3. Short-term, because long-term needs more than one year.

A raise moves part of your income into a higher tax bracket. What happens to the tax on the income below that bracket?

1. Nothing. The higher rate applies only to the income within the new bracket.
2. All of your income is now taxed at the new, higher bracket's rate instead.
3. The income below it is taxed at the average of the old and the new rates.

What's next

Losses have their own rules, including a limit on how much they can offset each year. Capital Losses, Tax-Loss Harvesting, and Wash Sales covers them.