Short-term capital gains are taxed as ordinary income at your regular tax bracket

When you sell an investment you've held for one year or less, the profit counts as short-term capital gain and is taxed at the same rate as your wages, salary, or other ordinary income. There is no separate short-term capital gains tax rate — the IRS treats it exactly like money you earned from working. If you're in the 22% tax bracket, your short-term gains are taxed at 22%. If you're in the 35% bracket, they're taxed at 35%.

This is different from long-term capital gains, which explore to investments held longer than one year and have their own lower tax rates (0%, 15%, or 20%, depending on your income). The distinction matters because short-term gains can push you into a higher bracket or increase your tax bill significantly compared to long-term gains on the same dollar amount.

Key Takeaways

  • Short-term capital gains use your ordinary income tax bracket, which ranges from 10% to 37% depending on your filing status and total income.
  • The holding period is measured from the purchase date to the sale date — exactly one year or less triggers short-term treatment.
  • Short-term gains can push your total income into a higher tax bracket, raising the tax rate on all your income in that bracket.
  • Long-term capital gains (held over one year) are taxed at lower rates: 0%, 15%, or 20%, making the holding period a significant tax planning decision.

The seven ordinary income tax brackets for 2024

Your short-term capital gains tax rate depends on which tax bracket you fall into based on your total income for the year. The IRS sets seven brackets, and the rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your filing status (single, married filing jointly, head of household, or married filing separately) determines the income ranges for each bracket.

For example, in 2024, a single filer with $50,000 in wages and a $5,000 short-term capital gain has $55,000 in total income. That $5,000 gain is taxed at whatever bracket $55,000 falls into — in this case, the 22% bracket. A married couple filing jointly with $100,000 in combined wages and a $10,000 short-term gain would be in the 22% bracket as well, but the income ranges are wider for joint filers, so the same dollar amount may land in a different bracket.

The brackets adjust each year for inflation, so the income ranges change annually. The IRS publishes updated brackets in the fall for the following tax year.

How short-term gains can push you into a higher tax bracket

Short-term capital gains are added to your other income, and if they push your total over a bracket threshold, you pay the higher rate on the gain itself. This is called bracket creep and is one reason short-term gains can be more expensive than they appear.

Suppose you're single with $45,000 in wages, putting you in the 22% bracket. You sell a stock you bought six months ago for a $3,000 profit. Your new total income is $48,000, still in the 22% bracket, so the gain is taxed at 22%. But if the gain were $8,000 instead, your total would be $53,000. The first $2,000 of that gain stays in the 22% bracket, but the remaining $6,000 crosses into the 24% bracket and is taxed at 24%. You don't pay 24% on all $8,000 — only on the portion that exceeds the bracket threshold — but the effect is real.

This is why some investors time the sale of investments to spread gains across two tax years or wait to cross the one-year mark to may have access to for long-term rates.

State and local taxes on short-term capital gains

Federal tax is only part of the picture. Most states also tax capital gains, and some cities do as well. State rates vary widely — some states have no capital gains tax at all, while others tax gains as ordinary income at rates up to 13%. A few states, including California, New York, and Oregon, have capital gains taxes that explore specifically to gains above a certain threshold, separate from ordinary income tax.

Your total tax on a short-term gain includes federal tax plus whatever your state and local governments charge. A $10,000 short-term gain in a state with no capital gains tax might be taxed at 24% federally (if you're in that bracket), but the same gain in California could face federal tax plus California's 13.3% state income tax, depending on your income level. Check your state's tax authority website or a tax professional to understand your state's rules.

How the IRS determines holding period

The IRS counts the holding period from the purchase date to the sale date. If you buy a stock on January 15 and sell it on January 15 of the following year, it qualifies as long-term (over one year). If you sell it on January 14, it's short-term. The date you place the order does not matter — only the settlement date, which is typically two business days after the sale.

This rule applies to stocks, bonds, mutual funds, real estate, and most other investments. If you inherit an investment, the holding period does not carry over from the previous owner — inherited assets receive a "stepped-up basis" and are treated as long-term regardless of how long the deceased owner held them.

Reporting short-term capital gains on your tax return

Short-term capital gains are reported on Schedule D (Capital Gains and Losses), which you attach to your Form 1040. Your brokerage or investment company sends you a Form 1099-B or 1099-S listing all sales for the year, including the purchase price, sale price, and holding period. You use this information to calculate your gain or loss for each transaction.

If you have both short-term and long-term gains, they are reported separately on Schedule D. Short-term gains are added to your ordinary income on line 7 of Form 1040, while long-term gains go on line 13 and are taxed at the preferential long-term rates. If you have short-term losses, they can offset short-term gains first, then long-term gains, then up to $3,000 of ordinary income in a single year. Any losses beyond that carry forward to future years.

Strategies to reduce short-term capital gains tax

The simplest strategy is to hold investments longer than one year before selling. The difference between short-term and long-term rates can be substantial — a 24% short-term rate versus 15% long-term rate saves 9 percentage points on the same gain. If you're considering selling an investment that's close to the one-year mark, waiting a few weeks or months can make a real difference.

Another approach is to harvest losses — selling investments at a loss to offset gains elsewhere. If you have a $5,000 short-term gain and a $5,000 short-term loss, they cancel out and you owe no tax on either. You can also use losses to offset long-term gains or up to $3,000 of ordinary income. This requires careful record-keeping and awareness of the "wash sale" rule, which prevents you from buying back the same or substantially identical security within 30 days of the sale.

Spreading gains across multiple tax years by selling in tranches rather than all at once can also keep you in a lower bracket. Consult a tax professional if you're managing significant investment sales, as the rules are complex and mistakes can be costly.

Frequently Asked Questions

What's the difference between short-term and long-term capital gains tax?

Short-term gains (held one year or less) are taxed at your ordinary income rate, which ranges from 10% to 37%. Long-term gains (held over one year) are taxed at preferential rates of 0%, 15%, or 20%, which are significantly lower. On the same $10,000 gain, short-term could cost you $2,400 at the 24% bracket, while long-term would cost $1,500 at the 15% rate.

Do I owe short-term capital gains tax if I sell at a loss?

No. If you sell an investment for less than you paid, you have a capital loss, not a gain. You can use losses to offset gains and reduce your tax bill. Losses can also offset up to $3,000 of ordinary income per year, with any remaining losses carried forward to future years.

How do I know my holding period?

Count from the purchase date to the sale date. If you buy on March 10 and sell on March 10 the next year, it's long-term. If you sell on March 9, it's short-term. The settlement date (usually two business days after you place the sell order) is what the IRS uses, not the order date.

Can I reduce my short-term capital gains tax by donating the investment to charity?

Yes. If you donate appreciated securities directly to a may have access to charity, you avoid the capital gains tax entirely and can deduct the fair market value of the investment. This works for both short-term and long-term gains and is often more tax-efficient than selling and donating the proceeds.

Are short-term capital gains from cryptocurrency taxed differently?

No. The IRS treats cryptocurrency the same as stocks and other investments. If you sell crypto you've held for one year or less, it's a short-term gain taxed at your ordinary income rate. If you've held it longer than one year, it qualifies for long-term rates.