How short-term capital gains are taxed
There is no separate short-term capital gains rate. Your net short-term gain for the year, meaning short-term gains minus short-term losses, is added to your other ordinary income, and each dollar is taxed in the bracket it lands in. For most people that means the gain is taxed at their marginal tax rate, or across two brackets if it is large.
Netting can change what is left. A net long-term loss reduces a net short-term gain, and whatever remains is taxed at ordinary rates. It works the other way too: a net short-term loss absorbs long-term gains that would otherwise have been taxed at the lower rates. If all your sales together produce a net loss, up to $3,000 of it ($1,500 married filing separately) offsets other income each year.
Short-term gains also count toward the 3.8% net investment income tax once modified AGI exceeds $200,000 single or $250,000 joint, and your state may tax them too.
What creates a short-term gain
Any sale of an asset held one year or less produces a short-term result. The rule is the same for stocks, funds, crypto and real estate, and each purchase lot runs on its own clock. Count from the day after the trade date through the day of sale; selling on the one-year anniversary is still too soon, because the holding period must be more than one year. Some everyday situations create short-term gains without much thought, and a few rules override the calendar entirely:
- Active trading, or rebalancing out of positions bought within the past year, including swapping one cryptocurrency for another.
- Selling RSU shares within a year of vesting. The clock starts at vesting, and basis is the value then taxed as wages.
- Writing options that expire unexercised: the premium is a short-term gain however long the option was open.
- Mutual fund payouts of net short-term gains, which arrive on Form 1099-DIV as ordinary dividends rather than capital gains.
- Regulated futures contracts, treated as 60% long-term and 40% short-term whatever the holding period.
Short-term vs. long-term: what selling early costs
The gap between ordinary and long-term rates depends on your bracket. In the 10% and 12% brackets, a long-term gain can often be taxed at 0% while a short-term gain pays 10% or 12%. Across the 22%, 24% and 32% brackets, the long-term rate is generally 15%. At the top, 35% or 37% compares with 15% or 20%. The long-term capital gains page sets out those bands for 2026.
Waiting is not free, though. A stock can fall further in the weeks before its anniversary than the tax you hoped to save, so the decision turns on the size of the gain, how close you are to the one-year mark and how much you trust the position. The example below shows the tax side for a high earner.
How to keep short-term gains down
Short-term gains are among the most heavily taxed investment income, so a few habits pay off. None of them lets you escape tax on a real profit, but they can move it to a lower rate or a later year. Before selling anything bought within the past year, check the purchase date of each lot, not just the position as a whole. Lots bought at different times can be short- and long-term within the same fund.
- Hold past the one-year mark when the tax saving is large and the anniversary is close.
- Realize losses to offset gains through tax-loss harvesting, without repurchases that trip the wash sale rule.
- Tell your broker which lots to sell: older, higher-basis lots shrink the gain and may make it long-term.
- Do frequent trading inside an IRA or 401(k), where sales create no current tax.
- If a large gain is coming, make estimated tax payments to avoid an underpayment penalty.
Illustrative numbers
A single filer with $300,000 of other taxable income sells a $20,000 gain (2026)
- Short-term gains
- Gains on capital assets held one year or less
- Short-term losses
- Losses on capital assets held one year or less, plus any short-term loss carried over
Any net long-term loss reduces the result further; what remains is taxed at ordinary income rates.
Other taxable income$300,000, in the 35% bracket
Sold at 11 months: $20,000 × 35%$7,000
Sold at 13 months: $20,000 × 15%$3,000
Net investment income tax either way: $20,000 × 3.8%$760
Total federal tax, short-term vs. long-term$7,760 vs. $3,760
Waiting two more months would cut the federal bill by $4,000, a fifth of the gain, as long as the price holds. For a filer in the 22% bracket the comparison is 22% against 15%, a $1,400 difference on the same $20,000 gain.
At a glance
2026 federal income tax brackets, which also apply to short-term gains
| Rate | Single taxable income | Married filing jointly |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | Over $12,400 to $50,400 | Over $24,800 to $100,800 |
| 22% | Over $50,400 to $105,700 | Over $100,800 to $211,400 |
| 24% | Over $105,700 to $201,775 | Over $211,400 to $403,550 |
| 32% | Over $201,775 to $256,225 | Over $403,550 to $512,450 |
| 35% | Over $256,225 to $640,600 | Over $512,450 to $768,700 |
| 37% | Over $640,600 | Over $768,700 |
Put it in your plan
Short-term gains in MoneyWhatIf
MoneyWhatIf is built for lifetime planning: it prices modeled brokerage sales on the long-term 0%, 15% and 20% ladder, and it does not select individual tax lots or distinguish every short-term holding. If you plan to sell shares held a year or less, treat that year’s modeled tax as a likely underestimate. RSU shares you keep enter an account with a basis equal to their value at vesting. On the Taxes page, the federal bracket ladder shows how much ordinary income lands in each bracket, and its marginal rung is where a short-term gain would start.
Common questions
Short-term gains FAQs
Is there a 0% tax rate for short-term capital gains?
No. The 0% rate belongs to long-term gains and qualified dividends; short-term gains start in the 10% bracket. A short-term gain can still owe no federal income tax if your taxable income stays at zero. A single filer with no other income could realize $16,100 of short-term gain in 2026 and have the standard deduction absorb all of it. Held more than a year, the same investor could realize $65,550 free of federal income tax: $16,100 covered by the deduction and $49,450 taxed at 0%.
Can short-term losses offset long-term gains?
Yes. Losses are first matched with gains of the same type, then the two results are combined, so a net short-term loss reduces a net long-term gain and a net long-term loss reduces a net short-term gain. If the year ends in a net loss, up to $3,000 of it offsets ordinary income, and the rest becomes a capital loss carryover that keeps its short- or long-term character.
Are mutual fund short-term gain distributions taxed as capital gains?
No. When a fund passes along net short-term gains it realized inside the portfolio, the payout is reported on Form 1099-DIV as an ordinary dividend and taxed that way. By contrast, a fund’s capital gain distributions, which come from its net long-term gains, are taxed as long-term gains no matter how long you have owned the fund.
Is selling RSU shares right after vesting a short-term capital gain?
Usually, but the gain is often small. The value of RSU shares at vesting is taxed as wages, and that value becomes your cost basis. If you sell soon after, only the change since vesting is a capital gain or loss, and it is short-term because you held the shares a year or less. Check that the basis you report includes the vesting value, so the wage income is not taxed a second time.
Do short-term capital gains count as earned income?
No. Short-term gains are taxed at the same rates as wages, but they are investment income, not pay for work. They owe no Social Security or Medicare payroll tax, they cannot support an IRA contribution, and they do not count toward Social Security’s earnings test. They do count in adjusted gross income, so they can raise the taxable share of Social Security benefits, Medicare premiums and the net investment income tax. See earned income for what does count.