--- title: "Short-Term vs Long-Term Capital Gains Tax Rates" description: "Short-term gains are taxed as ordinary income up to 37%. Long-term gains get 0%, 15%, or 20% rates. The one-year holding period can save thousands." canonical_url: "https://www.themoneypocket.com/articles/short-term-vs-long-term-capital-gains-tax-rates" last_updated: "2026-05-01T16:53:18.499Z" --- The single most impactful variable in investment taxation isn't your income level — it's how long you held the asset. Selling one day too early can double or triple your tax bill on the same gain. Understanding the short-term vs. long-term capital gains distinction is fundamental to tax-efficient investing. ## The Core Distinction When you sell a capital asset for more than you paid, the profit is a **capital gain**. How it's taxed depends entirely on your **holding period**: - **Short-term capital gain**: Held **one year or less**. Taxed as **ordinary income** at your marginal rate — up to 37% federally. - **Long-term capital gain**: Held **more than one year** (366+ days). Taxed at preferential rates: **0%, 15%, or 20%**. The holding period is calculated from the day **after** you acquire the asset to the day you sell it, inclusive. If you buy on January 5 and sell on January 5 of the following year — exactly one year later — that's a **short-term** gain. You must sell on January 6 or later to qualify for long-term treatment. This precision matters. On a $100,000 gain, the difference between 22% (short-term, in that bracket) and 15% (long-term) is $7,000 in tax. On a $500,000 gain for a high earner, the difference between 37% and 20% is $85,000 — before adding the NIIT. ## Short-Term Capital Gains Rates Short-term gains are added to your ordinary taxable income and taxed at your marginal bracket:
Rate Single (2026) Married Filing Jointly (2026)
10% Up to $11,925 Up to $23,850
12% $11,926–$48,475 $23,851–$96,950
22% $48,476–$103,350 $96,951–$206,700
24% $103,351–$197,300 $206,701–$394,600
32% $197,301–$250,525 $394,601–$501,050
35% $250,526–$626,350 $501,051–$751,600
37% Over $626,350 Over $751,600
Active traders who frequently buy and sell positions — even with profitable outcomes — may face these full rates on all their gains. ## Long-Term Capital Gains Rates
Rate Single (2026) Married Filing Jointly
0% Up to $47,025 Up to $94,050
15% $47,026–$518,900 $94,051–$583,750
20% Above $518,900 Above $583,750
The 0% rate is available to a significant portion of the population. A retired couple living on $80,000 in taxable income (Social Security + modest pension) pays **zero federal capital gains tax** on any long-term gains they realize in that year. This creates real planning opportunities for early retirees. Long-term rates apply to taxable income **inclusive of the gain** — the gain "stacks" on top of ordinary income. This means even high earners can have the bottom portion of their gains taxed at a lower rate if they're near a bracket threshold. ## The Net Investment Income Tax (NIIT) Add-On High earners face an additional **3.8% NIIT** on investment income including capital gains: - NIIT applies above **$200,000 MAGI** (single) or **$250,000 MAGI** (married) - It applies to the lesser of net investment income or the amount by which MAGI exceeds the threshold - This pushes the effective top rate to **23.8%** on long-term gains and **40.8%** on short-term gains (37% + 3.8%) The NIIT threshold is not indexed for inflation, so it affects more taxpayers each year. ## Special Long-Term Rates: Collectibles and Real Estate Not all long-term gains are taxed at the standard 0/15/20% rates: **Collectibles** (art, antiques, coins, gems, certain stamps, wine) face a maximum rate of **28%** on long-term gains — regardless of your income level. This is a significant disadvantage for long-term collectors. **Real estate depreciation recapture**: When you sell depreciated real property, the portion of gain attributable to prior depreciation (Section 1250 gain) is taxed at a maximum of **25%** — higher than the standard 20% long-term rate. **Qualified Small Business Stock (QSBS)**: Under Section 1202, gains on qualifying startup stock held for more than five years may be **100% excluded** from federal tax, up to $10 million or 10x your investment cost. ## The One-Year-and-One-Day Rule in Practice The precise holding period rule means investors approaching the long-term threshold should be especially careful: - If you're approaching the anniversary of a purchase and considering selling, **wait one more day** - For inherited assets, the holding period automatically qualifies as long-term regardless of how long the decedent held it - For gifted assets, your holding period includes the donor's holding period (if you receive a carryover basis) Employers who issue stock awards and RSUs vest on specific dates — knowing the vesting date, the holding period clock, and your income projection helps optimize when to sell. ## Strategies to Minimize Capital Gains Tax ### Hold to Long-Term The simplest strategy: wait more than one year before selling appreciated assets. Not always possible, but when it is, the savings are automatic. ### Tax-Loss Harvesting Realize losses in losing positions to offset gains dollar-for-dollar. Long-term losses first offset long-term gains; short-term losses offset short-term gains. Net losses can offset up to **$3,000 of ordinary income** per year, with the remainder carrying forward indefinitely. **Wash-sale rule**: You cannot buy the same or "substantially identical" security within 30 days before or after the sale and still claim the loss. Selling and immediately buying a similar (but not identical) ETF avoids this — selling SPDR S&P 500 ETF (SPY) and buying Vanguard S&P 500 ETF (VOO) on the same day is generally permissible. ### Harvest Gains at 0% If your total taxable income (including the gain) stays below the 0% long-term threshold, realizing gains costs you nothing. Many investors intentionally "harvest gains" in low-income years to reset their basis upward — reducing future gain when they eventually sell. ### Use Tax-Advantaged Accounts Gains inside **Roth IRAs and Roth 401(k)s** are never taxed. Gains inside **traditional IRAs and 401(k)s** are deferred until withdrawal (taxed as ordinary income, not at capital gains rates — but the deferral benefit is usually still valuable). ### Donate Appreciated Assets to Charity Donating long-term appreciated stock directly to a charity (rather than selling and donating cash) avoids capital gains tax entirely while you still get a deduction for the full fair market value. To calculate your exact capital gains tax liability, use our [Capital Gains Calculator](/tools/capital-gains-calculator). For tax-loss harvesting planning, see our [Tax-Loss Harvesting Calculator](/tools/tax-loss-harvesting-calculator). > This article is for informational purposes only. Tax treatment of capital gains involves complex interactions with your total income, deductions, and investment situation. Consult a qualified tax professional before making tax-motivated investment decisions.