Short-term vs long-term capital gains
The single most valuable rule in capital gains tax is the one-year holding line. Sell an asset held one year or less and the gain is short-term, taxed as ordinary income at federal rates up to 37%. Hold it more than a year and the gain is long-term, taxed at the preferential 0%, 15% or 20%. For a top earner that is roughly a 13-point swing - around $13,000 on a $100,000 gain. General information, not tax advice.
Source: IRS Topic No. 409, Capital Gains and Losses. Data as of June 2026.
Side by side (2026)
| Feature | Short-term | Long-term |
|---|---|---|
| Holding period | 1 year or less | More than 1 year |
| Federal rate | Ordinary income (10-37%) | 0%, 15% or 20% |
| 3.8% NIIT can apply | Yes (for high earners) | Yes (for high earners) |
| Top federal rate incl. NIIT | 40.8% | 23.8% |
| Set by | Your ordinary tax bracket | Your taxable income band |
Why it matters
Because short-term gains are taxed as ordinary income, a high earner can pay nearly twice the rate on a quick flip versus a patient hold. The lesson most planners give: where it fits your goals, holding an appreciated asset just past the one-year mark can sharply cut the federal bill. The calculator lets you compare short-term and long-term outcomes side by side, and your state may treat the two differently too.
Frequently asked questions
What is the difference between short-term and long-term capital gains?
Short-term gains are profits on assets you held one year or less; they are taxed as ordinary income at rates up to 37%. Long-term gains are profits on assets held more than one year; they get the preferential 0%, 15% or 20% rates. The holding period runs from the day after you acquired the asset to the day you sold it.
How much can I save by holding for over a year?
A lot, for higher earners. A top-bracket taxpayer pays 37% federally on a short-term gain but only 20% (plus 3.8% NIIT) on a long-term gain - roughly a 13-point difference. On a $100,000 gain that is about $13,000 in federal tax saved by crossing the one-year line.
Does the one-year holding period include the purchase day?
No. The clock starts the day after you acquired the asset and ends on the day you sell. To qualify as long-term you generally need to sell after the one-year anniversary of the day after purchase. Selling exactly at one year is short-term.
Related
Last updated: 2026-06-21