How Short-Term Capital Gains Tax Works and What Rate You'll Pay

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

When you sell an investment you've held for one year or less, the profit counts as short-term capital gain. The IRS taxes this profit at the same rate as your wages, salary, or other ordinary income. That means if you're in the 24% tax bracket, your short-term gain is taxed at 24%. If you're in the 12% bracket, it's taxed at 12%.

This is different from long-term capital gains, which get preferential rates of 0%, 15%, or 20% depending on your income level. The holding period — whether you owned the asset for more than one year — is what determines which tax applies.

Your short-term gains stack on top of your other income for the year. If you earn $60,000 in salary and realize $10,000 in short-term gains, you're taxed on $70,000 total. This can push you into a higher tax bracket, meaning some of that gain may be taxed at a higher rate than your regular bracket.

Key Takeaways

• Short-term capital gains use the same tax rates as your ordinary income — ranging from 10% to 37% depending on your tax bracket for 2024.
• The holding period is measured from the purchase date to the sale date; selling after exactly one year qualifies for long-term rates instead.
• Short-term gains are added to your other income for the year, which can push you into a higher tax bracket and increase your overall tax bill.
• You report short-term gains on Schedule D (Form 1040) when you file your tax return, along with any losses that can offset them.
• Short-term losses can reduce your short-term gains dollar-for-dollar, and excess losses can offset up to $3,000 of other income in a single year.

The 2024 tax brackets for short-term capital gains

Short-term capital gains follow the standard income tax brackets. For 2024, the rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Which bracket you fall into depends on your filing status (single, married filing jointly, head of household, or married filing separately) and your total taxable income for the year.

A single filer with $50,000 in taxable income (including short-term gains) falls into the 22% bracket. A married couple filing jointly with $100,000 in taxable income falls into the 22% bracket. The brackets shift each year for inflation, so the income ranges change annually.

Because short-term gains are stacked on top of your other income, even a modest gain can push you into the next bracket. If you're single and earn $45,000 in salary, you're in the 22% bracket. A $10,000 short-term gain brings you to $55,000, which keeps you in the 22% bracket — but the last $5,000 of that gain is taxed at 24% because it crosses into the next bracket's range.

How holding period determines whether you pay short-term or long-term rates

The IRS counts the holding period from the day after you buy an asset to the day you sell it. If you buy stock on January 15 and sell it on January 15 of the following year, you've held it for exactly one year. That sale qualifies for long-term capital gains rates. If you sell on January 14 of the following year, you've held it for one day short of one year, and it's taxed as short-term.

The one-year threshold applies to stocks, bonds, mutual funds, real estate, and most other investments. Some assets have different rules — for example, collectibles like art or coins are taxed at a flat 28% rate on gains, regardless of holding period, if you're in a higher bracket.

Wash sales don't change your holding period. If you sell a stock at a loss and buy the same or substantially identical stock within 30 days before or after the sale, the IRS disallows the loss. But if you later sell that replacement stock, your holding period includes the time you owned the original stock.

How short-term gains stack with your other income

The IRS doesn't tax short-term gains separately from your wages or salary. Instead, they're added to your total income for the year. This "stacking" effect means a short-term gain can push you into a higher tax bracket even if your salary alone wouldn't have.

Suppose you're single and earn $40,000 in salary. You're in the 12% bracket. You then realize a $15,000 short-term gain. Your total taxable income is now $55,000. The first $11,000 of that gain keeps you in the 12% bracket, but the remaining $4,000 is taxed at 22%. Your effective rate on the entire gain is higher than your regular bracket rate.

This is why some investors try to time sales across tax years — selling some gains in one year and others in the next to stay in a lower bracket. This strategy only works if you have control over when you sell, and it requires careful tracking of your income throughout the year.

Using capital losses to reduce your short-term gain tax

If you have capital losses in the same year as your short-term gains, you can use them to offset the gains. A $5,000 short-term loss cancels out $5,000 of short-term gains, reducing your taxable gain by that amount.

If your losses exceed your gains, you can use up to $3,000 of the excess loss to reduce other income — such as wages, interest, or dividends — in that same year. Any loss beyond $3,000 carries forward to future years, where you can use it to offset future gains or reduce up to $3,000 of other income again.

Losses from long-term sales can also offset short-term gains, and vice versa. The IRS requires you to net long-term gains against long-term losses first, then short-term gains against short-term losses, then combine the two results. The order matters for calculating your final tax, but the end result is that all your gains and losses work together to reduce your overall tax bill.

Reporting short-term capital gains on your tax return

You report short-term capital gains on Schedule D (Form 1040), which is the Capital Gains and Losses form. You list each sale separately: the date acquired, date sold, proceeds (sale price), cost basis (what you paid), and gain or loss.

Schedule D has two sections — one for long-term transactions and one for short-term. Your short-term gains and losses go in Part I. After you total them, that number flows to Form 1040 and becomes part of your taxable income.

If you sold investments through a brokerage, the broker sends you a Form 1099-B (Proceeds from Broker and Brokerage Transactions) showing the sales. You use this to fill out Schedule D. Some brokers also provide cost basis information, which saves you from having to calculate it yourself.

State and local taxes on short-term capital gains

Most states tax capital gains as ordinary income, meaning your state tax rate applies to short-term gains the same way the federal rate does. A few states — including California, New York, and Massachusetts — have no separate capital gains tax and straightforward include gains in your regular state income tax.

Some states have lower rates for long-term gains but still tax short-term gains at the full ordinary income rate. Others, like Florida and Texas, have no state income tax at all, so there's no state tax on capital gains.

Local taxes vary by city and county. New York City, for example, has a local income tax that applies to capital gains. You'll need to check your state and local tax rules, as they can significantly increase your total tax bill on short-term gains.

Frequently Asked Questions

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

Short-term gains are taxed at your ordinary income rate (10% to 37%), while long-term gains are taxed at preferential rates of 0%, 15%, or 20%. Long-term rates are lower because you held the asset for more than one year. A $10,000 short-term gain in the 24% bracket costs $2,400 in federal tax, while the same gain held long-term might cost $1,500 (at the 15% rate) or nothing (at the 0% rate).

If I sell an investment after 366 days, is it long-term or short-term?

It's long-term. The IRS counts the holding period from the day after purchase to the day of sale. If you buy on January 1 and sell on January 2 of the following year, you've held it for 367 days, which is more than one year. You may have access to for long-term rates. Selling on January 1 of the following year (exactly 365 days later) is still short-term.

Can I deduct a short-term capital loss against my salary or wages?

Not directly. You must first use losses to offset gains. If you have $5,000 in short-term losses and $2,000 in short-term gains, you net them to a $3,000 loss. That $3,000 can then reduce other income like wages. If your losses exceed your gains by more than $3,000, the excess carries forward to future years.

Do I have to pay estimated taxes on short-term capital gains?

If you expect to owe more than $1,000 in federal income tax for the year (including tax on capital gains), you may need to pay estimated quarterly taxes. This applies if you have significant investment income and don't have enough tax withheld from wages. Your tax software or a tax professional can tell you whether you're required to pay estimated taxes.

What happens if I sell an investment at a loss — can I claim that loss?

Yes. Capital losses reduce your capital gains dollar-for-dollar. If you have $8,000 in short-term gains and $3,000 in short-term losses, your net gain is $5,000. If losses exceed gains, you can use up to $3,000 to reduce other income in that year, with any remaining loss carrying forward indefinitely to future years.