To calculate short-term capital gains tax, subtract your cost basis from your sale proceeds to get the gain, offset it against any short-term losses for the year, add the net figure to your other taxable income, and apply the ordinary federal tax bracket the gain lands in — rates that run from 10% to 37% for 2026.1Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed High earners add a 3.8% surtax on top. The math itself is straightforward once you work through it in order.
Step 1: Confirm the Gain Is Actually Short-Term
A capital gain is short-term when you owned the asset for one year or less.2Office of the Law Revision Counsel. 26 US Code 1222 – Other Terms Relating to Capital Gains and Losses The holding period starts the day after purchase and ends on the day you sell. Buy on March 1, 2026 and sell on March 1, 2027, and you held it for exactly one year — the gain is still short-term. Sell one day later and it becomes long-term, which qualifies for lower preferential rates.
Two exceptions catch people off guard. For a gifted asset, you generally take on the donor’s holding period, so if your uncle held the stock for four years before giving it to you, a sale two months later still counts as long-term.3Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property Inherited assets are automatically treated as long-term regardless of when the previous owner bought them or how quickly you sell, so short-term gains on inherited property are rare.
Your brokerage reports each sale on Form 1099-B with the acquisition and sale dates.4Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions Verify the dates yourself. Misclassifications happen, and the IRS holds you responsible regardless.
Step 2: Calculate the Gain
Your gain equals the amount you realized on the sale minus your adjusted basis.5Internal Revenue Service. Publication 551 – Basis of Assets Basis for a purchased asset is what you paid, including commissions and transfer fees.6Internal Revenue Service. Topic No. 703, Basis of Assets Buy 100 shares at $50 with a $10 commission, and your basis is $5,010. The amount realized is the sale price minus selling costs — sell for $6,500 with a $10 commission, and you realized $6,490. Gain: $1,480.
Gifted assets follow a split-basis rule. If the fair market value at the time of the gift was at least as much as the donor’s basis, use the donor’s basis. If the value had dropped below the donor’s basis, use the lower fair market value when computing a loss.7Internal Revenue Service. Property (Basis, Sale of Home, Etc.) You’ll need both numbers from the donor. Inherited assets get a stepped-up basis equal to the fair market value on the previous owner’s date of death.
Step 3: Net Gains Against Losses
Add up every short-term gain and every short-term loss for the year, then combine them into one number.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses Make $12,000 across three winners and lose $4,000 across two losers, and your net short-term gain is $8,000. That single figure is what gets taxed.
If short-term losses exceed short-term gains, the excess first offsets any long-term capital gains for the year. If losses still remain, you can deduct up to $3,000 against ordinary income ($1,500 if married filing separately).9Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything left carries forward indefinitely and keeps its short-term character.10Office of the Law Revision Counsel. 26 US Code 1212 – Capital Loss Carrybacks and Carryovers
One trap when netting: the wash sale rule. If you sell at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed.11Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss is added to the basis of the replacement shares, so it isn’t gone forever, but it can’t reduce this year’s gains. The rule covers stocks, bonds, ETFs, and mutual funds. Cryptocurrency currently isn’t covered. Repurchasing inside an IRA is especially costly: the loss is disallowed and can’t be added to the IRA’s basis, so it’s effectively forfeited.
Step 4: Stack the Net Gain on Your Other Income and Apply the Bracket
Short-term gains don’t get a special rate. They sit on top of your wages, interest, and other ordinary income, and the combined total determines which bracket the gain falls into. For 2026, a single filer’s federal brackets are:12Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on taxable income up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% over $640,600
For married couples filing jointly, the thresholds roughly double: the 12% bracket runs to $100,800, the 22% bracket to $211,400, and so on. Subtract the standard deduction ($16,100 single, $32,200 married filing jointly for 2026) from your total income before you look up the bracket.
Because the gain stacks on top, the same $5,000 profit costs very different amounts depending on where you already sit. A filer with $40,000 in taxable wages pays 12% on most of it; a filer with $200,000 in wages pays 32% or more. If a gain straddles a bracket boundary, only the portion above the boundary gets the higher rate. Many states also tax short-term gains as ordinary income, which can add several percentage points.
Step 5: Check the 3.8% Net Investment Income Tax
Higher earners owe an additional 3.8% on investment income, short-term gains included. The surtax kicks in when modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married filing jointly, or $125,000 for married filing separately.13Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax These thresholds aren’t indexed for inflation.
The tax is 3.8% of the smaller of your net investment income or the amount your MAGI exceeds the threshold. A single filer with $220,000 MAGI and $30,000 of investment income pays 3.8% on $20,000 (the excess), not on the full $30,000 — an extra $760. Net investment income covers interest, dividends, rental income, and capital gains, but not wages or self-employment earnings.14Internal Revenue Service. Instructions for Form 8960 Wages still count toward MAGI, though, so they can push you over the threshold.
A Worked Example
Say you’re a single filer in 2026 with $70,000 in wages and, after netting all your trades, an $8,000 short-term capital gain.
Total income is $78,000. Subtract the $16,100 standard deduction and taxable income is $61,900. Your wages alone produce $53,900 of taxable income ($70,000 minus the deduction), which already reaches into the 22% bracket. The $8,000 gain stacks on top and stays within the 22% bracket, since that bracket runs up to $105,700. Federal tax on the gain: $8,000 × 22% = $1,760.
If the gain had been large enough to cross into the 24% bracket (above $105,700), only the portion above that line would be taxed at 24%. Your MAGI is well below $200,000, so the 3.8% surtax doesn’t apply. State tax, if any, would come on top.
Reporting the Gain and Paying On Time
List each sale on Form 8949 with the acquisition date, sale date, proceeds, and cost basis, reconciling against your 1099-B. If the basis on the 1099-B is wrong, Form 8949 is where you correct it.15Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Totals flow to Schedule D, which nets short-term and long-term figures and passes the result to Form 1040.16Internal Revenue Service. About Schedule D (Form 1040), Capital Gains and Losses The NIIT gets its own Form 8960.
If a large gain leaves you owing $1,000 or more beyond what your withholding covers, you may need to make estimated tax payments during the year.17Internal Revenue Service. Estimated Tax for Individuals The safe harbor is paying at least 90% of this year’s tax or 100% of last year’s, whichever is smaller — 110% of last year’s if your prior-year AGI exceeded $150,000 ($75,000 if married filing separately). Payments are due April 15, June 15, September 15, and January 15 of the following year.18Internal Revenue Service. Estimated Tax If a gain lands late in the year, you can annualize income so earlier quarters aren’t penalized. Underreporting brings a 20% accuracy-related penalty on the underpaid tax plus interest running from the original due date.19Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments