The short-term capital gains tax is the ordinary federal income tax you pay on profits from selling an asset you held one year or less. For 2026, that means a rate between 10% and 37% depending on your total taxable income, and higher earners may owe an additional 3.8% net investment income tax on top.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 There is no separate preferential rate for short-term gains the way there is for long-term ones. The gain simply stacks on top of your wages and gets taxed like the rest of your paycheck.
What Makes a Gain Short-Term
A gain is short-term if you held the asset for one year or less before selling.2Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses Count the holding period starting the day after you bought the asset and include the day you sold it.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses Buy stock on March 1, 2026, and the earliest sale date that qualifies for long-term treatment is March 2, 2027. Sell one day earlier and the whole gain is short-term.
That single day trips people up around year-end, when investors try to lock in long-term rates. Trade confirmations and brokerage statements are the proof of your purchase date if the IRS ever questions it.
The rule sweeps in most things you own. Federal law defines a capital asset broadly as almost anything you hold for personal use or investment, with a short list of exclusions like business inventory.4Office of the Law Revision Counsel. 26 US Code 1221 – Capital Asset Defined Stocks, bonds, mutual fund shares, ETFs, investment real estate, precious metals, and collectibles all qualify. Cryptocurrency is treated as property, not currency, so every sale, trade, or exchange of crypto for cash or another token is a taxable event that produces a short-term gain if you held for a year or less.5Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions
One exception worth knowing: property you inherit is automatically treated as held long-term, even if the person who died bought it the week before they passed.6Office of the Law Revision Counsel. 26 US Code 1223 – Holding Period of Property Any gain when you sell qualifies for the lower long-term rates no matter how quickly you sell after inheriting.
2026 Federal Tax Rates on Short-Term Gains
Because short-term gains are taxed as ordinary income, the rate depends on your total taxable income for the year. The 2026 brackets:1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% up to $12,400 (single) or $24,800 (married filing jointly)
- 12% from $12,401 to $50,400 (single) or $24,801 to $100,800 (joint)
- 22% from $50,401 to $105,700 (single) or $100,801 to $211,400 (joint)
- 24% from $105,701 to $201,775 (single) or $211,401 to $403,550 (joint)
- 32% from $201,776 to $256,225 (single) or $403,551 to $512,450 (joint)
- 35% from $256,226 to $640,600 (single) or $512,451 to $768,700 (joint)
- 37% over $640,600 (single) or $768,700 (joint)
The system is progressive, so a short-term gain does not all get taxed at one rate. If your salary already sits near the top of the 22% bracket and you add a $20,000 gain, part of that gain fills the remaining 22% space and the rest spills into 24%. You pay the higher rate only on the portion that actually lands in the higher bracket, not on the whole gain.
The 3.8% Net Investment Income Tax
Higher earners pay an additional 3.8% surtax on investment income, including short-term capital gains. The net investment income tax applies when your modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married couples filing jointly, or $125,000 for married filing separately.7Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax The 3.8% applies to the lesser of your net investment income or the amount by which your modified AGI exceeds the threshold.8Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Those thresholds are not adjusted for inflation, so more people cross them each year as wages rise. For someone in the top bracket, a short-term gain can effectively face a 40.8% federal rate before state tax enters the picture.
Netting Gains and Losses
You do not pay tax on each trade in isolation. At year-end, all your short-term gains and short-term losses get netted together. If the total comes out positive, that net short-term capital gain is added to your ordinary income and taxed at the rates above.2Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
If losses exceed gains, the net loss can offset other income, but only up to $3,000 per year ($1,500 if married filing separately).9Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything above $3,000 carries forward to the next tax year indefinitely. A $15,000 net loss this year gives you $3,000 in 2026, $3,000 in 2027, and so on until the loss is used up or offset against future gains.
The Wash Sale Trap
Selling a stock at a loss and buying it right back to lock in a tax deduction does not work. The wash sale rule disallows the loss if you buy a substantially identical security within 30 days before or 30 days after the sale.10Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities That creates a 61-day window (30 days on each side plus the sale date) during which you need to stay out of the same or nearly identical investment.
The disallowed loss is not permanently gone. It gets added to the cost basis of the replacement shares, so when you eventually sell those shares without triggering another wash sale, the deferred loss reduces your gain then. The problem is for active traders who cycle in and out of the same positions. You can rack up a string of disallowed losses through the year and end up with a much larger tax bill than expected because the deductions you were counting on never materialized.
Paying the Tax During the Year
If you sell mid-year for a large short-term gain, waiting until April can trigger an underpayment penalty. The IRS expects tax to be paid throughout the year, either through withholding or quarterly estimated payments. The 2026 quarterly deadlines are April 15, June 15, and September 15, with the final payment due January 15, 2027.11Taxpayer Advocate Service. Making Estimated Tax Payments
You avoid the penalty by paying at least 90% of your current-year tax liability through withholding and estimated payments. A safer route is the prior-year safe harbor: pay 100% of last year’s total tax (110% if your adjusted gross income exceeded $150,000) and you are penalty-proof no matter how large the current-year gains turn out to be.
Reporting on Your Return
Each short-term transaction gets reported on IRS Form 8949, which asks for the asset description, purchase date, sale date, proceeds, and cost basis.12Internal Revenue Service. Instructions for Form 8949 Brokerages report the same information to you and to the IRS on Form 1099-B, so the IRS already knows about most trades before you file. Crypto exchanges now issue Form 1099-DA for digital asset transactions.
Totals from Form 8949 flow to Schedule D of your Form 1040, which calculates your net short-term and long-term results and folds them into the rest of the return. If your broker reported the cost basis to the IRS (most do for stocks purchased after 2011), the form flags that so the numbers can be matched automatically. Where basis was not reported, you supply it yourself.
Basis adjustments come up more often than people expect. Brokerage commissions, reinvested dividends, and return-of-capital distributions all change your basis. Getting basis wrong means either overpaying tax or underreporting gains, and underreporting tends to draw IRS notices.
State Tax Adds to the Federal Bill
Federal tax is not the whole picture. Most states with an income tax treat short-term capital gains as ordinary income, and state rates range from roughly 1% to over 13% depending on where you live. A handful of states have no income tax and therefore no state-level capital gains tax. Your state’s tax agency has the rate that applies at your income level.