Short-term capital gains tax is the federal tax you pay on profit from selling an asset you held for one year or less, and it is charged at the same rates as your wages and other ordinary income. For 2026, that means a rate between 10% and 37% depending on your total taxable income, with a possible 3.8% surtax on top for higher earners and state tax layered on separately. The practical consequence: selling one day too early can cost you a lot more than selling one day later.
What Counts as Short-Term
Your holding period starts the day after you buy an asset and includes the day you sell it. If the span between those two dates is one year or less, the profit is short-term. If it is longer than one year, the gain is long-term and qualifies for preferential rates.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Day-counting is not a formality. Stock bought on June 1 must be held until at least June 2 of the following year to be long-term. Sell on June 1 and the entire gain is taxed as ordinary income. For a top-bracket filer, that single day can be the difference between a 37% rate and a 20% rate.
The rule covers most things you own for personal or investment purposes: stocks, bonds, mutual funds, real estate, and collectibles. Inherited assets are the main exception, and they are handled differently from the start.
Calculating the Gain
The gain equals what you receive on sale minus your adjusted basis. Basis is what you paid, including commissions and transaction fees. The amount realized is the sale price minus selling costs.
A simple case: you buy 100 shares at $50 and pay a $10 commission, for a basis of $5,010. Six months later you sell at $60 and pay another $10, netting $5,990. Your short-term capital gain is $980.
For real estate or business property, basis moves over time. Capital improvements add to it; depreciation deductions subtract. A rental bought for $200,000 with a $15,000 new roof and $30,000 of claimed depreciation has an adjusted basis of $185,000.
Inherited and Gifted Assets
If you inherit an asset, your basis is generally its fair market value on the date the original owner died, not what they paid.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This stepped-up basis can erase decades of appreciation. Stock a parent bought for $10,000 and worth $100,000 at death gives you a basis of $100,000; sell for $105,000 and the gain is $5,000, not $95,000.
Gifts work the opposite way. A security someone hands you during their lifetime generally carries over their original basis, with no step-up.3Internal Revenue Service. Gifts and Inheritances
The 2026 Rates on Short-Term Gains
Short-term gains get stacked on top of your other ordinary income and taxed at your marginal rate. There is no preferential rate. For 2026, the brackets for single filers run:4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% up to $12,400
- 12% from $12,400 to $50,400
- 22% from $50,400 to $105,700
- 24% from $105,700 to $201,775
- 32% from $201,775 to $256,225
- 35% from $256,225 to $640,600
- 37% above $640,600
For married couples filing jointly, the 37% bracket starts above $768,700.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
A gain that pushes you into a higher bracket does not raise the rate on all your other income. Only the dollars above each threshold are taxed at the higher rate. If a $10,000 gain straddles the line between 24% and 32%, part is taxed at 24% and the rest at 32%.
What a Year of Patience Is Worth
Long-term capital gains are taxed at 0%, 15%, or 20%. For 2026, single filers pay 0% on long-term gains while taxable income stays under $49,450, 15% up to $545,500, and 20% above that. For joint filers, the 15% band runs from $98,900 to $613,700, with 20% beyond.5Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates
Compare the two directly. A single filer earning $300,000 in salary who takes a $10,000 gain owes $3,500 in federal tax if it is short-term (35% marginal rate). The same gain held just past one year would owe $1,500 at the 15% long-term rate. The $2,000 difference is the price of selling early.
Collectibles follow a separate rule. Long-term gains on art, coins, and antiques are capped at a 28% rate rather than 20%, while short-term gains on collectibles are still taxed at ordinary rates.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The 3.8% Surtax on Investment Income
Higher earners owe an additional 3.8% net investment income tax on capital gains of either type. The surtax kicks in when modified adjusted gross income passes $200,000 for single filers or $250,000 for married couples filing jointly, and those thresholds are not indexed for inflation.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
The 3.8% is charged on the smaller of your net investment income or the amount your MAGI exceeds the threshold.7Internal Revenue Service. Topic No. 559, Net Investment Income Tax A single filer with $250,000 in total income and a $30,000 short-term gain inside that figure owes the surtax on $30,000 (the lesser of $30,000 of investment income and $50,000 of excess MAGI), adding $1,140.
Stacked at the top, a short-term gain can face 37% plus 3.8%, or 40.8% in federal tax alone. That is the figure to use when deciding whether to hold a position until it crosses the one-year mark.
State Tax on Top
Most states tax capital gains as ordinary income. Top state rates range from roughly 2.5% to over 13%, and eight states have no individual income tax at all. Combined with federal rates and the surtax, a short-term gain for a high earner in a high-tax state can face an effective rate above 50%.
Using Losses to Reduce the Bill
Before paying tax on any gain, you net your capital gains and losses in a required order. Short-term gains first offset short-term losses. Long-term gains offset long-term losses. If one category nets to a gain and the other to a loss, they offset each other.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The order has real consequences. A net short-term loss that wipes out a long-term gain effectively trades a deduction against ordinary-rate income for income that would have been taxed at a preferential rate. When possible, investors try to match short-term losses against short-term gains to preserve favorable long-term treatment on winners.
If total losses exceed total gains, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately). The rest carries forward indefinitely and keeps its original short-term or long-term character.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses A $20,000 net loss takes over five years to fully absorb at $3,000 a year with no gains to offset it.
The Wash Sale Trap
Sell a security at a loss and buy a substantially identical one within 30 days before or after the sale, and the IRS disallows the loss. The 61-day window is the wash sale rule.8Internal Revenue Service. Publication 550, Investment Income and Expenses
The disallowed loss gets added to the basis of the replacement shares, and the old holding period tacks on to the new ones, so the deduction is deferred rather than destroyed. The rule also catches purchases by your spouse or a corporation you control, and purchases inside an IRA or Roth IRA. The IRA version is the worst outcome: the loss is not added to any basis, so it is simply gone.8Internal Revenue Service. Publication 550, Investment Income and Expenses
A Carve-Out for Futures and Index Options
One category of trade sidesteps the holding-period rules. Under Section 1256, gains and losses on regulated futures contracts and broad-based index options are automatically treated as 60% long-term and 40% short-term, even if the position was held a single day.9Office of the Law Revision Counsel. 26 USC 1256 – Section 1256 Contracts Marked to Market The blended maximum federal rate works out to roughly 26.8% for the highest earners.
The treatment is narrow. It covers regulated futures, options on broad-based stock indexes with ten or more underlying securities, and certain foreign currency contracts. Options on individual stocks and single-stock futures do not qualify.
Reporting and Estimated Tax
Each sale is listed on Form 8949, with the purchase date, sale date, proceeds, and cost basis. Short-term and long-term transactions go in separate sections.10Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets The totals carry to Schedule D (Form 1040), which handles the netting and produces the final figure for your return.11Internal Revenue Service. Instructions for Form 8949 Your brokerage sends a Form 1099-B each year with proceeds and, for covered securities, the cost basis for every sale; the figures on your 8949 need to reconcile with it.12Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions
A large gain midyear can also create an estimated tax obligation. The IRS expects taxes to be paid as income is earned. If you owe $1,000 or more at filing, an underpayment penalty applies unless you meet a safe harbor: paying at least 90% of the current year’s liability, or 100% of the prior year’s tax (110% if prior-year AGI exceeded $150,000).13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty If the gain hits late in the year, the annualized income installment method on Form 2210 can show the IRS that smaller amounts were owed in earlier quarters.