What Is Short-Term Capital Gains Tax? Rates, Calculation, and Reporting

Short-term capital gains tax is the federal tax you pay when you sell an asset at a profit after holding it for one year or less. Unlike long-term gains, which get their own lower rates, short-term gains are taxed as ordinary income: the same brackets that apply to your paycheck, running from 10% up to 37% in 2026. The tax only applies once you actually sell, not while an investment sits in your account gaining value, and every sale at a profit has to be reported on your return whether or not your broker sends you a 1099.¹

When a Gain Counts as Short-Term

The dividing line is exactly one year. Hold an asset for one year or less and any profit is short-term. Hold it for more than one year and it qualifies for the lower long-term capital gains rates.¹

Counting starts the day after you buy. If you purchase a stock on March 1, the holding period begins March 2. A sale on or before March 1 of the following year is short-term; a sale on March 2 or later is long-term. One day can shift your rate substantially, so if you’re near the anniversary, the calendar matters.

Two situations sit outside this general rule and are worth flagging because they often surprise people. Inherited property is automatically treated as held for more than one year no matter how briefly you actually owned it, so a sale right after inheriting still gets long-term treatment.² And if you sell your primary home, up to $250,000 in gain ($500,000 for married couples filing jointly) can be excluded entirely if you owned and used it as your principal residence for at least two of the five years before the sale.³ A quick flip of your own home held under a year won’t qualify, and the exclusion doesn’t apply to investment or vacation property.

2026 Short-Term Capital Gains Tax Rates

Short-term gains get no special rate. They stack on top of your other income and are taxed at ordinary income rates.¹ For tax year 2026, single filers face these brackets:⁴

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% on income over $640,600

For married couples filing jointly, the thresholds are roughly doubled:⁴

10% on taxable income up to $24,800
12% from $24,801 to $100,800
22% from $100,801 to $211,400
24% from $211,401 to $403,550
32% from $403,551 to $512,450
35% from $512,451 to $768,700
37% on income over $768,700

These brackets apply to taxable income, meaning income after deductions. The 2026 standard deduction is $16,100 for single filers and $32,200 for joint filers, so those amounts come off the top before the brackets apply.⁴

The 3.8% Net Investment Income Tax

Higher earners owe an additional 3.8% on investment income, including short-term capital gains. This surtax applies when modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married filing separately.⁵ Those thresholds are set by statute and have never been indexed for inflation, so more filers cross them each year. Stacked on top of the 37% bracket, a single filer at the top can face an effective federal rate of 40.8% on short-term gains.

State Taxes on Top

Most states with an income tax treat short-term gains as ordinary income and tax them accordingly. About eight states have no individual income tax, while top state marginal rates in some places exceed 13%. A few states handle capital gains differently from regular income, so your combined federal-and-state rate depends heavily on where you live.

How to Calculate a Short-Term Gain

The calculation itself is simple. Take your cost basis (the purchase price plus any acquisition fees or commissions), and subtract it from your net proceeds (the sale price minus any selling fees). The difference is your gain or loss.

Say you buy 100 shares for $10,000 and pay a $50 commission. Your cost basis is $10,050. Six months later you sell for $15,000 and pay another $50 commission, so your net proceeds are $14,950. Your short-term gain is $4,900. Sell for $9,000 instead and you have a short-term loss of $1,100 after the selling fee.

Netting Gains Against Losses

The IRS doesn’t tax each trade in isolation. You net your short-term gains against your short-term losses to get a net short-term figure, do the same for long-term transactions, and then combine the two categories to find your overall result for the year.

If your total losses exceed your total gains, you can deduct up to $3,000 of the excess against ordinary income each year ($1,500 if married filing separately).⁶ Anything above that carries forward to future years indefinitely, either as a $3,000 annual deduction against ordinary income or, without limit, as an offset to future capital gains.¹

The Wash Sale Rule

You can’t claim a loss if you buy a substantially identical investment within 30 days before or 30 days after the sale that produced it. This is the wash sale rule, and it stops investors from selling at a loss purely to book a tax deduction while immediately rebuilding the position.⁷

The disallowed loss isn’t lost permanently. It’s added to the cost basis of the replacement shares, deferring the tax benefit until you eventually sell them without triggering another wash. Sell at a $250 loss and buy back the same stock for $800 inside the window, and your basis in the new shares becomes $1,050.⁸ The holding period of the original shares also tacks on to the replacement.²

As of 2026, the rule applies to stocks and securities but not to cryptocurrency, because the IRS treats crypto as property rather than a security. Proposals to extend the wash sale rule to digital assets have circulated since 2021 but have not been enacted. Crypto traders should watch for changes.

Reporting Short-Term Gains on Your Return

Each sale goes on Form 8949, with short-term transactions in Part I. Those totals flow to Part I of Schedule D (Form 1040), where the year’s overall gain or loss is calculated.⁹ Your broker will generally send you a Form 1099-B with the details, which you reconcile on Form 8949.¹⁰

Every sale needs to be reported, even when the broker has already sent the information to the IRS and even if you live abroad.¹¹ Omitting a transaction that appears on a 1099-B is one of the fastest ways to get an IRS notice.

Paying the Tax During the Year

A large short-term gain can generate a tax bill your withholding won’t cover, and the IRS may charge an underpayment penalty if you wait until April to settle up. If you expect to owe at least $1,000 after withholding and refundable credits, you generally need to make quarterly estimated payments.¹²

Two safe harbors avoid the penalty: pay at least 90% of the current year’s tax, or pay 100% of last year’s tax (110% if your prior-year adjusted gross income was over $150,000). If a big gain hits mid-year, you can increase your remaining estimated payments, raise your paycheck withholding, or annualize your income so the payments line up with the quarter in which the gain occurred.

1
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
2
Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
3
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
6
Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
7
Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
8
Internal Revenue Service. Case Study 1 – Wash Sales
9
Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets
10
Internal Revenue Service. 2025 Instructions for Form 8949
11
Internal Revenue Service. Reporting Capital Gains
12
Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc.