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

When you sell an investment you've held for one year or less, the profit counts as short-term capital gains. The IRS taxes this profit at the same rate as your wages, salary, or other ordinary income. That rate depends on your tax bracket — it could be 10%, 12%, 22%, 24%, 32%, 35%, or 37%, depending on how much you earned that year.

This is different from long-term capital gains, which get preferential rates of 0%, 15%, or 20%. The holding period matters: if you buy a stock on March 15 and sell it on March 14 the next year, it's still short-term. You have to hold it through the anniversary date to get long-term treatment.

Your state may also tax short-term gains. Most states treat them the same as federal income and apply your state income tax rate on top of the federal amount. A few states have no income tax at all.

Key Takeaways

  • Short-term capital gains are taxed at your ordinary income tax rate, which ranges from 10% to 37% federally depending on your total income for the year.
  • You must hold an investment for more than one year to may have access to for the lower long-term capital gains rates of 0%, 15%, or 20%.
  • State income tax applies to short-term gains in most states, adding another layer of tax on top of the federal rate.
  • Your tax bracket for short-term gains is based on your total income that year, including wages, self-employment income, and other gains.

How your tax bracket determines your short-term rate

The 10%, 12%, 22%, 24%, 32%, 35%, and 37% rates are federal tax brackets. Your short-term capital gains get added to your other income for the year, and the combined total determines which bracket you fall into. If you earned $50,000 in salary and have $10,000 in short-term gains, you're taxed on $60,000 total.

The bracket thresholds change each year and depend on your filing status — single, married filing jointly, head of household, or married filing separately. For 2024, a single filer enters the 22% bracket at $47,150 in income and the 24% bracket at $100,525. A married couple filing jointly enters the 22% bracket at $94,300. These numbers shift annually for inflation.

Because short-term gains stack on top of your other income, they can push you into a higher bracket. If you're near a bracket boundary, selling an investment for a $5,000 gain might move you from the 12% bracket into the 22% bracket, meaning that $5,000 gets taxed at 22% instead of 12%.

State and local taxes on short-term gains

Most states tax short-term capital gains as ordinary income. If your state income tax rate is 5%, you'll owe 5% state tax on top of your federal rate. A few states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax at all, so you only pay federal tax.

Some states have special rules. California taxes short-term gains at your regular state rate but has a temporary tax on high earners' long-term gains. New York City residents pay an additional city tax on investment income. If you live in one of these places, your total tax bill on short-term gains can be significantly higher than the federal rate alone.

Reporting short-term gains on your tax return

When you sell an investment, your broker sends you a Form 1099-B showing the sale price and your cost basis. You report this on Schedule D (Capital Gains and Losses) and then transfer the total to Form 1040. Short-term gains and losses go in one section of Schedule D; long-term gains and losses go in another.

If you have short-term losses, you can use them to offset short-term gains first, then long-term gains. Any losses left over can reduce your ordinary income by up to $3,000 per year, with the remainder carried forward to future years. This is why tracking your trades carefully matters — a loss on one investment can reduce the tax on a gain from another.

When short-term gains affect other benefits

Short-term capital gains count as income for purposes of means-tested programs. If you're receiving Medicaid, subsidized health insurance through the Affordable Care Act marketplace, or other income-based benefits, a large short-term gain in one year can push your income over the limit and reduce or eliminate your benefit. The gain counts in the year you sell, not the year you earned it.

This is one reason some people time their investment sales carefully. If you're near a benefit threshold, selling in a different year might keep you under the income limit. Talk to a tax professional or benefits counselor before making large sales if you receive income-based assistance.

Frequently Asked Questions

Do I owe tax on short-term gains if I reinvest the money?

Yes. The tax is based on the profit you made, not what you do with the money afterward. If you sell a stock for $5,000 profit and immediately buy another stock with that $5,000, you still owe tax on the $5,000 gain. Reinvesting does not defer or eliminate the tax.

What if I have short-term losses — can I use them to reduce my tax bill?

Yes. Short-term losses first offset short-term gains. If you have $8,000 in short-term gains and $3,000 in short-term losses, you report $5,000 in net short-term gains. Any remaining losses can offset long-term gains or up to $3,000 of ordinary income per year.

Is there a difference in tax rate between stocks, crypto, and other investments?

No. The holding period and your tax bracket determine the rate, not the type of asset. A short-term gain from selling cryptocurrency is taxed the same way as a short-term gain from selling stock — at your ordinary income tax rate. Crypto is treated as property by the IRS.

How do I know if my gain is short-term or long-term?

Count the days from purchase to sale. If you buy on January 15 and sell on January 15 the next year, it's long-term. If you sell on January 14, it's short-term. Your broker's tax documents will usually label this for you, but verify it yourself because the classification affects your tax bill significantly.