Short-term capital gains are profits you make when you sell an investment you owned for one year or less, and the IRS taxes them as ordinary income at your regular tax rate
When you buy a stock, bond, cryptocurrency, or other investment and sell it for more than you paid, that profit is a capital gain. The tax rate depends on how long you held it. If you owned it for 12 months or fewer, it counts as a short-term capital gain. The IRS treats this like regular wages or salary — you pay your normal income tax rate on the full amount of the profit, not a reduced rate.
This matters because long-term capital gains (held over one year) are taxed at lower rates: 0%, 15%, or 20% depending on your income. Short-term gains have no preferential rate. If you are in the 24% tax bracket, you pay 24% on short-term gains. If you are in the 35% bracket, you pay 35%. The difference can be thousands of dollars on a single sale.
Key Takeaways
- Short-term capital gains are taxed at your ordinary income tax rate (10%, 12%, 22%, 24%, 32%, 35%, or 37%), not at the lower long-term rates of 0%, 15%, or 20%.
- The holding period is measured from the purchase date to the sale date; selling on day 366 makes it long-term, selling on day 365 makes it short-term.
- You report short-term gains on Schedule D (Form 1040) and add them to your ordinary income, which can push you into a higher tax bracket.
- Losses from short-term sales can offset short-term gains dollar-for-dollar, and excess losses can reduce other income by up to $3,000 per year.
How the IRS measures your holding period
The IRS counts the holding period from the day after you buy to the day you sell. If you buy on January 15 and sell on January 15 of the next year, that is exactly one year and the gain is long-term. If you sell on January 14, it is short-term. The date matters because even one day can change your tax bill significantly.
The holding period applies to each purchase separately. If you buy 100 shares in March and 100 shares in September, then sell 100 shares in October, the IRS assumes you sold the March shares first (under the "first-in, first-out" rule unless you specify otherwise). That sale would be long-term. You can tell your broker to use a different method — like selling the September shares instead — but you must identify which shares you are selling before the sale closes.
Tax rates for short-term gains in 2024
Short-term capital gains are added to your other income and taxed at the same rate. The 2024 federal tax brackets are:
| Tax Bracket | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,600 | Up to $23,200 |
| 12% | $11,601–$47,150 | $23,201–$94,300 |
| 22% | $47,151–$100,525 | $94,301–$201,050 |
| 24% | $100,526–$191,950 | $201,051–$383,900 |
| 32% | $191,951–$243,725 | $383,901–$487,450 |
| 35% | $243,726–$609,350 | $487,451–$731,200 |
| 37% | Over $609,350 | Over $731,200 |
If you earn $50,000 in salary and make a $10,000 short-term capital gain, your taxable income becomes $60,000. You move from the 22% bracket into the 24% bracket, so the gain is taxed at 24%, not 22%. This "bracket creep" is one reason short-term trading can be expensive.
State income tax also applies to short-term gains in most states. The combined federal and state rate can exceed 50% in high-tax states. Some states like Florida, Texas, and Wyoming have no state income tax, so residents pay only the federal rate.
How to report short-term capital gains on your tax return
You report all short-term gains and losses on Schedule D (Capital Gains and Losses), which you attach to Form 1040. List each sale separately: the date acquired, date sold, proceeds (sale price), cost basis (what you paid), and gain or loss.
If you have multiple short-term sales, add up all the gains and losses. If gains exceed losses, you report the net gain as income. If losses exceed gains, you can deduct up to $3,000 of the net loss against other income (wages, interest, dividends) in that year. Any loss above $3,000 carries forward to future years.
Your broker sends you a Form 1099-B by January 31 listing all your sales from the previous year. The IRS receives a copy, so your return must match. If you sold through multiple brokers, you will receive multiple 1099-Bs. Some brokers also calculate cost basis for you, though you should verify it is correct — especially if you reinvested dividends or made partial sales.
Why short-term gains cost more than long-term gains
Long-term capital gains receive preferential tax rates because the government wants to encourage long-term investing. A $10,000 long-term gain for someone in the 24% bracket costs $1,500 in federal tax (at the 15% long-term rate). The same $10,000 short-term gain costs $2,400. That $900 difference is the cost of holding for less than a year.
For active traders who buy and sell frequently, short-term gains add up quickly. A trader who makes ten $5,000 gains in a year pays tax on $50,000 of income at ordinary rates. If those same trades had been held 13 months, the tax bill would be roughly $7,500 lower (at the 15% long-term rate versus 24% ordinary rate).
This is also why some investors hold losing positions past one year — to convert a short-term loss into a long-term loss, which has the same deduction limit but may feel like a better outcome psychologically. The tax effect is identical, but the holding period does not change the deduction rules.
State taxes on short-term capital gains
Most states tax short-term capital gains as ordinary income at your state income tax rate. A few states have special rules. California taxes all capital gains (short and long-term) at the same rate as ordinary income. New York does the same. Washington State has no income tax but recently passed a capital gains tax of 7% on long-term gains only — short-term gains are not subject to this tax in Washington.
If you live in a state with income tax and sell an investment, check your state's rules. Some states allow you to exclude gains on certain types of investments (like municipal bonds issued in that state), but these exceptions rarely apply to short-term gains.
Frequently Asked Questions
If I sell a stock at a loss after holding it for 11 months, is that a short-term loss?
Yes. The holding period determines whether a gain or loss is short-term or long-term. A loss after 11 months is short-term. You can use it to offset short-term gains dollar-for-dollar, and if you have no short-term gains, you can deduct up to $3,000 against other income. Any excess loss carries to the next year.
Does the wash-sale rule apply to short-term capital losses?
Yes. If you sell a stock at a loss and buy the same or substantially identical stock within 30 days before or after the sale, the wash-sale rule disallows the loss. The loss is added to the cost basis of the new purchase instead. This rule applies to both short-term and long-term losses.
What if I inherit an investment — how is the holding period calculated?
Inherited investments receive a "stepped-up basis," meaning the cost basis resets to the fair market value on the date of death. Any sale after inheritance is treated as long-term, regardless of how long the deceased owner held it. This is one major tax advantage of inherited assets.
Can I deduct investment losses from my salary or wages?
Only up to $3,000 per year. If you have $10,000 in net capital losses, you deduct $3,000 against wages or other income in the current year and carry the remaining $7,000 forward to future years, deducting $3,000 per year until the loss is exhausted.
Do I owe short-term capital gains tax if I sell at a loss?
No. A loss means you sold for less than you paid, so there is no gain to tax. Instead, you can use the loss to offset gains or other income as described above.