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Tax

Short-Term vs Long-Term Capital Gains

Compare short-term and long-term capital gains tax — why one year of holding matters so much.

Overview

Short-term capital gains (asset held one year or less) are taxed at your ordinary income rate — up to 37% federal. Long-term gains (held over one year) are taxed at 0%, 15%, or 20% federal. The difference can be enormous; holding for at least 12 months is one of the most powerful tax moves available.

Feature
Short-Term Capital Gains
Long-Term Capital Gains
Holding Period
One year or less
More than one year
Federal Tax Rate
Ordinary income — 10%–37%
0%, 15%, or 20%
0% Bracket
N/A
Income up to $48,350 single / $96,700 married (2025)
15% Bracket
N/A
$48,351–$533,400 single / $96,701–$600,050 married
20% Bracket
N/A
Above those thresholds
Net Investment Income Tax
May add 3.8%
May add 3.8%
Best Strategy
Avoid — convert to long-term when possible
Default for any asset held >1 year

Choose Short-Term Capital Gains when...

Short-term gains happen by accident, not by design — try to avoid by holding past the 12-month mark when possible.

Choose Long-Term Capital Gains when...

Default to long-term gains by waiting at least 366 days from purchase before selling appreciated investments.

Our Verdict

Holding investments for at least one year before selling is one of the cleanest, easiest tax moves. The difference between 22%–37% ordinary rates and 15%–20% long-term rates compounds enormously over a lifetime of investing. Tax-loss harvesting, tax-lot identification, and holding periods are all worth understanding before selling appreciated holdings.

Frequently Asked Questions

What is the difference between Short-Term Capital Gains and Long-Term Capital Gains?

Short-term capital gains (asset held one year or less) are taxed at your ordinary income rate — up to 37% federal. Long-term gains (held over one year) are taxed at 0%, 15%, or 20% federal. The difference can be enormous; holding for at least 12 months is one of the most powerful tax moves available.

When should I choose Short-Term Capital Gains over Long-Term Capital Gains?

Short-term gains happen by accident, not by design — try to avoid by holding past the 12-month mark when possible.

When should I choose Long-Term Capital Gains over Short-Term Capital Gains?

Default to long-term gains by waiting at least 366 days from purchase before selling appreciated investments.

Related Comparisons

Tax-Loss vs Tax-Gain HarvestingTax-Deferred vs Tax-Free AccountsTax Credit vs Tax Deduction

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