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Short-Term Capital Gains

In short

Gains from assets held under 1 year — taxed as ordinary income

If you buy a stock and sell it within a year for a profit, the IRS taxes that gain at your regular income tax rate (up to 37%). That's much higher than the 15-20% rate for stocks held longer than a year.

Short-term capital gains apply to assets held one year or less. They're taxed at ordinary income rates (10-37% for 2024). This makes frequent trading tax-inefficient. Active traders often face substantial tax drag compared to long-term investors.

Related concepts

  • Long-Term Capital Gains — Hold a stock for more than a year before selling and you get a special lower tax rate — 0%, 15%, or 20% depending on your income. That's much better than paying your regular income tax rate on short-term gains.
  • Capital Gains Tax — When you sell an investment for more than you paid, the profit is a capital gain and the government taxes it. Hold less than a year = higher rate (up to 37%). Hold more than a year = lower rate (0%, 15%, or 20%).
  • Tax Bracket — The US has a progressive tax system. You don't pay the top rate on all your income — just on each dollar above specific thresholds. Knowing your bracket helps you understand if gains will be taxed short-term or long-term preferential rates.
  • Tax-Loss Harvesting — If you're up $10,000 on Apple but down $3,000 on another stock, you can sell the loser to offset $3,000 of your Apple gains. You only pay tax on $7,000 instead of $10,000. The IRS lets you use losses to cancel gains.