Short-Term Capital Gains
Profits from the sale of a capital asset held for one year or less, taxed at the investor's ordinary income tax rate rather than the preferential long-term capital gains rates.
Short-term capital gains arise whenever you sell a stock, bond, mutual fund share, or other capital asset within 12 months of acquiring it. Because Congress has chosen to favor long-term investing, these gains are taxed at the same graduated ordinary income rates that apply to wages and salaries — meaning the more you earn, the higher the rate applied to your short-term gains.
For the 2025 tax year, ordinary income tax brackets range from 10% at the lowest end to 37% for taxable income above $626,350 for single filers and $751,600 for married filing jointly couples. A trader who realizes $50,000 in short-term gains on top of a $150,000 salary could find a large portion of those gains taxed at 24% or even 32%.
The one-year holding period is measured precisely from the day after you acquire an asset to the day you sell it. For example, if you purchase shares on March 15, 2024, you must hold them until at least March 16, 2025 to qualify for long-term treatment. The holding period resets whenever you acquire additional shares, so tracking purchase dates for each lot is essential when you have multiple purchases of the same security.
Short-term gains are netted against short-term losses first. Any net short-term gain is then combined with any net long-term gain or loss to determine your overall capital gain for the year. If you have both a net short-term gain and a net long-term loss, the loss offsets the gain, potentially converting a high-rate liability into a smaller one or eliminating it altogether.
Active traders who frequently rotate positions face a significant tax drag from short-term treatment. Strategies to mitigate this include holding positions slightly past the one-year mark when practical, placing high-turnover strategies inside tax-advantaged accounts like IRAs, or using tax-loss harvesting to offset short-term gains with capital losses. Careful record-keeping, often supported by broker-generated 1099-B forms, is essential for accurate short-term gain reporting on Form 8949 and Schedule D.