Short-Term Capital Gains
Definition
Profits from selling assets held for one year or less, taxed at your ordinary income tax rate, which can be significantly higher than long-term capital gains rates.
Short-term capital gains apply to assets sold within one year of purchase. Unlike long-term gains that receive preferential rates, short-term gains are added to your ordinary income and taxed at your marginal tax rate — potentially as high as 37% federal for high earners.
This tax treatment makes the holding period one of the most important factors in investment tax planning. For an investor in the 32% bracket, a $10,000 short-term gain costs $3,200 in tax, while the same gain held one extra day to qualify as long-term might cost only $1,500 at the 15% rate.
Short-term gains are most common among active traders, day traders, and investors who frequently rebalance. Crypto traders are particularly susceptible to short-term gains because of the market's volatility and the frequency of trading.
Short-term losses are also important — they first offset short-term gains (which saves tax at your higher ordinary rate), then offset long-term gains. This makes short-term losses more valuable per dollar than long-term losses for most taxpayers.
Understanding the interplay between short-term and long-term gains is crucial for year-end tax planning. Before December 31, reviewing your unrealized gains and losses to decide which to realize can significantly impact your tax bill for the year.
Where this appears in Clarity
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Related Terms
Frequently Asked Questions
Are short-term crypto gains taxed differently than stock gains?
No, both are taxed at your ordinary income rate. The IRS treats crypto as property, so the same short-term/long-term rules apply. Gains on crypto held one year or less are short-term, taxed at ordinary rates up to 37%.
Can short-term losses offset long-term gains?
Yes. Short-term losses first offset short-term gains, then any remaining short-term losses offset long-term gains. Since short-term losses save tax at higher ordinary rates, they're especially valuable when they offset short-term gains.