What is short-term capital gains tax?

There is no short-term capital gains rate

This is the whole answer, and it is worth stating plainly because the phrasing of the question implies otherwise. There is no separate rate schedule for short-term gains. A gain on an asset held one year or less is added to your ordinary income and taxed at whatever marginal rate that income reaches — 10%, 12%, 22%, 24%, 32%, 35% or 37%.

So the "short-term capital gains rate" for a given taxpayer is simply their ordinary marginal rate. Tables that present it as its own schedule are reprinting the ordinary income table under a different heading.

What the one-year line costs

Because there is no preferential treatment, the gap between a short-term and a long-term gain is the gap between the ordinary table and the 0/15/20 ladder — and it is large.

A single filer at $80,000 of salary pays 15% on a long-term gain and 22-24% on the same gain held two months less. At higher incomes the gap widens: 20% against 37%, before the net investment income tax applies equally to both. On a $200,000 gain that difference exceeds $30,000, created by nothing but the sale date.

This is the largest single lever most people have over their own tax bill, and it requires no planning beyond patience.

How the holding period is actually counted

The rule is more than one year, and the counting is precise in a way that catches people out. The holding period begins the day after acquisition and ends on the day of disposal.

So buying on 3 March and selling on 3 March the following year gives a holding period of exactly one year — which is not more than one year, and the gain is short-term. Selling on 4 March makes it long-term. A single day, and on a large gain that day can be worth five figures.

For inherited assets the holding period is automatically long-term regardless of how briefly the heir held the asset. For gifts, the recipient generally inherits the donor’s holding period along with their basis.

Who this catches

Active traders, obviously — a portfolio turned over several times a year generates short-term gains almost exclusively, and the tax drag is a real part of the strategy’s cost that backtests routinely omit.

Less obviously: anyone selling shortly after vesting. RSUs are taxed as ordinary income when they vest, and the vesting date starts a fresh holding period at the vest-date price. Sell within the year and any further appreciation is a short-term gain. Crypto traders, where a rebalance is a taxable disposal. And anyone who sold in a hurry during a market fall and did not check the calendar first.

When selling early is still the right call

Tax is a cost, not a strategy. Holding a concentrated position through a further two months of risk to save eight percentage points is a bet, and it is not obviously a good one if the position could move more than that in either direction.

The honest framing is that the one-year line gives you a number to weigh, not an instruction to follow. Run both cases in the calculator, see the difference in dollars, and decide whether that figure is worth the exposure. The comparison panel under the results does this automatically for the current inputs.

Short-term losses are worth more than they look

The netting rules run short against short and long against long first, and only then across. A short-term loss therefore shelters short-term gain — the most expensively taxed kind — before it touches anything else.

Anything left over after netting offsets up to $3,000 of ordinary income a year, with the remainder carried forward indefinitely and keeping its character.

The wash sale rule bites hardest here

Short-term traders realise losses as well as gains, and the wash sale rule is what stops those losses being banked freely. Buy a substantially identical security within thirty days before or after selling at a loss, and the loss is disallowed for that year.

It is not forfeited — the disallowed amount is added to the basis of the replacement shares, and the original holding period carries across. But it is deferred, potentially into a year where it is worth less.

The thirty-day window runs in both directions, which catches people who buy more before selling the old lot. It also applies across accounts, including a purchase in an IRA, where the loss is disallowed permanently rather than merely deferred. This calculator does not model wash sales; it takes the gain and loss figures you give it.

Crypto is taxed the same way, whatever it is called

Cryptocurrency is treated as property, so the ordinary capital gains rules apply: hold more than a year for the preferential ladder, one year or less and it is ordinary income.

What differs is the frequency of disposals. Swapping one token for another is a disposal of the first, even though no dollars moved. Spending crypto on goods is a disposal. Bridging, wrapping and some staking events can be disposals. A year of active use can generate hundreds of short-term events, each with its own basis and holding period.

The rules are the same as for shares; the record-keeping is not. And because most of those disposals will be short-term, the ordinary rate table is the one that applies — which is the whole point of this page.

RSUs, options, and the vesting-date reset

Equity compensation is where short-term gains catch people who do not think of themselves as traders.

Restricted stock units are taxed as ordinary income when they vest, on the market value at that moment. That value becomes your basis, and the vesting date starts a fresh holding period. Sell within a year and any movement since vesting is a short-term gain, taxed on top of a salary that the vest itself has already inflated.

The common advice to sell RSUs immediately on vesting is largely a diversification argument, and it has a tax corollary worth understanding: selling at once produces almost no gain at all, because the sale price is near the basis the vest just established. The tax was paid at vest, as income. Holding is what creates a capital gains question, and holding less than a year creates the expensive kind.

Non-qualified stock options work similarly, with the spread taxed as income at exercise and the holding period starting then. Incentive stock options follow different rules again, involving the alternative minimum tax, which this calculator does not model.

States do not give short-term gains a break either

Most states tax capital gains as ordinary income, which means they make no distinction between short-term and long-term at all — the state cost is the same either way, and the entire holding-period saving is federal.

A few states do distinguish. Massachusetts taxes short-term gains at 8.5% against 5% for long-term, so the one-year line costs 3.5 points of state tax on top of the federal difference. Arizona’s subtraction applies only to long-term gains, so short-term gains lose it entirely.

The practical effect is that in most states the federal gap is the whole story, and in a few it is understated. Select your state in the calculator to see which applies to you.

Worked example

Computed by the same engine that powers the calculator, at the moment this page was built — not typed in by hand. Open the derivation to see every rule and citation.

Run your own figures

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Related questions

Keep reading

• What is the long-term capital gains tax rate?The 0/15/20 ladder, the 2026 ceilings for every filing status, and how stacking decides which rung you reach.
• How much is capital gains tax?The dollar answer, at several income levels, and the two facts that decide which rate you land on.
• How to avoid capital gains taxSix legal levers that move the rate rather than hide the gain, each with the arithmetic behind it.

The full guide index lists every answer page, and the state comparison covers the state layer on top of these federal figures.