When you make a profit from selling an asset, you could be on the hook to pay capital gains tax. One major factor in how much tax you’ll pay: How long you held that asset before you sold it.
The IRS classifies capital gains as either short-term or long-term — with the one-year mark serving as the distinction — and treats taxes on these profits differently. While short-term capital gains are taxed like ordinary income, long-term capital gains are taxed at preferential rates.
For example, say you’re actively trading in a brokerage account and you made a tidy profit from the sale of a stock you bought less than a year ago. That income would be subject to short-term capital gains tax rates. But if you had held on to that same stock for more than a year, your capital gains would be taxed at a lower, long-term rate. Savvy investors are mindful of the tax implications that come with selling various assets, and plan ahead.
How do short-term capital gains taxes work?
When you sell various types of assets for more than you bought them, that profit is considered a capital gain. The tax rates are lower for long-term capital gains and higher for short-term capital gains — and whether you owned the investment for one year or less serves as the differentiator.
To calculate a capital gain, taxpayers must subtract what it cost them to purchase the asset from the amount for which it was sold. If the purchase and sale occurred less than a year apart, that gain is subject to the short-term capital gains tax. If you instead sell an asset at a loss, then you’ll realize a capital loss and you won’t have to pay any tax on it. The IRS form Schedule D is used to calculate capital gains and losses.
The IRS taxes net short-term capital gains — the difference between your gains and losses — at the income tax rate that applies to your taxable income and filing status.
Because short-term capital gains are treated like income, a net short-term capital gain for the tax year could potentially bump you into a higher tax bracket. That’s especially important to be mindful of if you’re actively buying and selling assets in a taxable brokerage account, including stocks, bonds, cryptocurrencies, exchange-traded funds (ETFs), options and futures.
If, on the other hand, you’re trading within a tax-qualified account such as an IRA, you won’t face capital gains taxes; instead, all of the money you withdraw from an IRA is taxed at ordinary income tax rates when you withdraw it. That is, the trades you make within the account aren’t taxed at the time you make the trade.
Keep in mind:
You may face capital gains taxes related to your mutual fund investments in a taxable brokerage account — even if you haven’t sold the mutual fund itself. This is because capital gains can be generated when the fund manager sells the fund’s underlying holdings, and those gains are passed along to the investors who own that mutual fund.
Short-term capital gains tax rates for 2024
If you realize a net short-term capital gain in 2024, that profit will be taxed at the following income tax rates, based on your filing status and taxable income.
2024 tax brackets (for tax returns filed in 2025)
| Tax rate | Single | Head of household | Married filing jointly or qualified surviving spouse |
Married filing separately |
|---|---|---|---|---|
| 10% | $0 to $11,600 | $0 to $16,550 | $0 to $23,200 | $0 to $11,600 |
| 12% | $11,600 to $47,150 | $16,550 to $63,100 | $23,200 to $94,300 | $11,600 to $47,150 |
| 22% | $47,150 to $100,525 | $63,100 to $100,500 | $94,300 to $201,050 | $47,150 to $100,525 |
| 24% | $100,525 to $191,950 | $100,500 to $191,950 | $201,050 to $383,900 | $100,525 to $191,950 |
| 32% | $191,950 to $243,725 | $191,950 to $243,700 | $383,900 to $487,450 | $191,950 to $243,725 |
| 35% | $243,725 to $609,350 | $243,700 to $609,350 | $487,450 to $731,200 | $243,725 to $365,600 |
| 37% | $609,350 or more | $609,350 or more | $731,200 or more | $365,600 or more |
| Source: IRS |
Short-term capital gains tax rates for 2025
Each year, the IRS updates the income ranges for its seven tax brackets, though typically not the tax rates themselves. Any net short-term capital gains you realize in 2025 will be taxed at the following tax rates, depending on your filing status and taxable income.
2025 tax brackets (for tax returns filed in 2026)
| Tax rate | Single | Head of household | Married filing jointly or qualified surviving spouse |
Married filing separately |
|---|---|---|---|---|
| 10% | $0 to $11,925 | $0 to $17,000 | $0 to $23,850 | $0 to $11,925 |
| 12% | $11,925 to $48,475 | $17,000 to $64,850 | $23,850 to $96,950 | $11,925 to $48,475 |
| 22% | $48,475 to $103,350 | $64,850 to $103,350 | $96,950 to $206,700 | $48,475 to $103,350 |
| 24% | $103,350 to $197,300 | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 | $197,300 to $250,500 | $394,600 to $501,050 | $197,300 to $250,525 |
| 35% | $250,525 to $626,350 | $250,500 to $626,350 | $501,050 to $751,600 | $250,525 to $375,800 |
| 37% | $626,350 or more | $626,350 or more | $751,600 or more | $375,800 or more |
| Source: IRS |
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How to minimize short-term capital gains taxes
In essence, the IRS encourages buy-and-hold investing by taxing long-term capital gains at a lower rate than short-term capital gains. Long-term capital gains are taxed at one of three rates in 2024 and 2025: 0 percent, 15 percent or 20 percent. (The rate that applies to you is tied to your income level.)
But short-term capital gains are treated like ordinary income. If you’re a particularly active trader and you’ve had a successful year of trading, your net capital gains will not only increase your taxable income, but could potentially push you into a higher tax bracket.
To minimize your short-term capital gains taxes, consider the following strategies:
- Wait for one year before selling investments. Because of the preferential rates that apply to long-term capital gains taxes, you may want to hold off on selling investments until that one-year mark has passed.
- Offset gains with losses. It may not always be feasible to wait for a year to push that sell button, in which case you can offset some — or potentially all — of your short-term capital gains by realizing short-term losses. This strategy, known as tax-loss harvesting, can help you minimize your capital gains tax liability. And if you have net capital losses for the year, you could potentially reduce your taxable income by up to $3,000 a year.
- Trade in tax-advantaged accounts. You only have to pay capital gains taxes on the profits you realize in taxable accounts, like a regular brokerage account. That means you can bypass short-term capital gains taxes by instead using tax-advantaged accounts for active trading. While an IRA is intended for a long-term savings goal of retirement, you can actively buy and sell investments in this account, even within the span of a year, and you won’t have to pay any taxes on those profits. (But keep in mind that all withdrawals of untaxed money from a traditional IRA are taxed at ordinary income tax rates.)
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