Glossary
Short-term capital gain
A profit on an investment held one year or less, taxed in the US at ordinary income rates rather than the lower long-term capital gains rates.
On this page
A short-term capital gain is the profit from selling an asset you held for one year or less. In the US, short-term gains are taxed as ordinary income, at the same graduated rates as wages, which top out at 37% federally in 2026. Long-term gains, on assets held more than a year, get 0%, 15% or 20% rates instead, so the holding period alone can change the tax on the same profit by a wide margin.
How it works
The holding period starts the day after you buy and includes the day you sell. Selling on the one-year anniversary is still short-term; you need at least one more day. At tax time, short-term gains and losses are netted against each other first, then the net figure is combined with net long-term results. A net capital loss can reduce ordinary income by up to $3,000 a year ($1,500 if married filing separately), with the rest carried forward.
Things to keep in mind
Frequent traders generate mostly short-term gains, which is one reason active strategies need higher pre-tax returns to match a buy-and-hold approach after tax. Gains inside an IRA or 401(k) are not taxed when realized, so the distinction does not apply there. Losses disallowed by the wash-sale rule do not count toward the netting until the replacement shares are sold.