Short-Term Capital Gains Tax: What It Is and How Much You Might Owe

Darren415 / Getty Images/iStockphoto

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Selling stocks, property or other investments in less than a year? You may be subject to short-term capital gains tax — which is taxed as ordinary income based on your tax bracket.

Knowing how this tax works can help you plan when to sell, estimate what you’ll owe and potentially reduce your tax bill.

What Is Short-Term Capital Gains Tax?

A short-term capital gain is when you sell a capital asset after owning it for less than a year.

You calculate ownership time starting the day after you took ownership of the capital asset to the day you sold it.

Short-term capital gains are taxed as ordinary income, which is taxed at a specific rate based on your tax bracket.

How To Calculate Short-Term Capital Gains

To calculate your short-term capital gains, you need to know two factors:

• What you paid for the capital asset or the acquisition basis.
• The sale amount, also known as the disposition basis. 

Once you know those, you can use this formula:

• (disposition basis – acquisition basis) x tax rate

Example of a Short-Term Capital Gain Calculation

Here’s a short-term capital gain example:

You purchase shares for $25,000 in January and sell them for $75,000 in August. That’s a $50,000 short-term capital gain. If you fall into the 32% tax bracket, you’d owe $16,000 in taxes on the gain.

You’re required to pay quarterly estimated taxes if your capital gain is $1,000 or more. Missing those payments could result in penalties when you file your return.

If you sell an investment at a loss, you can deduct up to $3,000 ($1,500 if married filing separately) from your income — and carry over the excess to future years.

For example, a $5,000 capital loss lets you deduct $3,000 this year and roll the remaining $2,000 into the next.

Pro Tip

If you have multiple gains and losses in a tax year, total them to calculate your net capital gain or loss.

2024 Short-Term Capital Gains Tax Rates (For Filing in 2025)

Your annual income bracket determines your short-term capital gains tax rate. To find your tax bracket, total all the income you’ve made for the year, including all capital gains.

Tax Brackets by Filing Status

The government taxes short-term capital gains using the income brackets listed below:

How Short-Term Capital Gains Impact Your Taxes

Here are some examples of what the short-term capital gains tax could look like based on your income:

Short-Term vs. Long-Term Capital Gains

A short-term capital gain is for assets that you hold for less than a year. A long-term capital gain occurs when you sell a capital asset after owning it for over a year.

Long-term capital gains are taxed based on the amount of the gain. The rates are more favorable and encourage people to hold on to their investments longer. 

Long-Term Capital Gains Tax Rates

The 2024 long-term capital gains tax rates are as follows:

Exceptions To Capital Gains Taxes

You should be aware of a few exceptions to capital gains taxes so you don’t pay a tax unnecessarily.

Tax-Advantaged Accounts

Accounts like Roth IRAs or 529 college savings plans let your investments grow tax-free, as long as you follow contribution and withdrawal rules.

Capital Gains on Home Sales

You can exclude up to $250,000 of home sale profits (or $500,000 if married filing jointly) if you’ve lived and owned the home for at least two of the past five years.

How To Avoid or Reduce Short-Term Capital Gains Tax

Here are a few investment tax strategies that can help you reduce or even avoid short-term capital gains taxes.

Hold Investments Longer Than One Year

• If you hold your assets for longer than one year, you’ll be taxed at the long-term capital gains rate, rather than the ordinary income tax rate.
• Long-term rates mean you’ll pay no more than 20%, rather than the top short-term rate of 37%. 
• Most American households will actually only pay 0% or 15% on their long-term capital gains. 

Use Tax-Loss Harvesting

• The IRS allows you to offset any capital gains you may have with capital losses. 
• To fully take advantage of this provision, investors use a strategy known as tax-loss harvesting. 
• For example, if you have a realized capital gain of $5,000 but losing positions in your portfolio, you can take those losses and offset your gains.

How To Report Capital Gains on Your Tax Return

You can use IRS Schedule D and Form 8949 to report capital gains and losses. These forms detail your transactions and help determine your net gain or loss for the year.

Be sure to keep records of your cost basis, sale date and proceeds for each asset.

Final Take: Lowering Your Tax Bill With Better Timing

Short-term capital gains tax can significantly cut into your profits if you sell investments under a year. Before selling consider the following:

• Waiting until you pass the one-year mark.
• Using losses to offset gains.
• Keeping detailed records to stay audit-ready.

A little strategy can go a long way when it comes to lowering your tax bill.

John Csiszar contributed to the reporting of this article.

Share This Article: