If you’re thinking about selling capital assets, like stocks, crypto, real estate, or another investment, you’re probably wondering how much tax you’ll owe when it comes time to file. The answer often depends on how long you’ve owned the asset before you sell it. If you owned that asset for one year or less before selling it, the Internal Revenue Service (IRS) views the profit as a short-term capital gain. Let’s look at short-term capital gains, how they’re taxed, and how to calculate them.
What is short-term capital gains tax?
A short-term capital gain is the profit you earn from selling an asset you’ve held for one year or less. At the federal level, short-term capital gains are taxed at the same rate as ordinary income.
The IRS generally counts the holding period from the day after you acquired the asset to the day you sold it. That means timing matters. Selling even one day too early can turn what would have been a long-term gain into a short-term gain.
Examples of short-term capital gains assets
Almost any capital asset can produce a short-term gain if you sell it after holding it for one year or less. Common examples include:
Stocks and other equities
Cryptocurrency
Mutual funds
Exchange-traded funds (ETFs)
Bonds
Collectibles
Investment real estate
Personal-use property sold at a gain
Certain business or household assets
How much is the short-term capital gains tax rate?
Short-term capital gains share the same tax rates as regular income at the federal level. They don’t receive a special or preferential rate, unlike long-term capital gains, which we’ll cover later.
Short-term capital gains rates at the state level
Most states tax short-term capital gains as ordinary income, but some offer preferential rates, such as:
Massachusetts. Taxes short-term gains at 8.5%
Minnesota. Taxes an additional 1% tax on gains exceeding $1 million
Maryland. Taxes an additional 2% on capital gains for people with a federal adjusted gross income (AGI) over $350,000
As of 2025, nine states don’t impose an income tax on filers and therefore don’t tax short-term capital gains. These states include:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington (imposes a tax on long-term capital gains)
Wyoming
Short-term capital gains tax brackets
As mentioned above, at the federal level, short-term gains are taxed the same as ordinary income tax rates. You can find the federal income tax bracket for the 2025 tax year below.
Short-term capital gains vs long-term capital gains
The biggest difference between short-term and long-term capital gains is usually the tax rate.
Short-term capital gains apply when you hold an asset for one year or less and are generally taxed as ordinary income.
Long-term capital gains apply when you hold an asset for more than one year and may qualify for lower tax rates, often 0%, 15%, or 20%, depending on your taxable income and filing status.
That difference is why investors often pay close attention to the sale date, because waiting until you cross the one-year mark may reduce the federal tax rate on the gain.
Net Investment Income Tax (NIIT)
Short-term and long-term gains may also be subject to the Net Investment Income Tax (NIIT), which is an additional tax of 3.8%. This tax has to be paid if your modified adjusted gross income (MAGI) is $200,000 or more ($250,000 if filing jointly or qualifying surviving spouse, and $125,000 if married filing separately).
The 3.8% tax applies to investment income, such as interest, dividends, capital gains, rental income, and royalties. It’s paid in addition to the tax you already pay on investment income.
Short-term capital gains tax stocks
Stocks are a frequent source of short-term capital gains, as it’s common to sell shares within one year of buying them. Once they’re sold within a year or less of purchase, they’re treated as short-term capital gains and taxed as ordinary income. This concept also often applies to ETFs, mutual funds, and crypto sales.
If you’re an active trader, frequent sales can create multiple short-term gains and losses during the tax year. In this case, the transactions are reported on Form 8949 and Schedule D, with short-term and long-term gains and losses netted separately before determining your overall net capital gains or losses.
How to calculate short-term capital gains
When calculating your short-term capital gains, you’ll need to identify the cost basis, which is the original price of the asset when you first purchased it, and the sales price. Once you have these numbers, you’ll subtract the cost basis from the sales price, and the total will be your capital gain (or loss).
Use this formula: Sale Price — Cost Basis = Short-term capital gain (or loss), or calculate your short-term capital gain with our capital gains calculator.
If you have a mix of short-term capital gains and losses, you can add all short-term gains and subtract all short-term capital losses.
FAQs
The bottom line
Short-term capital gains are usually taxed at the same federal rates as ordinary income, so selling an asset after holding it for one year or less can mean a higher tax bill than if you had held it longer. Your total tax depends on your income, filing status, and state rules, so it’s important to calculate your gain and understand the holding-period rules before you sell.
File your tax return quickly and accurately with TaxAct®.
This article is for informational purposes only and not legal or financial advice.
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