What is Short-term vs long-term capital gains?

Short-term gains (assets held under a year) are taxed as ordinary income. Long-term gains (held over a year) get lower tax rates. Under IRS guidelines, the classification is based entirely on the holding period of the asset. The holding period begins on the day after the asset is acquired and ends on the day it is sold. Taxpayers report both categories on Form 8949 and Schedule D.

Short-term capital gains apply to assets held for one year or less. These gains are taxed as ordinary income, meaning they are subject to standard progressive tax rates ranging from 10% to 37%. Long-term capital gains apply to assets held for more than one year. Long-term gains receive preferential tax treatment, with rates of 0%, 15%, or 20% based on the taxpayer's taxable income.

For the 2026 tax year, the 15% long-term capital gains bracket applies to single filers with taxable income between $49,451 and $545,500, and married joint filers between $98,901 and $613,700. In addition, net capital losses can be used to offset gains; if losses exceed gains, up to $3,000 of excess losses can offset ordinary income annually.