The IRS taxes short-term capital gains as ordinary income. If you sell an asset you held for one year or less at a profit, that gain is added to your wages, self-employment income, and everything else on your return, and it’s taxed at whatever bracket applies. For 2026, that means a federal rate somewhere between 10% and 37%, with an extra 3.8% Net Investment Income Tax possible for higher earners. There is no preferential rate for short-term gains the way there is for long-term ones.
What Counts as Short-Term
A gain or loss is short-term when you owned the asset for one year or less before selling it.1Office of the Law Revision Counsel. 26 USC 1222 – Short-Term and Long-Term Capital Gains and Losses Defined The holding period begins the day after you acquire the asset and ends on the day you sell. Buy stock on March 1 and sell on March 1 the following year, and you’re still at exactly one year, so the gain is short-term. Sell on March 2, and it becomes long-term.
Almost anything you hold for investment counts as a capital asset: stocks, bonds, mutual funds, real estate, cryptocurrency, and collectibles.2Office of the Law Revision Counsel. 26 USC 1221 – Capital Asset Defined If you sold it through a brokerage, it’s a capital asset.
How the Tax Is Calculated
Start with the gain on each sale. Subtract your adjusted basis (usually what you paid plus commissions and other transaction costs) from the sale proceeds.3Internal Revenue Service. Topic No. 703, Basis of Assets Buy 100 shares at $50 with a $10 commission, and your basis is $5,010. Sell for $7,000, and the short-term gain is $1,990.
At year-end, you don’t tax each trade separately. All your short-term gains and losses are combined into a single net short-term figure, and the same happens for long-term. If one side is a net loss and the other a net gain, they offset each other before anything gets taxed. What survives that netting is what shows up on your return.
Then the short-term portion stacks on top of your other income. Your salary, interest, self-employment earnings, and the net short-term gain are all taxed together under the ordinary brackets.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses A single filer earning $90,000 in wages who realizes a $20,000 short-term gain sees the combined $110,000 straddle two brackets: part taxed at 22%, part at 24%, because the total crosses the $105,700 threshold.
2026 Federal Brackets
These are the ordinary income brackets that apply to short-term capital gains for 2026:5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10%: up to $12,400 single / $24,800 joint
- 12%: $12,401–$50,400 single / $24,801–$100,800 joint
- 22%: $50,401–$105,700 single / $100,801–$211,400 joint
- 24%: $105,701–$201,775 single / $211,401–$403,550 joint
- 32%: $201,776–$256,225 single / $403,551–$512,450 joint
- 35%: $256,226–$640,600 single / $512,451–$768,700 joint
- 37%: over $640,600 single / over $768,700 joint
Most states also tax short-term gains as ordinary income, with state rates running roughly from 3% to over 14% depending on where you live. A handful of states have no income tax.
The 3.8% Net Investment Income Tax
Higher earners pay an extra 3.8% on top of the regular bracket rate. The Net Investment Income Tax applies to the lesser of your net investment income (short-term gains are included) or the amount by which your modified adjusted gross income exceeds a threshold: $200,000 for single and head-of-household filers, $250,000 for married filing jointly, and $125,000 for married filing separately.6Internal Revenue Service. Net Investment Income Tax These thresholds are not indexed to inflation, so they catch more taxpayers over time.
Combined, someone in the top federal bracket can face 40.8% on a short-term gain (37% plus 3.8%), before state tax.
If You Have a Net Loss Instead
If your losses for the year exceed your gains, you can deduct up to $3,000 of the net loss against ordinary income like wages ($1,500 for married filing separately).7Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything above that carries forward to future years, keeping its short-term or long-term character, and can offset future gains or take another $3,000 bite out of ordinary income each year.8Office of the Law Revision Counsel. 26 USC 1212 – Capital Loss Carrybacks and Carryovers There’s no expiration for an individual’s carryforward. A $30,000 net loss in one year could take a decade to use up.
Paying the Tax Before April
A large gain in, say, June doesn’t wait until the following April to become a tax bill. The IRS expects taxes to be paid as income is earned, through withholding or quarterly estimated payments. Skip that step on a sizable gain and you can owe an underpayment penalty on top of the tax itself.
You avoid the penalty by meeting any one of these safe harbors:9Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
- Total payments cover at least 90% of your current-year tax.
- Total payments equal at least 100% of the tax on your prior-year return. If your prior-year AGI exceeded $150,000 ($75,000 if married filing separately), the threshold rises to 110%.
- Your balance due after withholding and credits is under $1,000.
Estimated payments are due April 15, June 15, September 15, and January 15 of the following year. The prior-year safe harbor is often the easiest to hit deliberately because you already know the number.
Reporting the Gain on Your Return
Short-term sales are reported on Form 8949, Part I. Each transaction lists the asset, the acquisition date, the sale date, the proceeds, and your adjusted basis.10Internal Revenue Service. Instructions for Form 8949 – Section: General Instructions The form reconciles your records with what your broker reported to the IRS on Form 1099-B (or Form 1099-DA for digital assets). If the broker reported the correct basis and no adjustments are needed, you can bypass Form 8949 and put the totals straight on Schedule D.
Schedule D is the summary. It combines the short-term totals from Form 8949 Part I with the long-term totals from Part II, nets them, and produces the single figure that flows to Form 1040.11Internal Revenue Service. 2025 Instructions for Schedule D (Form 1040)
If any of your trades involved cryptocurrency or other digital assets, you also have to answer the digital asset question on Form 1040. You must check “Yes” or “No” regardless of the outcome of your transactions, including if you simply received crypto as payment.12Internal Revenue Service. Determine How to Answer the Digital Asset Question
Two Situations That Don’t Follow the Usual Rule
Some assets don’t get taxed as short-term even if you held them briefly, so it’s worth knowing where the standard treatment doesn’t apply.
Inherited property is automatically treated as long-term regardless of how quickly you sell it after inheriting.13Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property The tax code deems the holding period to be more than one year. Because inherited assets also get a stepped-up basis to fair market value at the date of death, a quick sale often produces little or no gain at all.
Section 1256 contracts (regulated futures, certain foreign currency contracts, and listed nonequity options) get a blended treatment: 60% of any gain or loss is long-term and 40% is short-term, no matter how briefly you held the position.14Office of the Law Revision Counsel. 26 USC 1256 – Section 1256 Contracts Marked to Market For a top-bracket taxpayer, that blend works out to roughly 26.8%, well below the full ordinary rate on a comparable short-term trade in stocks.