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When you sell something, you’re probably looking to profit from it. Capital gains are profits from an asset sale, like your home, business or stocks. Capital gains come in two different forms: long-term and short-term. Each faces a different tax consequence, making it important to know the difference between short-term vs long-term capital gains taxes. Short-term gains are taxed as ordinary income while long-term gains are taxed at a lower rate.
Do you have questions about how to handle capital gains taxes? Consider speaking with a financial advisor today.
What Are Short-Term Capital Gains?
Profits from an asset sold within a year of buying it are short-term capital gains. As a result, they’re taxed exactly the same as regular income according to your tax bracket and filing status, with rates ranging from 10% to 37%. This is considered ordinary income since the asset isn’t held for a very long period of time. Let’s take a look at the tax brackets for the 2026 tax year, which depend on your filing status and income:
| Rate | Single | Married, Filing Jointly | Married, Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 | $0 – $12,400 | $0 – $17,700 |
| 12% | $12,400 – $50,400 | $24,800 – $100,800 | $12,400 – $50,400 | $17,700 – $67,450 |
| 22% | $50,400 – $105,700 | $100,800 – $211,400 | $50,400 – $105,700 | $67,450 – $105,700 |
| 24% | $105,700 – $201,775 | $211,400 – $403,550 | $105,700 – $201,775 | $105,700 – $201,750 |
| 32% | $201,775 – $256,225 | $403,550 – $512,450 | $201,775 – $256,225 | $201,750 – $256,200 |
| 35% | $256,225 – $640,600 | $512,450 – $768,700 | $256,225 – $384,350 | $256,200 – $640,600 |
| 37% | $609,351+ | $768,700+ | $384,350+ | $640,600+ |
For reference, here are the short-term tax brackets for the 2025 tax year:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $11,925 | $0 – $23,850 | $0 – $11,925 | $0 – $17,000 |
| 12% | $11,925 – $48,475 | $23,850 – $96,950 | $11,925 – $48,475 | $17,000 – $64,850 |
| 22% | $48,475 – $103,350 | $96,950 – $206,700 | $48,475 – $103,350 | $64,850 – $103,350 |
| 24% | $103,350 – $197,300 | $206,700 – $394,600 | $103,350 – $197,300 | $103,350 – $197,300 |
| 32% | $197,300 – $250,525 | $394,600 – $501,050 | $197,300 – $250,525 | $197,300 – $250,500 |
| 35% | $250,525 – $626,350 | $501,050 – $751,600 | $250,525 – $375,800 | $250,500 – $626,350 |
| 37% | $626,350+ | $751,600+ | $375,800+ | $626,350+ |
What Are Long-Term Capital Gains?
Profits from assets held for a year or more are long-term capital gains. The extra time you’ve held onto those assets could help you come tax season. Long-term capital gains are taxed at 0%, 15% and 20% depending on your taxable income. As a result, they might put you in a different tax bracket compared to short-term capital gains. For example, if you earn $100,000 a year, you’re in the 15% tax bracket. For short-term capital gains, you’d be at 24%, though your gains and losses will determine which bracket or brackets you fall into.
Below are the long-term capital gains tax brackets and rates for the 2026 tax year:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $48,350 | $0 – $66,200 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 | $49,451 – $306,850 | $66,201 – $579,600 |
| 20% | $545,501+ | $613,701+ | $306,851+ | $579,601+ |
And here are the long-term capital gains tax brackets and rates for the 2025 tax year:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 0% | $0 – $48,350 | $0 – $96,700 | $0 – $48,350 | $0 – $64,750 |
| 15% | $48,351 – $533,400 | $96,701 – $600,050 | $48,350 – $300,000 | $64,750 – $566,700 |
| 20% | $533,401+ | $600,051+ | $300,000+ | $566,700+ |
What Are Capital Losses?
Capital losses occur when you sell an investment or asset for less than what you originally paid for it. Just as capital gains reflect your profit, capital losses capture the amount you lost on the sale. These losses can come from a wide range of assets, including stocks, bonds, real estate and other investments, and they play an important role in your overall tax picture.
The IRS allows you to use capital losses to offset capital gains, which can lower the amount of tax you owe. If your losses exceed your gains for the year, you can also deduct up to $3,000 of those losses against ordinary income, with the unused amount carried forward to future years. Understanding how capital losses work, and how they interact with short- and long-term gains, can help you make more strategic decisions about when to sell investments and how to reduce your tax liability.
Key Difference of Short Term vs. Long Term Capital Gains
There are some differences when looking at both types of capital gains, but the most important difference is how each is taxed. Short-term capital gains result from selling a good or asset that you own for one year or less. Long-term capital gains are taxed at a more favorable rate because you’re selling an asset that you’ve held for longer than one year.
Short-term capital gains are taxed as ordinary income while long-term gains are taxed at a significantly lower rate, in many instances. The total amount of tax savings will depend on what tax bracket you would fall into with a short-term gain, as seen above.
How to Lower Your Capital Gains
Lowering your capital gains starts with being strategic about when and how you sell your investments. One of the most effective methods is tax-loss harvesting, which involves selling underperforming assets to offset gains from more profitable ones. By pairing gains with losses in the same tax year, you can reduce the amount of taxable profit you recognize, and if your losses exceed your gains, you can even deduct a portion against ordinary income.
Here’s how the few ways to offset capital gains taxes work:
- Holding assets for more than a year: Even if you did nothing else but own your assets for longer than a year, you could end up paying less by moving to a different tax bracket.
- Utilizing your retirement accounts: IRAs, 401(k)s and 529 plans allow investments to grow tax-free or tax-deferred. If your retirement account sells investments, you’re not on the hook for capital gains tax. Contributions to health savings accounts (HSAs) are also tax-free and assets grow tax-free.
- Carrying over your loss to the next year: Losses cap out at $3,000 a year. As a result, you can carry over the rest to the next year and claim it on that year’s tax return.
Bottom Line
Understanding the differences between short-term and long-term capital gains, and how capital losses fit into the equation, can make a meaningful difference in your tax bill. By timing your sales strategically, harvesting losses when appropriate and managing your income around major transactions, you can retain more of your investment returns. With thoughtful planning and guidance from a financial advisor, you can build a tax-efficient investment strategy that supports your long-term financial goals.
Investment Tips
- Making sure your money is working hard for you isn’t always the easiest task. A financial advisor can help you calculate gains and losses to minimize what you owe. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re just looking for an easy way to figure out your capital gains taxes, there are tools that can help you. For example, SmartAsset’s capital gains tax calculator, can help you determine what you’ve gained or lost this year and what taxes you’ll pay (if any).
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