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 2025 tax year, which depend on your filing status and income:
| 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+ |
For reference, here are the short-term tax brackets for the 2024 tax year:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 10% | $0 – $11,600 | $0 – $23,200 | $0 – $11,600 | $0 – $16,550 |
| 12% | $11,601 – $47,150 | $23,201 – $94,300 | $11,601 – $47,150 | $16,551 – $63,100 |
| 22% | $47,151 – $100,525 | $94,301 – $201,050 | $47,151 – $100,525 | $63,101 – $100,500 |
| 24% | $100,526 – $191,950 | $201,051 – $383,900 | $100,526 – $191,950 | $100,501 – $191,950 |
| 32% | $191,951 – $243,725 | $383,901 – $487,450 | $191,951 – $243,725 | $191,951 – $243,700 |
| 35% | $243,726 – $609,350 | $487,451 – $731,200 | $243,726 – $365,600 | $243,701 – $609,350 |
| 37% | $609,350+ | $693,750+ | $365,600+ | $609,350+ |
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 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% | $48,350 – $533,400 | $96,700 – $600,050 | $48,350 – $300,000 | $64,750 – $566,700 |
| 20% | $533,400+ | $600,050+ | $300,000+ | $566,700+ |
And here are the long-term capital gains tax brackets and rates for the 2024 tax year:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 0% | $0 – $47,025 | $0 – $94,050 | $0 – $47,025 | $0 – $63,000 |
| 15% | $47,026 – $518,900 | $94,051 – $583,750 | $47,026 – $291,850 | $63,001 – $551,350 |
| 20% | $518,900+ | $583,750+ | $291,850+ | $551,350+ |
What Are Capital Losses?
Almost everything you own relates to a capital asset. Capital gains are what you earn over a certain amount of time. However, there’s also a chance you had a capital loss. A capital loss is money you’ve lost through your investments and assets.
You can use those losses to lower your tax rate since losses offset gains. You’ll be able to determine how much you owe in taxes by calculating your “net” gains or losses. If your losses are more than your gains, you can deduct the difference on your tax return, up to $3,000 a year. This strategy is often called tax loss harvesting.
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
There are a few ways to offset capital gains taxes. They include:
- 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
The difference between short-term and long-term capital gains could be the difference between a big tax bill and a smaller one. When buying and selling assets, consider how long you’ve owned them and how much tax you’ll pay on them in the near future. Short-term capital gains consist of profits from an asset sold within a year of purchase. They face a tax rate similar to regular income, between 10% and 37%. However, if you hold onto assets for a year or more, they’re long-capital gains. Taxes on those gains top out at 20%, but may be as little as 0%. Meanwhile, if you take a capital loss, you can either deduct the loss this year or carry it over into a year when you make more income.
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. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one 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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