Short-Term vs Long-Term Capital Gains Tax Rules Every Trader Must Know
Compare US short-term and long-term capital gains tax rates, holding period thresholds, and the NIIT surtax to keep more of your trading profits.
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The single most important number for a US stock trader is the one-year holding line. Cross it and your tax bill can drop by more than half.
Holding Period Mechanics
The clock starts the day after you buy and ends on the day you sell. Anything held 12 months or less is short-term; anything held more than 12 months is long-term. The date that matters is the trade execution date, not settlement.
Short-Term Rates
Short-term gains are taxed as ordinary income, stacked on top of your other income. For 2025 that means federal brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. A trader in the 24% bracket pays 24% on every short-term dollar — plus state tax.
Long-Term Rates
Long-term gains use three preferential brackets (2025, single filer):
| Taxable Income | Long-Term Rate |
|---|---|
| Up to ~$48,350 | 0% |
| $48,351 – $533,400 | 15% |
| Above $533,400 | 20% |
Married filing jointly thresholds roughly double: 0% to ~$96,700, 15% to ~$600,050, then 20%.
The 3.8% NIIT Trap
High earners also owe the Net Investment Income Tax on investment income once modified AGI exceeds $200,000 (single) or $250,000 (MFJ). That pushes the effective top long-term rate to 23.8% and the top short-term rate to 40.8% — before state tax.
Practical Example
Buy 1,000 shares at $50 on March 1. Sell at $80.
- Sell on February 28 (short-term), 24% bracket: $30,000 gain × 24% = $7,200 federal.
- Sell on March 2 (long-term), same bracket: $30,000 × 15% = $4,500 federal.
- One extra trading day saves $2,700.
Action Points
- Tag every position with its acquisition date in your broker platform.
- For gains near the one-year mark, weigh the rate difference against the risk of holding an extra few days.
- Use specific identification (not FIFO) to cherry-pick which lots to sell — long-term lots first when taking gains, short-term lots when harvesting losses.
- Check state treatment: California taxes long-term gains at ordinary rates with no preferential bracket.
Holding period planning is the cheapest tax edge available — it costs nothing but discipline.
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