What is the difference between short-term and long-term capital gains?

If you hold an investment a year or less, the profit is a short-term gain and is taxed like ordinary income, at your normal rate. Hold it longer than a year and it becomes a long-term gain, taxed at the lower 0%, 15% or 20% rates. That one-year line can cut the tax roughly in half for many people.

Paychecks & taxes

Capital Gains Tax Calculator

A $20,000 profit held long-term, on top of an $80,000 income, is taxed at the 15% long-term rate, which is about $3,000. Sell that same investment before a year is up and it is taxed as ordinary income, usually a good deal more. Enter your gain, your other income and whether you held it more than a year. The one-year mark is the difference between the two very different rates.

Capital Gains Tax

$3,000

tax on a $20,000 long-term gain

Investment profit

Your other income

How long you held it

Filing status

Tax rate on the gain15.0%

Tax owed−$3,000

You keep$17,000

A year can halve the tax

The single biggest thing you control on investment tax is how long you hold. Under a year, the profit is short-term and taxed at your ordinary income rate, the same as your paycheck. Cross the one-year mark and it becomes long-term, taxed at 0%, 15% or 20% depending on your income. For a lot of people that is the difference between paying 22% or 24% and paying 15%. It is why "just hold it a little longer" is sometimes real tax advice, though never a reason to hang onto an investment you would otherwise sell.

Long-term uses the 0/15/20% brackets, simplified. This does not include the net investment income tax or state tax. Not tax advice.

Common questions

Short-term vs long-term gains?

Held a year or less, the profit is short-term and taxed like ordinary income. Held longer, it is long-term and taxed at the lower 0%, 15% or 20% rates.

Capital Gains Tax Calculator

A year can halve the tax

Common questions

Short-term vs long-term gains?

Related calculators