Short-Term vs Long-Term Capital Gains: Key Differences (2026)
The 1-year holding period rule
The IRS uses a simple rule: if you held the asset for one year or less, the gain is short-term. If you held it for more than one year, it is long-term. The difference in taxes you pay can be dramatic — often 10 to 20 percentage points.
The holding period starts the day after you acquire an asset and ends on the day you sell it. So if you buy shares on January 1, 2025, the one-year mark is January 2, 2026 — not January 1.
Short-term rates: taxed as ordinary income
Short-term gains are added to your regular income and taxed at the same rates as wages. For 2026 (single filers):
| Ordinary Income Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | $12,401 – $50,400 | $24,801 – $100,800 |
| 22% | $50,401 – $105,700 | $100,801 – $211,400 |
| 24% | $105,701 – $201,775 | $211,401 – $403,550 |
| 32% | $201,776 – $256,225 | $403,551 – $512,450 |
| 35% | $256,226 – $640,600 | $512,451 – $768,700 |
| 37% | Over $640,600 | Over $768,700 |
Long-term rates for comparison
For the same 2026 tax year, long-term capital gains rates (single filers) are:
| Long-Term Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 |
| 20% | Over $545,500 | Over $613,700 |
Side-by-side comparison: real dollar savings
| Scenario (Single) | Short-Term Rate | Long-Term Rate | Tax Saved by Waiting |
|---|---|---|---|
| $50k gain, $80k income | 22% | 15% | $3,500 |
| $100k gain, $150k income | 24% | 15% | $9,000 |
| $200k gain, $300k income | 35% | 20% | $30,000 |
When to wait for long-term treatment
If you are within a few months of the one-year mark, it is often worth waiting. The tax savings can significantly outweigh any short-term market risk — especially for large positions. Key factors to weigh:
- How much tax you would save — use the calculator to see the exact delta
- Risk of holding longer — a declining position erases the tax advantage
- Your income that year — if income is unusually high or low, timing matters even more
- State taxes — some states also have preferential long-term rates; most do not
This is a personal financial decision. Consult a qualified tax advisor before making timing-based decisions.
Watch out: the wash-sale rule
If you sell a position at a loss to offset short-term gains (tax-loss harvesting), beware the wash-sale rule: you cannot buy a "substantially identical" security within 30 days before or after the sale or the loss is disallowed. This rule applies to individual stocks and ETFs that track the same index.