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Short-Term vs. Long-Term Capital Gains Tax

Much of it depends on the calendar, your taxable income and your filing status.
February 24, 2017
Income Taxes, Investing, Taxes
short-term-capital-gains-vs-long-term-capital-gains
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The tax code divides capital gains into long-term and short-term capital gains:

  • Short term capital gains tax is a tax on profits from the sale of an asset held for one year or less.
  • Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year.

And the tax code rewards patient investors:

  • Short-term capital gains tax rates equal your ordinary income tax rate — your tax bracket. (Not sure what tax bracket you’re in? Review this rundown on federal tax brackets.)
  • Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.

Back up. What is capital gains tax?

When you turn a profit on the sale of assets, such as stocks, bonds, mutual funds or real estate, it’s called a capital gain. It’s generally considered taxable income.

The exact capital gains tax rate you’ll pay depends primarily on your income and on how long you hold the asset before selling.

Pay close attention to the calendar when selling assets

The holding period for a long-term capital gain is at least one year and a day. Crossing that threshold can significantly change how much tax you pay on a capital gain.

To reach the one-year mark, begin counting on the date after the day you acquired the asset.

  • For example, if you bought stock on Jan. 10, 2017, and sell on the 10th day of the following January, your one-year ownership of the stock would mean your profit would be taxed at the higher short-term rate.
  • If you instead sell on Jan. 11, 2018 — 366 days since your purchase, since the day you dispose of the property is part of your holding period — it will net you the lower long-term capital gains tax rate.

Your income also affects capital gains taxes

Capital gains tax rates, like income tax rates, are progressive. That means higher earners generally pay a higher capital gains tax rate.

Short-term capital gains are taxed as ordinary income. Long-term gains however, can be taxed at 15%, 20% — or not taxed at all — depending on your tax bracket.

2018 Capital Gains Tax Rates: Breakdown

Single filers

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $9,52510%10%0%
$9,526 to $38,60012%12%0%
$38,601 to $38,70012%12%15%
$38,701 to $82,50022%22%15%
$82,501 to $157,50024%24%15%
$157,501 to $200,00032%32%15%
$200,001 to $425,80035%35%15%
$425,801 to $500,00035%35%20%
$500,001 and over37%37%20%

Married, Filing Jointly

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $19,05010%10%0%
$19,051 to $77,20012%12%0%
$77,201 to $77,40012%12%15%
$77,401 to $165,00022%22%15%
$165,501 to $315,00024%24%15%
$315,001 to $400,00032%32%15%
$400,001 to $479,00035%35%15%
$479,001 to $600,00035%35%20%
$600,001 and over37%37%20%

Head of Household

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $13,60010%10%0%
$13,601 to $51,70012%12%0%
$51,701 to $51,80012%12%15%
$51,801 to $82,50022%22%15%
$82,501 to $157,50024%24%15%
$157,501 to $200,00032%32%15%
$200,001 to $452,40035%35%15%
$452,401 to $500,00035%35%20%
$500,001and over37%37%20%

Married, Filing Separately

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $9,52510%10%0%
$9,526 to $38,60012%12%0%
$38,601 to $38,70012%12%15%
$38,701 to $82,50022%22%15%
$82,501 to $157,50024%24%15%
$157,501 to $200,00032%32%15%
$200,001 to $239,50035%35%15%
$239,501 to $300,00035%35%20%
$300,001 and over37%37%20%

Looking for more info about all the tax changes for 2018? You can dig into our full breakdown of the new tax law, or check out what investors should know about the new rules.

2017 Capital Gains Tax Rates: Breakdown

Single filers

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $9,52510%10%0%
$9,526 to $38,60012%12%0%
$38,601 to $38,70012%12%15%
$38,701 to $82,50022%22%15%
$82,501 to $157,50024%24%15%
$157,501 to $200,00032%32%15%
$200,001 to $425,80035%35%15%
$425,801 to $500,00035%35%20%
$500,001 and over37%37%20%

Married, Filing Jointly

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $19,05010%10%0%
$19,051 to $77,20012%12%0%
$77,201 to $77,40012%12%15%
$77,401 to $165,00022%22%15%
$165,501 to $315,00024%24%15%
$315,001 to $400,00032%32%15%
$400,001 to $479,00035%35%15%
$479,001 to $600,00035%35%20%
$600,001 and over37%37%20%

Head of Household

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $13,60010%10%0%
$13,601 to $51,70012%12%0%
$51,701 to $51,80012%12%15%
$51,801 to $82,50022%22%15%
$82,501 to $157,50024%24%15%
$157,501 to $200,00032%32%15%
$200,001 to $452,40035%35%15%
$452,401 to $500,00035%35%20%
$500,001and over37%37%20%

Married, Filing Separately

IncomeTax bracketShort-term capital gains rateLong-term capital gains rate
Up to $9,52510%10%0%
$9,526 to $38,60012%12%0%
$38,601 to $38,70012%12%15%
$38,701 to $82,50022%22%15%
$82,501 to $157,50024%24%15%
$157,501 to $200,00032%32%15%
$200,001 to $239,50035%35%15%
$239,501 to $300,00035%35%20%
$300,001 and over37%37%20%

Looking for more info about all the tax changes for 2018? You can dig into our full breakdown of the new tax law, or check out what investors should know about the new rules.

2018 Capital Gains Tax Rates

Expand the filing status that applies to you.
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $38,600
15%$38,601 to $425,800
20%$425,801 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $77,200
15%$77,201 to $479,000
20%$479,901 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $51,700
15%$51,701 to $452,400
20%$452,401 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $38,600
15%$38,601 to $239,500
20%$239,501 or more

Looking for more info about all the tax changes for 2018? Our breakdown of the new tax law has more details, or check out what investors should know about the new rules.

Other capital gains tax rates

The capital gains tax rates described above apply in most scenarios, but there are special rates for special situations. If you sold real estate, a small business or collectibles such as rare coins or art, for example, see a qualified tax pro.

Additional cautions

If your profit on asset sales is substantial, you could face the Net Investment Income Tax, or NIIT.

The NIIT is an additional 3.8% tax that applies to individuals, estates and trusts with net investment income that exceeds certain thresholds. It was created to help pay for the Affordable Care Act.

The NIIT typically kicks in when an individual taxpayer’s modified adjusted gross income is more than:

  • $250,000 for married filing jointly or a qualifying widow/widower with a dependent child
  • $125,000 for spouses filing separately
  • $200,000 for all other filing statuses

Technically, it’s not a capital gains tax, and the calculations can get tricky, so it’s best to use a tax software program or consult a tax professional if you’re confronted with this tax.

Only sales count

Finally, note that increases in the value of assets you still hold generally do not trigger any capital gains taxes. Capital gains taxes apply only when you have an actual profit from the sale of an asset.

So don’t worry about owing taxes immediately as you watch your portfolio increase in value. Just make sure that when you do cash in some of those holdings, you do so in a way that guarantees the lowest possible capital gains tax rate. You can learn more about current rates in this roundup of capital gains tax rates.