Short-term vs long-term capital gains explained

The IRS uses a one-year cliff to separate short-term and long-term capital gains. Assets held 365 days or less generally produce short-term capital gains taxed as ordinary income at rates up to 37%. Assets held more than 365 days generally qualify for long-term rates of 0%, 15%, or 20%, depending on taxable income and filing status.

The holding period typically starts the day after you acquire the asset and includes the day you sell. Selling on the one-year anniversary is usually still short-term; waiting until after that date can unlock preferential long-term rates. That single day can change a top federal rate from the high thirties (plus NIIT) to 20% (plus NIIT) — or even 0% or 15% for lower-income years.

If you are within about 30 days of crossing the one-year mark, compare the tax savings from waiting against market risk and cash needs. Our calculator flags that cliff when your dates are close and estimates the difference between short-term and long-term treatment.

Collectibles, depreciation recapture, and certain other asset rules can modify the picture, but the holding-period test remains the first fork in the road for most stock, ETF, and crypto sales.