How long you hold an investment decides how its profit is taxed. Hold it for more than a year and the gain is long-term, taxed at lower rates. Hold it for a year or less and it is short-term, taxed like your salary.
This guide explains the one-year rule and how to count it, the rates for each type, the 2026 thresholds, how losses work and worked examples, using IRS Topic 409, the Schedule D instructions and Revenue Procedure 2025-32.
The IRS says that when you sell a capital asset, the difference between your adjusted basis and the amount you realized is a capital gain or loss. Generally, if you hold the asset for more than one year before you dispose of it, the gain or loss is long-term; if you hold it one year or less, it is short-term. To count the holding period you start the day after the day you acquired the asset and include the day you disposed of it. There are exceptions for items such as property acquired by gift or from a decedent, covered in IRS Publication 544.
| Short-term | Long-term | |
|---|---|---|
| Holding period | One year or less | More than one year |
| Tax treatment | Ordinary income at graduated rates | Generally 0%, 15% or 20%; 25% or 28% for some assets |
| Where reported | Form 8949 and Schedule D, Part I | Form 8949 and Schedule D, Part II |
The IRS says net short-term capital gains are taxed as ordinary income at graduated tax rates, while a net capital gain may be taxed at a lower rate. The higher rates apply to a few types of gain: collectibles such as coins or art (maximum 28%), the taxable part of gain on qualified small business stock (maximum 28%) and unrecaptured section 1250 gain on real property (maximum 25%).
| Filing status | 0% rate up to taxable income of | 15% rate up to taxable income of |
|---|---|---|
| Single (all other individuals) | $49,450 | $545,500 |
| Married filing separately | $49,450 | $306,850 |
| Head of household | $66,200 | $579,600 |
| Married filing jointly and surviving spouse | $98,900 | $613,700 |
These 2026 amounts are from IRS Revenue Procedure 2025-32; income above the 15% amount is taxed at 20%. Topic 409 gives the 2025 figures ($48,350 single, $96,700 joint for the 0% rate). For real estate, see our real estate capital gains guide.
| Case | Result |
|---|---|
| Bought 1 March 2025, sold 1 March 2026 | 365 days held: short-term (one year or less) |
| Bought 1 March 2025, sold 2 March 2026 | 366 days held: long-term (more than one year) |
| $10,000 gain, assumed 24% ordinary bracket, sold short-term | $2,400 federal tax |
| Same $10,000 gain held long-term, assumed 15% rate | $1,500 federal tax, $900 less |
These are our illustrations; your actual bracket and rate depend on your total taxable income, and state tax is separate. Check the exact dates with your broker's Form 1099-B; see our Form 1099-B guide.
If your capital losses exceed your capital gains, you can claim the lesser of $3,000 ($1,500 if married filing separately) or your total net loss to lower your other income; unused losses carry forward. Losses on personal-use property such as your home or car are not deductible. See our Schedule D guide and tax-loss harvesting guide.
IRS Topic 409: Capital gains and losses, IRS: Instructions for Schedule D (Form 1040) 2025, IRS: Revenue Procedure 2025-32.