What Is the Tax Rate for Short-Term vs. Long-Term Investments

Capital gains are the profits from the sale of an asset - shares of stock, a piece of land, a business and generally are considered taxable income. How much these gains are taxed depends a lot on how long you held the asset before selling.

A short-term capital gain results from the sale of an asset owned for one year or less. While long-term capital gains are generally taxed at a more favorable rate than salary or wages, gains that are classified as short-term do not benefit from any special tax rates. They are subject to taxation as ordinary income.

As regular taxable income, short-term gains are subject to whichever tax bracket you fall under. There are currently seven federal tax brackets in the U.S., with rates ranging from 10% up to 37%.

Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. The long-term capital gains tax rate is 0%, 15%, or 20% depending on your taxable income and filing status. The numbers can change from year to year. Most of the time, they are lower than short-term capital gains tax rates.

The tax on a long-term capital gain is almost always lower than if the same asset were sold in less than a year; most taxpayers don't have to pay the highest long-term rate. Tax policy encourages you to hold assets - capital gains for a year or more.