What is the difference between short-term and long-term capital gains?

The difference is how long you held the asset before selling. Short-term capital gains apply to assets held for one year or less and are taxed at your ordinary income tax rate (10% to 39.6% in 2026). Long-term capital gains apply to assets held for more than one year and are taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income. The holding period is measured from the day after acquisition through the day of sale. Holding an asset just one day longer than a year can drop the federal rate from 37% to 20% or lower.

What are the 2026 long-term capital gains tax rates?

For 2026 (under TCJA sunset rules), long-term capital gains are taxed at 0% for taxable income up to approximately $48,475 (single) or $96,950 (married filing jointly), 15% for income up to approximately $441,350 (single) or $556,650 (married filing jointly), and 20% above those thresholds. High-income taxpayers also pay the Net Investment Income Tax (NIIT) of 3.8% on investment income when modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). This means the top federal rate on long-term gains for high earners is effectively 23.8%.

How does the Net Investment Income Tax (NIIT) work?

The Net Investment Income Tax is a 3.8% surcharge on the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly). Investment income includes capital gains, dividends, interest, rents, and passive business income. The NIIT applies to both short-term and long-term gains and stacks on top of the regular capital gains rate. For a high earner in the 20% long-term bracket, the effective federal rate becomes 23.8%.

How can I avoid short-term capital gains tax?

The simplest strategy is to hold assets for more than one year before selling, which converts short-term gains into long-term gains taxed at 0%, 15%, or 20% instead of your ordinary income rate. Other strategies include tax-loss harvesting (using investment losses to offset gains), donating appreciated assets to charity (avoids capital gains tax and gives a deduction for fair market value), holding investments in tax-advantaged accounts like IRAs or 401(k)s, and using the 0% long-term bracket by timing sales in low-income years (such as early retirement).

Does this calculator include state capital gains tax?

Yes. The calculator applies your state tax rate to the gain in both scenarios, since most states tax capital gains as ordinary income. California, New York, and other high-tax states can add 9% to 13% on top of the federal rate. Some states (Texas, Florida, Washington, Nevada, Wyoming, South Dakota, Alaska) have no state income tax. Enter your state's top marginal rate (or your effective state rate if you prefer) to see the total tax burden. The calculator does not model state-specific exclusions, holdings, or special rates.

How does my ordinary income affect long-term capital gains tax?

Your long-term capital gains rate is determined by stacking your ordinary income on top of the long-term bracket thresholds. For example, in 2026 if you have $40,000 of ordinary income and $30,000 of long-term gains (single filer), the first $8,475 of gains fills the 0% bracket (up to $48,475 total), and the remaining $21,525 is taxed at 15%. This stacking effect is why high earners almost always pay 15% or 20% on long-term gains, while retirees with low ordinary income can often pay 0%. This calculator stacks income and gains in the same way.

Short-Term vs Long-Term Capital Gains Tax Comparison

A short-term vs long-term capital gains tax comparison tool is a free online tool that compares tax rates by holding period. It shows how short-term and long-term capital gains tax rates affect your after-tax return. Free, no sign-up required.

Capital Gains Comparison Inputs

Filing Status

Gain Amount?Enter your gain amount.

Annual Income (excl. gain)?Enter your annual income (excl. gain).

State Tax Rate?Your state income tax rate.

NIIT applies when MAGI exceeds $200k single / $250k married. State tax applies to the gain in both scenarios.

End of inputs

Short-Term vs Long-Term Capital Gains

Metric	Short-Term Gains Held 1 year or less — taxed as ordinary income.	Long-Term Gains Held more than 1 year — taxed at 0% / 15% / 20%.
Effective Tax Rate	31.55%	20.00%
Federal Tax	$13,273.25	$7,500.00
NIIT (3.8%)	$0.00	$0.00
State Tax	$2,500.00	$2,500.00
Total Tax	$15,773.25	$10,000.00
After-Tax Gain	$34,226.75	$40,000.00

Holding for >1 year keeps $5,773.25 more after tax (11.55% of the gain).

Key Insights

Holding the asset for more than one year saves $5,773.25 in tax — a 31.55% short-term rate vs 20.00% long-term rate.

Your short-term marginal rate is 28.00% (ordinary income); your long-term marginal rate is 15.00% (preferential).

Your MAGI of $130,000.00 is below the $200,000.00 NIIT threshold — no Net Investment Income Tax applies.

State tax of 5.00% adds $2,500.00 to both scenarios — most states do not preferentially tax long-term gains.

Guide

How to Use This Calculator

1Enter your capital gain amount — the profit you realized (or expect to realize) from selling an asset.
2Select your filing status (single or married filing jointly). This determines which federal brackets apply.
3Enter your annual income excluding the capital gain (wages, interest, dividends, etc.). The calculator stacks the gain on top of this income to determine the applicable long-term rate.
4Set your state tax rate (e.g. 5% for a moderate-tax state, 9.3%+ for California, 0% for Texas/Florida).
5Review the side-by-side comparison: tax rate, federal tax, NIIT, state tax, total tax, and after-tax gain for short-term vs long-term holding periods.
6The AI insight explains the rate differential, the NIIT impact, and how much extra you keep by holding the asset for more than one year.

Formula

How It's Calculated

Short-Term vs Long-Term Capital Gains Tax

SHORT-TERM (held 1 year or less):
  Taxed as ORDINARY INCOME at progressive federal brackets.
  FederalTax = ProgressiveBrackets(AnnualIncome + Gain)
  NIIT = 3.8% of gain if MAGI > $200k single / $250k married
  StateTax = Gain x StateRate
  TotalTax = FederalTax + NIIT + StateTax
  AfterTaxGain = Gain - TotalTax

LONG-TERM (held more than 1 year):
  Taxed at PREFERENTIAL RATES: 0% / 15% / 20%.
  Stack AnnualIncome first, then apply thresholds to gain:
    0%   bracket: income up to ~$48,475 single / $96,950 married
    15%  bracket: up to ~$441,350 single / $556,650 married
    20%  bracket: above those thresholds
  NIIT = 3.8% of gain if MAGI > $200k single / $250k married
  StateTax = Gain x StateRate
  TotalTax = LongTermFederal + NIIT + StateTax
  AfterTaxGain = Gain - TotalTax

2026 projected ordinary brackets (TCJA sunset):
  10/15/25/28/33/35/39.6%

CANONICAL SCENARIO:
  $50,000 gain, single, $80,000 annual income, 5% state rate
  Short-term: 25% bracket -> ~$12,500 federal + $0 NIIT + $2,500 state
            = $15,000 total tax, $35,000 after-tax
  Long-term: 15% bracket -> $7,500 federal + $0 NIIT + $2,500 state
           = $10,000 total tax, $40,000 after-tax
  Holding >1 year saves $5,000 (33% less tax)

Glossary

Key Terms

FAQ

Frequently Asked Questions

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