Short-Term vs Long-Term Capital Gains: What the Holding Period Costs You in 2026

The one-year rule, side by side

The only thing that separates the two categories is time. Count from the day after you acquired the asset through the day you sell it. If that span is more than one year, the gain or loss is long-term (IRC 1222). If it is one year or less, it is short-term. Selling on the one-year anniversary is still short-term; selling the next day is long-term.

The brackets and the 0%, 15% and 20% breakpoints come from Revenue Procedure 2025-32 for tax year 2026. The 3.8% net investment income tax thresholds are fixed in the statute and are not indexed for inflation (IRC 1411).

How to count the holding period correctly

Most holding-period mistakes come from using the wrong start date. The clock starts the day after you acquire the asset. Shares bought on March 3, 2025 become long-term when sold on March 4, 2026 or later.

• Purchased property: the trade date, not the settlement date, for publicly traded securities. For real estate, the date title or beneficial ownership passes.
• Inherited property: always treated as long-term, regardless of how long the heir held it (IRC 1223(9)).
• Gifted property: the donor's holding period carries over to you when you take the donor's basis (IRC 1223(2)).
• Like-kind exchanges: the replacement property takes on the holding period of the property given up (IRC 1223(1)).
• Wash sales: a disallowed loss adds the old holding period to the replacement shares (IRC 1091(a)).
• Short sales and options: special rules can reset or suspend the clock (IRC 1233, 1092).

Keep the purchase confirmation. A broker's Form 1099-B shows acquisition date and term for covered securities, but not for property you inherited or received in an exchange.

The cost of selling early: a $60,000 example

A single filer earns $95,000 in wages and sells shares for a $60,000 gain. If the shares were held 11 months, the gain stacks on top of the wages at ordinary rates and the federal bill is $13,864. If the same shares had been held 13 months, the same gain is long-term, and the bill is $9,000. Two months of patience saves $4,864, or $4,864 of extra gain kept.

The saving is bigger at higher incomes because the gap between the ordinary rate and the long-term rate widens. A California filer with $400,000 of wages and a $100,000 gain pays $49,432 in combined federal and state tax if the gain is short-term and $29,432 if it is long-term, a difference of $20,000. California taxes both kinds at the same ordinary state rates, so the saving there is entirely federal.

Where the line matters most: the 0% bracket

The 0% long-term rate applies only to the part of a gain that falls inside the 0% bracket: taxable income up to $98,900 for joint filers or $49,450 for single filers in 2026. A short-term gain gets no such bracket.

A retired couple with $60,000 of taxable income can realize roughly $38,900 of long-term gain at 0% federal tax. The same $38,900 realized as a short-term gain is taxed at 12% and 22%.

In 2026, that asymmetry is why timing a sale for just after the holding period is the cheapest tax planning available. For the strategy built on top of it, see 0% capital gains harvesting.

How gains and losses net against each other

Each year you net short-term gains against short-term losses and long-term gains against long-term losses. If one side is a net loss and the other a net gain, the loss offsets the gain across categories.

A short-term loss is therefore more valuable against a short-term gain, where it saves up to 37%, than against a long-term gain, where it saves at most 20% (2026 rates). The IRS Schedule D instructions run the netting in that order.

If total losses exceed total gains, up to $3,000 ($1,500 if married filing separately) can offset ordinary income, and the rest carries forward indefinitely (IRC 1211(b), 1212(b)). Carryovers keep their short-term or long-term character. See capital loss carryover for how the carryforward is tracked.

Assets with their own rules

The one-year line is the starting rule, not the whole story. Depreciation on rental real estate is taxed at up to 25% when you sell, even if you held the building for decades (depreciation recapture).

Collectibles such as coins, art and bullion are taxed at up to 28% when held long-term (collectibles tax). Section 1245 recapture on equipment is ordinary income regardless of holding period. Gain on a sale of your own home may be excluded up to $250,000 or $500,000 (selling a house).

For a business or property sale large enough to move you into the 20% bracket (2026) and trigger the NIIT, the holding period is only the first lever. Spreading the gain over several years on an installment note is the second (installment sale analysis).

How much tax would you owe? Run your own numbers

Frequently asked questions