Short-term vs long-term capital gains: tax rates and strategies for 2026

Two investors with identical gains can pay very different amounts of tax depending solely on how long they held their shares. The short-term vs long-term distinction is that powerful.

One day can make the difference between a 37% tax rate and a 15% tax rate. If you actively manage a portfolio, this is something you need to think about before every sell decision.

The holding period rule

The IRS splits capital gains into two buckets:

• Short-term: held for one year or less
• Long-term: held for more than one year

Your holding period starts the day after purchase and includes the day of sale. If you buy on March 10, 2025, your holding period starts March 11, 2025. To qualify for long-term treatment, you must sell on or after March 11, 2026.

Sell on March 10, 2026? That is exactly one year, still short-term. You need more than one year. Selling one day too early can nearly double your tax rate on the gain.

One practical note: the IRS uses the trade date, not the settlement date. So if you place a sell order on March 11, that is what counts.

2026 short-term capital gains rates

Short-term gains are taxed as ordinary income. For the 2026 tax year:

Because short-term gains are added to your other income, they hit at your marginal rate. If you earn $90,000 in salary and have $10,000 in short-term gains, that $10,000 is taxed at 22% (the bracket covering $50,401 to $105,700 for a single filer in 2026).

2026 long-term capital gains rates

The 0% rate is worth noting. If your taxable income is modest (common for retirees or during a gap year), you can realize long-term gains completely tax-free at the federal level.

For most people, the gap is 9 percentage points or more. On a $20,000 gain, that is $1,800 you keep just by holding past the one-year mark.

Net investment income tax (NIIT)

If your MAGI exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately), you owe an extra 3.8% on investment income. This pushes the top long-term rate to 23.8% and the top short-term rate to 40.8%.

The math: 11 months vs 13 months

Say you are a single filer earning $120,000 with a $10,000 unrealized stock gain.

Sell at 11 months (short-term): $10,000 x 24% = $2,400 tax

Sell at 13 months (long-term): $10,000 x 15% = $1,500 tax

That is $900 saved by waiting two months. Of course, the stock could drop in that time. But it would need to fall from $60 to roughly $46 per share before the tax savings are wiped out. Worth doing the break-even math whenever you are close to the one-year mark.

For higher earners ($220,000 salary, same $10,000 gain), the gap is even wider: $3,880 short-term (35% + 3.8% NIIT) vs $1,880 long-term (15% + 3.8% NIIT). A $2,000 difference on a single $10,000 gain.

Strategies to minimize your tax bill

Hold past one year when you can. This is the simplest strategy. It does not mean you should hold a deteriorating position just for tax treatment, but when you have flexibility on timing, waiting past the one-year mark is often worth it.

Use tax-loss harvesting to offset short-term gains. If you have unavoidable short-term gains from earlier in the year, selling losing positions creates losses that offset those gains dollar for dollar. Short-term losses are especially valuable because they offset gains taxed at the highest rates. If losses exceed gains, up to $3,000 offsets ordinary income, with the rest carrying forward. See our guide on how to offset capital gains with capital losses.

Pick your lots carefully. When selling partial positions, choosing which specific lots to sell can change both the gain size and the holding period classification. Sometimes selling a newer lot with a smaller gain beats selling an older lot with long-term treatment. Run the numbers. TrackMyShares tracks each lot separately, so you can compare before placing the trade.

Harvest gains in low-income years. In a year with unusually low income (job transition, sabbatical), your long-term rate could drop to 0%. For the 2026 tax year, a single filer can have up to $49,450 in taxable income and pay nothing on long-term gains. Married filing jointly, $98,900.

Think in calendar years. You have until December 31 to take actions that affect your tax bill. Sell losers to offset gains. Defer sales into January if that pushes them past one year or into a lower-income year. An end-of-year portfolio review is one of the most valuable things you can do as an investor.

Watch for wash sales

If you sell at a loss and repurchase the same (or "substantially identical") security within 30 days before or after the sale, the IRS disallows the loss. The rule does not apply to gains, only losses.

When harvesting losses, either wait 31 days before rebuying, or buy a different security in the same sector to maintain exposure. For details, see our tax-loss harvesting guide.

How TrackMyShares helps

Every sale in TrackMyShares is automatically classified as short-term or long-term based on lot-level purchase and sale dates. The US capital gains tax report breaks down your realized gains by holding period so you can see the split at a glance.

For each holding, you can view individual tax lots with purchase date, cost basis, unrealized gain or loss, and holding period status, making it easy to evaluate which lots to sell before placing the trade. The tax-loss harvesting tool identifies unrealized losses that could offset your gains, with estimated savings based on your marginal rate. Prices are updated throughout the day.

Sign up for TrackMyShares to track holding periods, find tax-loss harvesting opportunities, and generate reports that separate short-term and long-term gains automatically, just in time for the April 2026 filing deadline.

This is general information, not personal tax or financial advice.