Short-term gain.
In plain English
A short-term capital gain is what you make when you sell an investment for more than you paid after holding it for one year or less. The IRS taxes short-term gains as ordinary income, the same rates that apply to your paycheck, which can be much higher than the long-term rate. That single fact, the one-year line, is why holding period matters so much for taxes: sell a day too early and the same profit can cost you far more.
01Why it matters
Selling a winner before you have held it a full year can turn a lightly taxed gain into one taxed at your top income rate.
02The math, step by step
You buy a stock for 5,000 dollars and sell it 10 months later for 6,000 dollars. The 1,000 dollar gain is short-term, so it is taxed at your ordinary income rate, not the lower long-term rate.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A short-term gain is NOT taxed like a long-term gain. Long-term gains, on assets held more than a year, get lower rates; short-term gains are taxed as ordinary income.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice