2 min

Short-Term Capital Gains Tax for 2022

Jan 31, 2023
in a nutshell
  • Investors normally owe capital gains taxes on investment gains, but typically pay lower taxes for gains on investments they held for more than a year.
  • Short-term gains are typically taxed according to your regular income tax bracket.
  • The tax rates for short-term capital gains are generally higher than for long-term gains.
Image of You will commonly pay short term capital gains tax when you sell an asset you held for one year or less.
in a nutshell
  • Investors normally owe capital gains taxes on investment gains, but typically pay lower taxes for gains on investments they held for more than a year.
  • Short-term gains are typically taxed according to your regular income tax bracket.
  • The tax rates for short-term capital gains are generally higher than for long-term gains.

When you earn money through investing, the amount you earn (from a tax perspective, at least) is called a "capital gain." And capital gains are taxed by the government, just like other types of income. But how much you're taxed for a capital gain will depend, in part, on how long you owned the investment, or asset. 

What is short-term capital gains tax? 

Short-term capital gains tax is the tax you're required to pay on earnings from the sale of an asset you held for one year or less. 

The tax you'll pay on your short-term capital gains depends on your income tax rate. These rates are set by the IRS based on your earned income. Remember, your capital gain will be added to your earned income to determine your income tax bracket for the year. 

You'll typically be charged the short-term capital gains tax when you sell securities, such as stocks and mutual funds that you owned for less than one year. You may also be charged the short-term capital gains tax if you earn income on the sale of real estate, vehicles, collectibles, or other assets. 

Short-term vs. long-term capital gains tax

Short-term capital gains are the profits you make from selling assets you’ve held for one year or less. Long-term capital gains are the profits you make from selling assets you’ve held for more than one year. 

The tax rates for long-term capital gains are generally lower than for short-term gains, which encourages investors to invest for the long term and rewards the inherent risks of investing. 

How does short-term capital gains tax work?

Imagine that you purchased $1,000 worth of stock in April. By December, its value has risen to $1,600 and you sell it to buy holiday gifts. You’ve made a short-term capital gain of $600. 

You’ll have to pay short-term capital gains taxes on those earnings because you held the investment for less than a year before you sold it. If you’re in the 22% tax bracket (in 2023, that's for single filers with incomes of $44,726 to $94,375), you’ll owe the IRS $132 of your $600 profit. That leaves you with a net gain of $468.

2022 short-term capital gains tax

If you sold any assets that you owned for a year or less during 2022, you'll likely owe short-term capital gains tax according to your ordinary income tax bracket. The IRS tax brackets for single filers and married filing jointly for 2022 are included in the table below. 

Tax rate

Single filers

Married filing jointly

10%

Up to $10,275

Up to $20,550

12%

$10,276 to $41,775

$22,551 to $83,550

22%

$41,776 to $89,075

$83,551 to $178,150

24%

$89,076 to $170,050

$178,151 to $340,100

32%

$170,051 to $215,950

$340,101 to $431,900

35%

$215,951to $539,900

$431,901 to $647,850

37%

$539,901 or more

$647,851 or more

2023 short-term capital gains tax

The short-term capital gains tax for 2023 is also based on your income tax rate. The IRS income tax brackets for 2023 are:

Tax rate

Single filers

Married filing jointly

10%

$11,000 or less

$22,000 or less

12%

$11,001 to $44,725

$22,001 to $89,450

22%

$44,726 to $95,375

$89,451 to $190,750

24%

$95,376 to $182,100

$190,751 to $364,200

32%

$182,101 to $231,250

$364,201 to $462,500

35%

$231,251 to $578,125

$462,501 to $693,750

37%

$578,126 or more

$693,751 or more

How to lower or avoid short-term capital gains tax

Hold investments longer

Long-term capital gains taxes can be quite a bit lower than short-term capital gains taxes for most taxpayers. For example, long-term capital gains taxes are 0%, 15% or 20%, depending on your income. In most cases, if you hang onto your investments longer than one year, you can pay lower long-term capital gains taxes rather than higher short-term capital gains taxes. 

Harvest your losses

If you have some low-performing investments, you may be able to sell them at a loss to help cancel out your capital gain for more profitable investment sales.

Use tax-advantaged accounts

Capital gains taxes are only applied to the gains you earn through taxable brokerage accounts. Tax-advantaged accounts such as IRAs and 401(k) plans can be tax-free or tax-deferred, depending on the type of plan you have. Consider investing in tax-advantaged accounts like those available from Acorns Later to avoid paying short term capital gains taxes. 

The views expressed are generalized and may not be appropriate for all investors. Investing involves risk, including the loss of principal. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. For informational and educational use only. This is solely intended to provide notification of an available product or service. This is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, or use a particular account type. This information does not consider the specific investment objectives, tax and financial conditions or particular needs of any specific person. Investors should discuss their specific situation with their financial and/or tax professional.  Acorns does not provide tax or legal advice. 

Nancy Mann Jackson

Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business and other topics. 

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