Short-Term Capital Gains vs. Long-Term Capital Gains – What’s the Difference?

Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? There is a very good reason for that, and one you might want to consider more carefully when investing.

Short-term capital gains are derived if you hold an investment one year or less before disposing of it.  Short-term gains are taxed as “ordinary income,” the same rate you pay on wages or business profits. 

Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. See the table below:

Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals.  These are taxed at 28% regardless of your income.  Bear in mind, though, that tax rates on ordinary income range from 10% to 37%.

Be sure to keep this information in mind when managing your investments. It could make a BIG difference come tax time!