The amount of short-term capital gain that is tax-free depends on the individual's total taxable income and filing status because short-term capital gains are taxed as ordinary income at the same rates as regular income. For the tax year 2025 in the U.S.:
- Short-term capital gains are taxed at ordinary income tax rates, which range from 10% to 37% depending on income and filing status.
- The lowest tax bracket, where the tax rate is 10%, covers income ranges such as up to $11,925 for single filers, $17,000 for head of household, and $23,850 for married filing jointly.
- Any net short-term capital gains within these income thresholds effectively face a 10% tax rate, but there is no explicit tax-free amount for short-term capital gains since they are included in taxable income.
Therefore, no short-term capital gain is entirely tax-free if it adds to taxable income, but the total taxable income (including these gains) can fall within the 10% tax bracket, resulting in a low tax rate on those gains. For clarity:
- The IRS does not provide a specific tax-free threshold for short-term capital gains distinct from ordinary income.
- The tax-free amount could be thought of as the standard deduction plus any portion of income that falls in the 0% bracket for long-term capital gains, but short-term gains themselves are not exempt and will be taxed at ordinary income rates.
This means short-term capital gains are never fully tax-free but taxed according to the ordinary income tax brackets for the filer. If there is interest in tax-free capital gains, that would usually apply to long-term capital gains, which have a 0% tax rate for taxpayers below certain income thresholds. For more details, here are the 2025 ordinary income tax brackets relevant to short-term capital gains:
Tax Rate| Single Income Range| Married Filing Jointly Income Range
---|---|---
10%| $0 to $11,925| $0 to $23,850
12%| $11,926 to $48,475| $23,851 to $96,950
22%| $48,476 to $103,350| $96,951 to $206,700
...| ...| ...
Short-term gains add to the taxpayer's income and are taxed at these rates accordingly.
