What's the Difference Between Short-Term and Long-Term Capital Gains?

When you sell an asset for a profit, the gain is taxed as either short-term or long-term depending on how long you held it before selling. Short-term capital gains apply to assets you owned for one year or less, and they're taxed at the same rates as ordinary income, which can be as high as 37%. Long-term capital gains apply to assets held for more than one year, and they're taxed at preferential rates of 0%, 15%, or 20% depending on your income. This distinction can make a large difference in how much tax you pay on an investment. If you're considering selling an asset that has gained value and you've owned it for close to a year, waiting until you pass the one-year mark could significantly reduce your tax bill.