Intuit Academy Tax Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

Short-term capital gains are taxed as ordinary income at the regular tax rate. This means that when an asset is held for one year or less before it is sold for a profit, the gain is treated in the same manner as other types of income, such as wages or salaries.

When tax returns are filed, individuals report their short-term capital gains on their income tax returns, and these gains are subject to the federal income tax rate applicable to their overall income bracket. This treatment aligns short-term capital gains with the standard income tax rules, reinforcing the principle that profits from asset sales within a short timeframe reflect a more speculative investment, similar to regular income sources.

While long-term capital gains, which result from the sale of assets held for more than one year, enjoy preferential tax rates, short-term capital gains do not receive this benefit. Thus, this classification can lead to a higher tax burden for taxpayers who realize short-term gains compared to those who hold assets longer.