Legal Definitions - short-term capital gain

A short-term capital gain occurs when an individual or entity sells an investment asset for a profit after owning it for one year or less. This profit is considered a "gain" on the "capital" (the asset itself) and is "short-term" due to the brief holding period. For tax purposes, short-term capital gains are typically taxed at the same rate as ordinary income, which can be higher than the tax rates for assets held for longer periods (known as long-term capital gains).

• Example 1: Stock Market Investment

  Sarah purchased 100 shares of TechCo stock for $50 per share. Three months later, the stock price rose to $65 per share, and Sarah decided to sell all her shares. Her profit of $15 per share ($1,500 total) is a short-term capital gain because she held the stock for less than one year before selling it.

• Example 2: Real Estate Flipping

  David bought a fixer-upper house for $200,000. He spent six months renovating it and then sold it for $280,000. The $80,000 profit he made (before accounting for renovation costs and selling expenses) would be considered a short-term capital gain because he owned and sold the property within a one-year timeframe.

• Example 3: Cryptocurrency Trading

  Maria invested $10,000 in a new cryptocurrency. After eight months, the value of her investment surged to $18,000, and she decided to cash out. The $8,000 profit she realized from selling her cryptocurrency is a short-term capital gain because she held the digital asset for less than 12 months.