What is the key difference between short-term and long-term capital gains tax rates?

The distinction between short-term and long-term capital gains is one of the most important in personal tax planning. Assets sold after being held for more than one year qualify for long-term rates: 0% for single filers with taxable income below approximately $48,350, 15% up to approximately $533,400, and 20% above that threshold for 2025. Ordinary income rates can reach 37% for high earners, making the holding-period decision enormously impactful. A taxpayer in the 22% income bracket who sells after one year rather than 11 months could cut their tax rate on gains from 22% to 15%.