Short-Term Versus Long-Term Gains When Selling ETFs

Because exchange traded funds (ETFs) offer a dynamic product that can serve as a buy-and-hold or buy-and-sell investment, they can offer investors the opportunity to reap long-term or short-term gains. Knowing the difference between the two is crucial, especially when it comes time for taxes.

When investors sell an asset for or a profit, the Internal Revenue Service (IRS) denotes this as a capital gain and vice versa for a loss. Investors should be cognizant of both because taxes are owed on a capital gain and income could be offset with a loss.

For capital gains, there’s more discernment to determine the tax owed: whether the gain was short- or long-term. This is due to the various tax rates applied to short-term gains versus long-term gains, which also involves other factors such as tax bracket based on income.

Quite simply, a short-term gain is a capital gain attained if an investors buys and subsequently sells the asset within a year. Conversely, a long-term capital gain is where an investor buys and then sells an asset held longer than one year.

A day trader who purchases shares of an ETF and sells it within the hour to extract a profit is an example of a short-term capital gain. An investor who buys and holds a bond ETF for three years then subsequently sells it, will be subjected to a long-term capital gain.

Know the Tax Implications of Your ETFs

As previously mentioned, one thing investors should be duly aware of are the tax implications associated with short- and long-term gains made in the market. The tax rate will depend on the investor’s tax bracket—refer to the following IRS tables to determine the short- and long-term capital gains tax rate based on income bracket and other qualifiers.


Single Up to $44,625 $44,626 – $492,300 Over $492,300
Married filing jointly Up to $89,250 $89,251 – $553,850 Over $553,850
Married filing separately Up to $44,625 $44,626 – $276,900 Over $276,900
Head of household Up to $59,750 $59,751 – $523,050 Over $523,050


Tax rate Single Head of household Married filing jointly or qualifying widow Married filing separately
10% $0 to $11,000 $0 to $15,700 $0 to $22,000 $0 to $11,000
12% $11,001 to $44,725 $15,701 to $59,850 $22,001 to $89,450 $11,001 to $44,725
22% $44,726 to $95,375 $59,851 to $95,350 $89,451 to $190,750 $44,726 to $95,375
24% $95,376 to $182,100 $95,351 to $182,100 $190,751 to $364,200 $95,376 to $182,100
32% $182,101 to $231,250 $182,101 to $231,250 $364,201 to $462,500 $182,101 to $231,250
35% $231,251 to $578,125 $231,251 to $578,100 $462,501 to $693,750 $231,251 to $346,875
37% $578,126 or more $578,101 or more $693,751 or more $346,876 or more


There are certain instances that warrant nuanced tax knowledge. For example, physically backed gold ETFs can be taxed at a top rate of 28% when it comes to long-term capital gains versus the standard 20% rate — this is because ETFs backed by physical gold are treated as collectibles.

Given their complexity, any tax questions regarding ETFs should be directed to an accountant.

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