How Are Short-Term and Long-Term Capital Gains Taxed Differently in New York?

Federally, short-term capital gains—on assets held for less than a year—are taxed as ordinary income. Long-term capital gains, from assets held for over a year, typically enjoy preferential rates of 0%, 15%, or 20%, depending on your taxable income. This federal distinction provides significant tax savings for long-term investors.

However, in New York, there is no such distinction. Both short-term and long-term capital gains are taxed at the same rates as ordinary income. For higher earners, this could mean paying the top state rate of 10.9% on capital gains, whether they are short-term or long-term. Additionally, if you reside in areas like New York City, you may face local income taxes, further increasing your overall tax liability.

The absence of preferential rates for long-term gains in New York reduces the incentive to hold investments for longer periods. High-income earners, in particular, may see a significant portion of their gains taxed at the top state rate, on top of federal taxes.

In New York, both short-term and long-term capital gains are taxed as ordinary income, deviating from the federal system. Understanding this key difference and adopting tax-saving strategies can help you effectively manage your investments and reduce your overall tax burden.