What type of income are short-term capital gains considered?

Short-term capital gains are categorized as ordinary income for tax purposes. This classification occurs because short-term capital gains arise from the sale of assets held for one year or less. The gain is treated as income and taxed at the individual’s regular income tax rates, similar to wages, salaries, and other forms of ordinary income.

This categorization is significant because it affects the overall tax liability of individuals and corporations. While long-term capital gains benefit from reduced tax rates, short-term gains effectively fall under the higher ordinary income rates, which can have tax implications in terms of total tax owed.

The other types of income mentioned do not properly categorize short-term capital gains. Passive income typically refers to earnings derived from rental assets or business activities in which the taxpayer does not materially participate, while investment income generally encompasses dividends and interest rather than gains from asset sales. Capital income is a broader term that includes both short-term and long-term capital gains, but for the specific treatment of short-term gains, the categorization as ordinary income is more precise and applicable.