How Does the 60/40 Rule Compare to Standard Short-Term Capital Gains Tax Rates?

The 60/40 rule is significantly more favorable than standard short-term capital gains tax rates. Short-term capital gains are taxed at a taxpayer's ordinary income tax rate, which can be as high as 37%.

Under the 60/40 rule, 60% of the gain is taxed at the lower long-term capital gains rate (max 20%), and 40% is taxed at the ordinary income rate. This blend results in a maximum effective tax rate of approximately 28%, much lower than the maximum 37% short-term rate.