When you sell an investment for more than you paid, the profit is a capital gain. How much you pay in taxes on that gain depends on two things: how long you held the asset and how much income you have in total.
Short-term vs. long-term: the holding period determines the rate
The key distinction in capital gains taxation is whether the gain is short-term or long-term:
- Short-term capital gains: assets held for one year or less before selling. Taxed as ordinary income at your regular marginal tax bracket, which can be as high as 37% for 2026.
- Long-term capital gains: assets held for more than one year before selling. Taxed at preferential rates of 0%, 15%, or 20%.
The holding period is calculated from the day after you buy to the day you sell. Hold an asset for exactly 366 days and it qualifies as long-term.
2026 long-term capital gains tax brackets
For tax year 2026, the income thresholds for each long-term capital gains rate are:
| Rate | Single | Married filing jointly | Head of household |
|---|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 | Up to $64,750 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 | $64,751 to $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $566,700 |
These thresholds apply to taxable income, not gross income. Your capital gains are stacked on top of your ordinary income for rate purposes. If you have $40,000 of ordinary taxable income and $20,000 of long-term gains, the first $8,350 of gains falls in the 0% bracket and the remaining $11,650 is taxed at 15%.
The net investment income tax
Higher earners face an additional 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rates. The NIIT applies to investment income (including capital gains) for filers with modified AGI above:
- $200,000 for single filers
- $250,000 for married filing jointly
- $125,000 for married filing separately
This can bring the effective federal rate on long-term gains to 23.8% for filers in the 20% bracket (20% + 3.8%), or 18.8% for those in the 15% bracket who are above the NIIT threshold.
Special rates for specific assets
Not all long-term gains are taxed at 0%, 15%, or 20%:
- Collectibles (art, coins, stamps, certain precious metals): maximum 28% rate on long-term gains
- Qualified small business stock (Section 1202): gains may be fully or partially excluded if the stock was held for more than five years and other requirements are met
- Depreciation recapture on real estate (Section 1250): the portion of gain attributable to depreciation deductions claimed on real property is taxed at a maximum 25% rate, not the regular long-term rates
- Real estate held in a partnership or passed through a 1031 exchange: additional rules apply
How capital losses offset gains
If you also sold investments at a loss in the same year, those losses offset your gains:
- Short-term losses offset short-term gains first, then long-term gains
- Long-term losses offset long-term gains first, then short-term gains
- If total losses exceed total gains, up to $3,000 can offset ordinary income per year
- Remaining unused losses carry forward to future years indefinitely
Tax-loss harvesting (selling losing positions to generate deductible losses) can reduce your capital gains tax for the year. Watch for the wash-sale rule: you cannot buy the same or substantially identical security within 30 days before or after the sale that generated the loss.
Planning around capital gains
Holding period: If you’re close to the one-year mark on a gain, waiting to cross it converts the gain from ordinary-income tax rates to the lower long-term rates.
Income management: If you expect a low-income year (between jobs, early retirement, sabbatical), that can be the right time to realize long-term gains at the 0% rate.
Retirement accounts: Gains inside a traditional IRA or 401(k) are tax-deferred; inside a Roth IRA or Roth 401(k) they’re tax-free. Holding high-growth investments in these accounts shelters future gains from capital gains tax entirely.