Capital Gains Tax Rates 2026: Short-Term vs Long-Term

For 2026, the tax rate on your investment gains depends entirely on how long you held the asset. Short-term gains (assets held one year or less) are taxed as ordinary income, up to 37%. Long-term gains (held more than one year) get preferential rates of 0%, 15%, or 20%, based on your taxable income — a gap that can be worth thousands of dollars on the same sale.

Short-Term vs. Long-Term: The Basic Rule

The IRS draws a hard line at one year. If you sell an investment you’ve owned for one year or less, the profit is a short-term capital gain, taxed at your regular federal income tax rate — the same rate that applies to your paycheck. If you sell after owning it for more than one year, the profit is a long-term capital gain, eligible for the lower capital gains rates.

This is why financial advisors often say “wait until you hit the one-year mark” before selling a winning investment — a stock you bought on March 1, 2025 doesn’t become long-term until March 2, 2026. Sell one day early, and you could pay more than double the tax rate on the exact same profit.

2026 Long-Term Capital Gains Tax Rates

Long-term capital gains use three brackets — 0%, 15%, and 20% — based on your total taxable income, not just your investment income. The IRS adjusts these thresholds annually for inflation. The 2026 thresholds, published by the IRS in Revenue Procedure 2025-32, are:

These are the final figures for tax year 2026, set by IRS Revenue Procedure 2025-32. You can also review IRS Topic No. 409, Capital Gains and Losses, at IRS.gov.

Notice something important: your taxable income for this test includes wages, interest, retirement withdrawals — everything, not just the sale. A retiree with modest pension income might pay 0% on long-term gains, while someone with a high salary pays 20% on an identical sale.

2026 Short-Term Capital Gains Tax Rates

Short-term gains don’t get their own bracket structure — they’re added to your other income and taxed under the regular seven ordinary income brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. For 2026, the top 37% bracket applies to single filers with taxable income above $640,600 and married joint filers above $768,700, per IRS Revenue Procedure 2025-32.

The practical effect: a day trader in the 32% ordinary bracket pays 32% on short-term stock profits, while a long-term investor in the same bracket pays only 15% on gains from assets held over a year.

Long-Term vs. Short-Term: Side-by-Side

The Net Investment Income Tax (NIIT): An Extra 3.8%

High earners face an additional layer: the 3.8% Net Investment Income Tax, which applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds a fixed threshold — $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. Unlike the capital gains brackets, these NIIT thresholds are not inflation-adjusted and haven’t changed since the tax began in 2013, according to IRS.gov. That means more taxpayers get pulled into the NIIT each year as wages and portfolios grow, even without a rule change.

Combined, a high-income investor could face a top marginal rate of 23.8% on long-term gains (20% + 3.8%) or 40.8% on short-term gains (37% + 3.8%).

Special Rates You Should Know About

Not every asset follows the standard 0/15/20 schedule:

• Collectibles (art, antiques, coins, precious metals) held long-term are capped at a 28% rate, regardless of your income bracket.
• Unrecaptured Section 1250 gain — the depreciation-related portion of gain on real estate — is taxed at a maximum 25% rate.
• Qualified Small Business Stock (Section 1202) may allow you to exclude all or part of the gain if you meet strict holding-period and issuer requirements — worth researching directly at IRS.gov if you hold founder or early-investor shares.

Don’t Forget State Taxes

Federal rates are only half the picture. Most states tax capital gains as ordinary income, with no separate long-term discount — California, for example, taxes gains at the same rate as wages, up to 13.3%. A handful of states (Florida, Texas, Nevada, and others) have no state income tax at all, which meaningfully changes the math on a large sale. Washington is a special case: it has no income tax, but it does impose a separate excise tax on long-term capital gains above an annual standard deduction, at 7% and 9.9% on gains above $1 million. Check your state department of revenue’s website for your specific rules.

How the 0% Bracket Can Work in Your Favor

If your taxable income for 2026 falls at or below $49,450 (single) or $98,900 (married filing jointly), long-term capital gains can be taxed at 0% federally. This is a genuinely useful planning tool for retirees living on modest withdrawals, people between jobs, or anyone with a low-income year — selling appreciated long-term holdings in that window can let you “reset” your cost basis at no federal tax cost. Just watch the math carefully: adding a large gain can push other income into a higher bracket, so the 0% rate typically only covers the portion of the gain that keeps you under the threshold.

Tax-Loss Harvesting

If you have losing positions, selling them to offset gains — a strategy called tax-loss harvesting — can reduce your tax bill. Short-term losses offset short-term gains first, and long-term losses offset long-term gains first, with any excess crossing over. If your losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against ordinary income each year, and carry the rest forward indefinitely. Watch out for the wash-sale rule: if you buy a “substantially identical” security within 30 days before or after the sale, the loss is disallowed for tax purposes.

How to Report Capital Gains

1. Gather your Form 1099-B from your broker, showing proceeds and (usually) cost basis.
2. Report each sale on Form 8949, separating short-term and long-term transactions.
3. Carry the totals to Schedule D of Form 1040.
4. If you owe the Net Investment Income Tax, complete Form 8960.

Most brokerage tax software and major tax-prep programs pull 1099-B data automatically, but it’s worth double-checking cost basis on older holdings, inherited assets, or dividend-reinvestment shares — errors here are common and can overstate your gain.

Sources

• IRS.gov — Topic No. 409, Capital Gains and Losses
• IRS.gov — Schedule D (Form 1040) Instructions
• IRS.gov — Form 8949 Instructions
• IRS.gov — Form 8960, Net Investment Income Tax
• IRS.gov — Annual inflation adjustment revenue procedures

FAQ

Does selling my home count as a capital gain?

Often, no tax is owed. If you owned and lived in the home as your primary residence for at least two of the last five years, you can exclude up to $250,000 of gain ($500,000 if married filing jointly) under IRS Section 121. Gains above that exclusion are taxed under the normal long-term rules. See IRS Publication 523 for details.

Do capital gains push me into a higher ordinary income tax bracket?

Long-term capital gains are taxed at their own separate rates, but they still count toward your total taxable income when determining which capital gains bracket (0%, 15%, or 20%) applies — and they can affect eligibility for other income-based benefits, like ACA premium tax credits or IRMAA Medicare surcharges.

Are capital gains in a 401(k) or IRA taxed the same way?

No. Gains inside traditional retirement accounts aren’t taxed annually — you pay ordinary income tax only when you withdraw funds, regardless of how the underlying investments were bought or sold. Roth account withdrawals are typically tax-free if the account rules are met. The short-term/long-term distinction only matters for taxable brokerage accounts.

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