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Long-term capital gains, meaning profit on an investment you held over a year, are taxed at 0%, 15%, or 20% depending on your income, far lower than ordinary income tax rates in most cases. Short-term gains, on an investment held a year or less, are taxed as regular income at your normal tax bracket, up to 37%. That difference alone is one of the biggest reasons how long you hold an investment matters.
KEY TAKEAWAYS
- Long-term capital gains (held over 1 year) are taxed at 0%, 15%, or 20%, based on your taxable income.
- Short-term capital gains (held 1 year or less) are taxed as ordinary income, at rates up to 37%.
- For 2026, the 0% rate applies up to $49,450 taxable income (single) or $98,900 (married filing jointly); the 20% rate kicks in above roughly $545,500 single / $613,700 joint.
- High earners may also owe an extra 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rate, above certain income thresholds.
- Holding an investment past the 1-year mark, even by a few days, can meaningfully lower your tax rate on the gain.
2026 Long-Term Capital Gains Tax Brackets
| Rate | Single | Married filing jointly |
|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 |
| 15% | $49,451-$545,500 | $98,901-$613,700 |
| 20% | Above $545,500 | Above $613,700 |
These thresholds are based on your total taxable income, not just the gain itself, so the gain can push you into a higher capital gains bracket if it lands on top of your regular income. Figures are for the 2026 tax year and adjust for inflation annually, always confirm the current year’s thresholds at IRS.gov (Topic 409) before filing.
Short-Term vs. Long-Term: Why the Holding Period Matters So Much
The dividing line is exactly one year. Sell an investment on day 365 or earlier from your purchase date, and any profit is a short-term gain, taxed at your ordinary income rate, the same brackets covered in our 2026 tax brackets guide. Wait until day 366 or later, and the same profit becomes a long-term gain, taxed at the much lower 0/15/20% rates.
For someone in a high tax bracket, this can mean the difference between paying 35% and paying 15% on the exact same dollar of profit. It is one of the simplest, most controllable levers in investment tax planning, when you’re close to the one-year mark and not in a rush to sell, waiting can be worth real money.
What Counts as a Capital Gain?
Selling stocks, ETFs, mutual funds, real estate (beyond your primary home exclusion), or cryptocurrency for more than you paid all generally create a capital gain. Our crypto taxes guide covers how these same short-term and long-term rules apply specifically to digital assets, which the IRS treats as property, not currency, for tax purposes.
Losses work the same way in reverse. Selling an investment for less than you paid creates a capital loss, which can offset gains and, within limits, ordinary income too. See our tax-loss harvesting guide for how to use losses strategically before year-end.
The Net Investment Income Tax (NIIT)
Above certain income thresholds, an additional 3.8% surtax applies to net investment income, including capital gains, interest, dividends, and rental income, on top of whatever capital gains rate already applies. This mainly affects higher earners and is calculated separately from the standard capital gains brackets, so it is worth checking whether you’re near the threshold if you’re selling a large investment or property in a single tax year.
Do You Owe Capital Gains Tax on Your Home Sale?
Often not, thanks to the home sale exclusion, which lets single filers exclude up to $250,000 of gain ($500,000 for married couples filing jointly) on the sale of a primary residence, provided ownership and use tests are met. Gains above the exclusion amount are still taxed at the standard long-term rates covered above.
How Can You Reduce Capital Gains Tax Legally?
- Hold past the 1-year mark whenever the decision is close, to convert a short-term gain into a long-term one.
- Harvest losses in the same tax year to offset gains dollar for dollar.
- Time large sales around your income, since selling in a lower-income year can drop you into the 0% bracket entirely.
- Use tax-advantaged accounts like IRAs and 401(k)s for active trading, since gains inside these accounts aren’t taxed the same way as a taxable brokerage account.
FAQ
What is the capital gains tax rate for 2026?
Long-term gains are taxed at 0%, 15%, or 20% depending on income. Short-term gains (held one year or less) are taxed as ordinary income at your regular tax bracket.
Do I pay capital gains tax if my income is low?
You may pay 0% on long-term gains if your total taxable income falls at or below the 0% bracket threshold ($49,450 single / $98,900 married filing jointly for 2026).
Does selling my house count as a capital gain?
It can, but the home sale exclusion lets most homeowners exclude up to $250,000 ($500,000 married filing jointly) of gain on a primary residence before any tax applies.
What is the Net Investment Income Tax?
An additional 3.8% surtax on investment income (including capital gains) for higher earners above certain income thresholds, on top of the standard capital gains rate.
Bottom Line
Holding an investment past one year is often the single easiest way to lower your tax rate on the profit, since long-term rates (0/15/20%) are typically far below ordinary income rates that apply to short-term gains. Check where your total income falls relative to the current year’s brackets before deciding when to sell.
A quick note: this guide explains how capital gains tax generally works, not personalized investment or tax advice for your specific holdings. Selling decisions have real tax consequences, so it’s worth running the numbers with a CPA or tax professional before a large sale.
