Selling an asset you’ve held for more than 12 months means your profit is taxed as a long-term capital gain, at a federal rate of 0%, 15%, or 20% depending on your taxable income. That’s a much better deal than short-term gains, which are taxed as ordinary income at rates that reach 37%. The catch is in the counting: “more than one year” means at least a year and a day, and getting the holding period wrong by a single day pushes the gain back into the higher bracket.
How the 12-Month Clock Actually Runs
The IRS uses a day-after rule. Your holding period begins the day after you acquire the asset and includes the day you sell it.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses Buy shares on January 1, and the clock starts January 2. To qualify for long-term treatment, you’d need to sell on or after January 2 of the following year.
The dividing line in the statute is “more than one year.”2Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses Sell on exactly the anniversary of your purchase, and the gain is still short-term. Wait one more day, and it’s long-term. This counting method is consistent across every type of capital asset, so it applies whether you’re selling stock, cryptocurrency, real estate, or almost any other property you own.3Office of the Law Revision Counsel. 26 U.S. Code 1221 – Capital Asset Defined
2026 Long-Term Capital Gains Rates
Long-term gains are taxed at three possible rates. Which one applies depends on your total taxable income (all sources combined, not just the gain) and your filing status. For the 2026 tax year:4Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates
- 0% rate: taxable income up to $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household).
- 15% rate: taxable income above the 0% ceiling but not more than $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household).
- 20% rate: taxable income above the 15% ceiling.
Your gain can straddle brackets. Someone with $40,000 in wages and a $30,000 long-term gain has $70,000 in combined taxable income, so part of the gain lands in the 0% band and the rest in the 15%. The thresholds shift each year with inflation, which is why the 2026 numbers are higher than in prior years.
What You Save by Waiting Past 12 Months
A gain on an asset held one year or less is short-term, and it stacks on top of your wages to be taxed at your marginal ordinary income rate.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, ordinary rates run from 10% to 37%.4Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates
The gap is real money. A single filer with $100,000 in taxable income who realizes a $50,000 short-term gain pays a 24% marginal rate on much of that gain. The same $50,000 gain treated as long-term is taxed at 15%. That’s roughly $12,000 in federal tax versus $7,500. Holding an extra month to cross the one-year line can be worth thousands, though it’s rarely wise to let tax timing override an investment decision when the price is moving against you.
The 3.8% Surtax for Higher Earners
On top of the long-term rate, high earners pay an additional 3.8% net investment income tax on capital gains and other investment income. It applies once your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).5Internal Revenue Service. Net Investment Income Tax Those thresholds are fixed in statute and haven’t moved with inflation since the tax took effect in 2013.
The surtax is charged on the lesser of your net investment income or the amount by which your MAGI exceeds the threshold. Someone in the 20% long-term bracket who also triggers the surtax faces an effective federal rate of 23.8% on the gain. Still well below the 37% top ordinary rate, but worth planning for so it isn’t a surprise at filing time.
Collectibles Are Taxed Differently
Not every long-term gain caps out at 20%. Coins, art, antiques, stamps, and precious metals held more than a year are taxed at a maximum rate of 28%.1Internal Revenue Service. Topic No. 409, Capital Gains and Losses The gain still gets long-term treatment, just at a higher ceiling than the one that applies to stocks or funds. The 3.8% NIIT can apply on top for high earners, bringing the effective rate to 31.8%.
Inherited and Gifted Assets Follow Different Rules
If you didn’t buy the asset yourself, don’t assume the 12-month clock runs from when you received it.
Inherited Property
Inherited assets are automatically treated as held for more than one year, regardless of how long you personally have owned them.6Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property Any gain qualifies for long-term rates, even if you sell the day after inheriting. On top of that, your cost basis resets to the asset’s fair market value on the date of death, wiping out any appreciation that built up during the original owner’s lifetime.7Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
If a parent bought stock decades ago for $10,000 and it’s worth $200,000 at death, your basis is $200,000. Sell it for $205,000, and you owe long-term tax on $5,000, not on the $195,000 the original owner would have faced.
Gifted Property
Gifts are less generous. You generally take the donor’s original cost basis.8Office of the Law Revision Counsel. 26 U.S. Code 1015 – Basis of Property Acquired by Gifts and Transfers in Trust The donor’s holding period also carries over, which cuts both ways: if they held the asset for three years before giving it to you, you’ve already cleared the one-year mark and can sell for long-term treatment immediately.6Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property If they held it briefly, you’ll need to keep holding it yourself.
State Tax Sits on Top
Federal rates aren’t the whole bill. Most states tax capital gains as ordinary income, and state rates range from 0% in states with no income tax to over 13% in the highest-tax states. A few states offer preferential rates or partial exclusions for long-term gains, but that’s the exception. When you’re estimating what a sale will cost, add your state rate to the federal figure.
Paying the Tax Before You File
A large gain in the middle of the year can leave you owing far more than paycheck withholding covers. The IRS expects taxes on capital gains to be paid as the income is earned, through withholding or quarterly estimated payments. Fall short, and you can owe an underpayment penalty on top of the tax itself.9Internal Revenue Service. Pay As You Go, So You Won’t Owe: A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Estimated Tax Penalty
You can generally avoid that penalty by paying at least 90% of your current-year tax or 100% of your prior-year tax, whichever is smaller. The prior-year figure rises to 110% if your adjusted gross income exceeded $150,000. Estimated payments are made quarterly using Form 1040-ES. If you sell a big position in June, address the payment before the September deadline rather than waiting until April.