Historical Capital Gains Tax Rates and Current Rules

The history of capital gains tax rates in the United States runs from 1913, when gains were taxed exactly like wages, through a long stretch of partial-exclusion rules that capped the effective rate at 25% or 28%, a brief equalization with ordinary income in 1986, and the tiered preferential system that has been in place since 1997. Today’s long-term rates are 0%, 15%, and 20%, with a 3.8% net investment income tax pushing the top combined federal rate to 23.8% for higher earners.

Why the Holding Period Matters

Every rate figure in this history applies to long-term gains, meaning profits on assets held more than one year. Sell sooner and the gain is short-term, taxed at your regular income tax rates alongside wages and salary.¹ Hold longer than a year and the gain qualifies for the preferential rates that Congress has adjusted repeatedly over the past century.²

The preference exists to encourage patient investment and reduce “lock-in,” the tendency to sit on appreciated assets rather than trigger a tax bill. Short-term gains, closer to speculative trading income, have never gotten the break.

1913 to 1978: From Full Taxation to the Exclusion Era

When the modern income tax took effect after ratification of the 16th Amendment in 1913, capital gains were taxed like any other income.³ The Revenue Act of 1921 introduced the first preference: an alternative 12.5% rate on gains from assets held more than two years, far below the 65% top marginal rate on ordinary income at the time.

For most of the 20th century, Congress delivered the preference through an exclusion rather than a separate rate schedule. Only a fraction of a long-term gain was included in taxable income; the rest escaped tax entirely. The Revenue Act of 1942 set the inclusion at 50%, which capped the effective maximum capital gains rate at 25%. That rule held for decades.⁴

The Revenue Act of 1978 widened the exclusion from 50% to 60%, so only 40% of a long-term gain was taxable. With the top marginal ordinary rate at 70%, the arithmetic produced a maximum effective capital gains rate of 28%, a figure that would recur throughout the next two decades.⁴

1986: Equalization and a 28% Cap

The Tax Reform Act of 1986 did what almost no one expected. It eliminated the long-term capital gains exclusion entirely and taxed long-term gains as ordinary income.⁵ The logic was that Congress had cut the top ordinary rate to 28% (with a temporary 33% effective rate for some high earners due to a bracket-phaseout surcharge), so a separate preference seemed unnecessary.

The 1986 law included a safeguard that mattered later: the capital gains rate was capped at 28% even if Congress raised ordinary rates. It did, twice. The Omnibus Budget Reconciliation Act of 1990 pushed the top ordinary rate to 31%, immediately re-creating a gap. The Omnibus Budget Reconciliation Act of 1993 raised it again to 39.6% while the capital gains cap stayed at 28%, widening the gap to roughly 11 percentage points.⁶ The brief equalization experiment was over.

1997 to 2012: The Tiered System Emerges

The Taxpayer Relief Act of 1997 replaced the single 28% cap with a graduated structure tied to the taxpayer’s ordinary income bracket. Lower-bracket taxpayers paid a maximum of 10% on long-term gains; everyone else paid a maximum of 20%.⁷ The 28% rate survived only for collectibles and certain depreciation recapture. For the first time, capital gains rates varied based on the taxpayer’s income level rather than applying a single flat ceiling.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 cut the rates again. The 20% top rate fell to 15%, and the 10% lower rate dropped to 5%, eventually reaching 0% for the lowest-income taxpayers. These rates were initially temporary and extended repeatedly.

The American Taxpayer Relief Act of 2012 made the 0% and 15% rates permanent and added a 20% bracket for taxpayers at the top ordinary income level. That produced the three-tier structure still in force: 0%, 15%, and 20%.

2013: The Net Investment Income Tax Arrives

The Affordable Care Act of 2010 added a 3.8% surtax on net investment income, effective January 1, 2013.⁸ The Net Investment Income Tax applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.⁹ Those thresholds are not indexed for inflation.

Net investment income includes capital gains, dividends, interest, and passive rental income.⁸ For a taxpayer already in the 20% long-term capital gains bracket, the NIIT raises the effective federal rate to 23.8%, the highest combined rate on general long-term gains since the 28% cap era of the early 1990s.

2017: Decoupled Brackets Under the TCJA

The Tax Cuts and Jobs Act kept the 0%, 15%, and 20% long-term rates intact. For tax years 2018 through 2025, it decoupled the income thresholds that determine the capital gains rate from the ordinary income brackets and gave them their own breakpoints, indexed annually for inflation. The rates themselves, enacted permanently in 2012, were untouched. What changes after the TCJA individual provisions sunset at the end of 2025 is how the threshold calculations are structured, not the headline rates.

Long-Term Capital Gains Rates for 2026

The three-tier structure remains in effect. Income thresholds are adjusted annually for inflation.¹ Approximate 2026 breakpoints:

0% rate: taxable income up to roughly $49,450 for single filers and about $98,900 for married couples filing jointly.
15% rate: taxable income between roughly $49,450 and $545,500 for single filers, and between about $98,900 and $613,700 for joint filers.
20% rate: taxable income over $545,500 for single filers and over $613,700 for joint filers.

These figures are approximate; the IRS publishes official numbers in its annual revenue procedures, and rounding can shift the breakpoints by a few dollars. Add the 3.8% NIIT where it applies and the top effective federal rate on long-term gains reaches 23.8%.

Asset Categories With Different Maximum Rates

Not every long-term gain uses the 0%/15%/20% schedule.

Collectibles. Gains on art, antiques, coins, and precious metals are taxed at a maximum of 28%, the same figure that served as the general capital gains cap in the early 1990s.¹
Depreciation recapture on real estate. The portion of gain attributable to depreciation claimed on rental or business property, known as unrecaptured Section 1250 gain, is taxed at a maximum of 25%. Gain above the depreciation amount reverts to the standard long-term rates.¹
Qualified small business stock. Under Section 1202, gains from the sale of stock in certain small C corporations held at least five years may be partially or fully excluded. For stock acquired after September 27, 2010, the exclusion can reach 100%, producing an effective 0% federal rate on qualifying gains.¹⁰

State Rates Add to the Federal Figure

Federal rates are only part of what you pay. Most states tax capital gains as ordinary income under their own tax systems. Eight states impose no individual income tax at all; the highest-tax states can add more than 13% on top of the federal rate. A taxpayer in a high-tax state who is also subject to the NIIT could face a combined federal and state rate approaching 37% on long-term gains. State of residence can materially change the after-tax outcome on a large sale, so it is worth checking your state’s rules before realizing significant gains.

1
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
2
Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
3
National Archives. 16th Amendment to the U.S. Constitution: Federal Income Tax (1913)
4
Department of the Treasury. Report to Congress on the Capital Gains Tax Reductions of 1978
5
Department of the Treasury. Compendium of Tax Research 1987 – Investment Incentives Under the Tax Reform Act of 1986
6
Congressional Budget Office. An Economic Analysis of the Revenue Provisions of OBRA-93
7
Congressional Budget Office. An Economic Analysis of the Taxpayer Relief Act of 1997
8
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
9
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
10
Office of the Law Revision Counsel. 26 USC 1202 – Partial Exclusion for Gain From Certain Small Business Stock