How Are Capital Gains Taxed? Rates, Holding Periods, and Losses

How are capital gains taxed? At the federal level, profit from selling an asset you held more than a year is taxed at 0%, 15%, or 20%, depending on your taxable income and filing status. Profit from an asset held a year or less is taxed at your ordinary income rate, which runs as high as 37% in 2026. A 3.8% surtax can apply on top of either at higher incomes, and a few asset types carry their own ceilings.

The One-Year Line Sets Everything Else

The holding period is the single most important factor in how your gain is taxed. Held the asset for one year or less? The profit is a short-term capital gain, taxed like wages. Held it for more than a year, even by a day? It becomes a long-term capital gain and qualifies for the lower rates.¹

Count the holding period starting the day after you acquired the asset, through the day you sold it. Bought stock on March 1, 2025, and sold it on March 1, 2026? That’s exactly one year, so the gain is short-term. Sell on March 2 and you’re past the line.¹

The rules cover stocks, bonds, real estate, and digital assets. The IRS treats cryptocurrency as property, so buying and selling crypto triggers the same holding-period rules as selling stock.²

2026 Long-Term Capital Gains Rates

Long-term gains are taxed at 0%, 15%, or 20% based on your taxable income and filing status. The thresholds adjust for inflation each year. For tax year 2026:³

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% threshold 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% threshold.

For married filing separately, the 0% rate applies up to $49,450 and the 15% rate applies up to $306,850.³

Your taxable income for these thresholds includes everything — wages, interest, and the capital gain itself — after deductions. A large gain can push you across a bracket line, so part of the gain may be taxed at 0% or 15% while the portion above the threshold is taxed at the higher rate.

What You Pay on a Short-Term Gain

Short-term gains get no preferential rate. They’re added to your ordinary income and taxed at the same graduated rates that apply to wages.¹ For 2026, those rates run from 10% to 37%, with the top rate hitting taxable income above $640,600 for single filers and $768,700 for married couples filing jointly.⁴

The gap between the two treatments can be large. An investor in the 37% ordinary bracket who sells a stock at 11 months pays nearly double the federal tax compared with waiting two more months for the 20% long-term rate.

The 3.8% Net Investment Income Tax

Higher-income taxpayers owe an additional 3.8% surtax on investment income, including capital gains. The Net Investment Income Tax (NIIT) kicks in when your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).⁵ These thresholds aren’t adjusted for inflation, so more filers cross them each year.

The 3.8% applies to the lesser of your net investment income or the amount by which your modified AGI exceeds the threshold.⁵ A single filer with $220,000 in modified AGI and $50,000 in capital gains owes the surtax on $20,000, not on the full gain.

Higher Rates for Collectibles and Depreciated Property

Two categories of long-term gains don’t fall under the 0/15/20 rates:

Collectibles. Long-term gains from art, antiques, coins, stamps, and precious metals are taxed at a maximum of 28%. If your ordinary rate is lower, you pay the lower rate.⁶
Depreciated real estate. When you sell rental or business property, the portion of the gain attributable to depreciation you previously claimed is taxed at a maximum of 25%. This is called unrecaptured Section 1250 gain.¹

Both apply only to long-term gains. Short-term gains on collectibles or depreciated property are still taxed at ordinary rates. The 3.8% NIIT can stack on top of either special rate for taxpayers above the income thresholds.

Figuring the Gain: Cost Basis

Your capital gain is the difference between what you received from the sale and your basis in the asset. The starting point is the purchase price, but several adjustments raise your basis and lower the taxable gain:

Acquisition costs. Brokerage commissions, legal fees, and transfer taxes paid at purchase add to your basis.
Capital improvements. For real estate, permanent improvements that add value or extend the property’s useful life (a new roof, a kitchen renovation) increase your basis. Routine maintenance does not.
Reinvested dividends. Each automatic reinvestment purchase adds to your total basis. You already paid income tax on those dividends, so skipping this step would tax the same money twice.⁷

Subtract your adjusted basis from the net sale proceeds (sale price minus selling costs like commissions). A positive result is your taxable gain. Keep receipts, closing statements, and brokerage records — the IRS expects you to prove these figures if questioned.

Basis rules shift for property that came to you without a purchase. When you inherit an asset, your basis is generally its fair market value on the date of the prior owner’s death, which can wipe decades of appreciation off the tax bill.⁸ For a gift, you take the donor’s basis instead, so unrealized appreciation follows the asset to you.⁹

Selling Your Home

When you sell your primary residence, you can exclude a substantial slice of the gain from taxable income. Single filers can exclude up to $250,000 in profit; married couples filing jointly can exclude up to $500,000.¹⁰

To claim the full exclusion, you must have owned and used the home as your primary residence for at least two of the five years before the sale. The two years need not be consecutive; they just need to add up to 24 months (or 730 days) within the five-year window.¹¹

Selling early because of a job relocation, health reasons, or other unforeseen circumstances can qualify you for a partial exclusion proportional to the time you lived there.¹⁰ Any gain above the exclusion, or the entire gain if you don’t qualify, is taxed at your applicable long-term rate (assuming you owned the home for more than a year).

Using Losses to Cut Your Bill

If you sell an investment at a loss, that loss offsets capital gains from other sales in the same year. Short-term losses offset short-term gains first, and long-term losses offset long-term gains first, but any remainder crosses over.

When total losses exceed total gains, you can deduct up to $3,000 of the excess against ordinary income like wages ($1,500 if married filing separately).¹² Anything beyond that carries forward to future tax years, with no expiration, until it’s fully used.¹³

One catch: the wash sale rule. You can’t claim a loss if you buy a substantially identical investment within 30 days before or after the sale that created it.¹⁴ The window runs both directions, creating a 61-day restricted period, and it also covers options or contracts to buy the same security. A disallowed loss isn’t gone; it’s added to the basis of the replacement shares and defers the tax benefit until you sell those.¹⁵

Estimated Tax After a Big Sale

If you realize a large gain during the year (selling a business, an investment property, or a big stock position), you may need to make estimated tax payments rather than waiting until you file. The IRS charges an underpayment penalty if your withholding plus estimated payments falls short.

To sidestep the penalty, your payments through the year generally need to cover the smaller of 90% of your current-year tax or 100% of the prior year’s tax. If your prior-year adjusted gross income was above $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.¹⁶ Estimated payments are due quarterly, in April, June, September, and January. A late-year gain can sometimes be covered by boosting wage withholding or making a single larger January payment.

Don’t Forget State Tax

Federal is only part of the picture. Most states tax capital gains as ordinary income, and rates run from 0% in states with no income tax to over 13% at the top end. A few states offer reduced rates or partial deductions for particular gains, such as real estate or small business stock. Check your own state’s rules before selling a large asset.

How to Report the Gain

Two forms handle reporting on your federal return. Every individual sale goes on Form 8949, with a description of the asset, purchase and sale dates, sale price, and cost basis.¹⁷ Your brokerage typically supplies most of this on a 1099-B early in the year.

Totals from Form 8949 flow to Schedule D of Form 1040, which combines short-term and long-term results into a net gain or loss and calculates the tax at the applicable rates.¹⁸ Both forms attach to your return. Keep brokerage statements, closing documents, and basis records for at least three years from filing, the general IRS audit window.¹⁹ If you’re carrying forward losses from a prior year, keep documentation of those losses for as long as you continue to use them.

1
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
2
Internal Revenue Service. Digital Assets
3
Internal Revenue Service. Revenue Procedure 2025-32
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
6
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
7
Internal Revenue Service. Stocks (Options, Splits, Traders) 3
8
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
9
Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
10
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
11
eCFR. 26 CFR 1.121-1 Exclusion of Gain From Sale or Exchange of a Principal Residence
12
Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
13
Office of the Law Revision Counsel. 26 USC 1212 – Capital Loss Carrybacks and Carryovers
14
Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
15
Internal Revenue Service. Publication 550 – Investment Income and Expenses
16
Internal Revenue Service. Estimated Tax
17
Internal Revenue Service. 2025 Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets
18
Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets
19
Internal Revenue Service. How Long Should I Keep Records?