Federal investment income tax rates run from 0% to 37%, and which rate hits your money depends on the type of income, how long you owned the asset, and your total taxable income for the year. Short-term gains and most interest are taxed like wages, at rates up to 37%. Long-term capital gains and qualified dividends get preferential rates of 0%, 15%, or 20%. Higher-income investors may owe an extra 3.8% surtax on top.
Short-Term Gains and Interest: Ordinary Income Rates
Sell a stock, fund, or other capital asset you owned for one year or less, and any profit is a short-term capital gain. The IRS taxes that gain at the same progressive rates that apply to your salary. There is no discount for short-term trading.1Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses Interest from savings accounts, certificates of deposit, and taxable bonds is taxed at these same ordinary rates.
For the 2026 tax year, seven brackets apply:2Internal Revenue Service. Rev. Proc. 2025-32
- 10%: single filers up to $12,400; married filing jointly up to $24,800
- 12%: single $12,401–$50,400; married filing jointly $24,801–$100,800
- 22%: single $50,401–$105,700; married filing jointly $100,801–$211,400
- 24%: single $105,701–$201,775; married filing jointly $211,401–$403,550
- 32%: single $201,776–$256,225; married filing jointly $403,551–$512,450
- 35%: single $256,226–$640,600; married filing jointly $512,451–$768,700
- 37%: single above $640,600; married filing jointly above $768,700
The brackets are progressive, so each rate applies only to income within its range, not to your whole income. Because short-term gains stack on top of wages and other ordinary income, active trading can push you into a higher bracket faster than a buy-and-hold approach.
Long-Term Gains and Qualified Dividends: 0%, 15%, or 20%
Hold a capital asset for more than one year before selling and your profit becomes a long-term capital gain, taxed under a three-tier structure of 0%, 15%, or 20% based on your taxable income and filing status.3Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed Qualified dividends use the same rates and thresholds.4Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions
For 2026:2Internal Revenue Service. Rev. Proc. 2025-32
- 0%: single up to $49,450; head of household up to $66,200; married filing jointly up to $98,900
- 15%: single $49,451–$545,500; head of household $66,201–$579,600; married filing jointly $98,901–$613,700
- 20%: single above $545,500; head of household above $579,600; married filing jointly above $613,700
These thresholds look at your total taxable income, not just the gain itself. Moderate wages plus a large sale can lift you from the 0% tier into the 15% or 20% tier once the pieces are added together. Timing matters too. Selling one day before the one-year mark turns a long-term gain into a short-term one taxed at ordinary rates.
Higher Rates on Collectibles and Depreciated Real Estate
Two categories of long-term gain do not get the 0/15/20 treatment. Long-term gains on collectibles, including artwork, coins, stamps, antiques, and precious metals, are taxed at a maximum rate of 28%.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses If your ordinary rate is lower than 28%, you pay the lower rate, but the 15% or 20% long-term rate is off the table.
When you sell depreciable real property at a gain, the portion of the profit tied to depreciation you already deducted is called unrecaptured Section 1250 gain and is taxed at a maximum rate of 25%.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses Any remaining gain above that piece falls under the regular long-term rates. Rental property owners who have taken annual depreciation regularly run into this.
Ordinary vs. Qualified Dividends
Not every dividend gets the qualified rate. To qualify, you have to hold the paying stock for at least 61 days during the 121-day window that starts 60 days before the ex-dividend date, which is the first day the stock trades without entitling the buyer to the coming payment.6Internal Revenue Service. Instructions for Form 1040 When you count days, include the day you sold but not the day you bought.
Miss the holding period and the dividend gets reclassified as ordinary, even if your broker’s Form 1099-DIV labeled it as qualified.6Internal Revenue Service. Instructions for Form 1040 Ordinary dividends are taxed like wages, from 10% to 37%. Dividends from real estate investment trusts (REITs) and from employee stock options typically fall in the ordinary bucket as well.4Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions
The 3.8% Net Investment Income Tax
Higher-income investors owe an extra 3.8% on top of whatever rate above applies. The Net Investment Income Tax kicks in when your modified adjusted gross income crosses a set threshold:7Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
- $200,000 for single filers and heads of household
- $250,000 for married couples filing jointly
- $125,000 for married filing separately
The 3.8% applies to the smaller of two figures: your net investment income for the year, or the amount your modified AGI exceeds the threshold.7Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax Net investment income covers capital gains, dividends, interest, rental income, royalties, and passive business income. Wages and self-employment income don’t count.8Internal Revenue Service. Questions and Answers on the Net Investment Income Tax These thresholds aren’t indexed to inflation, so more taxpayers fall under the surtax over time. Report it on Form 8960 with your regular return.
How Losses Reduce the Rate You Actually Pay
Capital losses cut into gains before you owe any tax on them. The IRS nets losses against gains in a set order: short-term losses first offset short-term gains, and long-term losses first offset long-term gains. Whichever category still shows a net loss then offsets gains in the other category.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses
When total losses exceed total gains, you can deduct up to $3,000 of the excess against ordinary income, or $1,500 if married filing separately.9Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything left over carries forward to future years indefinitely and keeps its character. Short-term stays short-term, long-term stays long-term.10Office of the Law Revision Counsel. 26 USC 1212 – Capital Loss Carrybacks and Carryovers A large loss can quietly reduce your tax bill for many years.
One trap to know about: the wash sale rule. Sell at a loss and buy a substantially identical security within 30 days before or after the sale, and the loss is disallowed for that year.11Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed amount is added to the basis of the replacement shares, so the benefit isn’t gone forever, but you don’t get to use the loss against this year’s gains.
State Taxes Sit on Top
Federal rates are only part of what you’ll pay. Most states tax capital gains and other investment income as ordinary income under their own progressive brackets, with top marginal rates ranging from 0% in states with no individual income tax to as high as 13.3%. A handful of states exempt capital gains entirely or offer partial exclusions, and one state taxes capital gains but not other forms of income. Combined federal and state tax on a sale can meaningfully exceed the federal figure alone, so it pays to check your state’s rules before you sell.