Long-term capital gains tax rates are 0%, 15%, or 20% at the federal level, and which one applies depends on your total taxable income and filing status. For 2026, a single filer pays 0% on long-term gains while taxable income stays under $49,450, 15% through the middle range, and 20% once taxable income exceeds $545,500. Higher earners can owe an additional 3.8% surtax on investment income, which pushes the effective ceiling to 23.8%. These rates apply only to gains on assets you held for more than one year before selling; anything held a year or less is taxed as ordinary income.
What Counts as a Long-Term Gain
The rule is a bright line. You must hold the asset for more than one year before selling to qualify for long-term treatment. Federal law defines a long-term capital gain as profit from selling a capital asset held for more than one year; anything held for one year or less produces a short-term gain.1Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses Short-term gains get no preferential rate and are taxed at the same ordinary income brackets that apply to your wages.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The clock starts the day after you buy and runs through the day you sell. If you bought shares on March 1, 2025, the earliest you can sell them and still get long-term treatment is March 2, 2026. Selling exactly one year after purchase is still short-term, because you’d have held the asset for one year, not more than one year.
A gain becomes taxable only when you actually sell or exchange the asset. Paper gains on investments you still hold trigger nothing. Once you sell, the gain is realized and gets applied to whichever rate tier your income lands in.3Office of the Law Revision Counsel. 26 US Code 1001 – Determination of Amount of and Recognition of Gain or Loss
2026 Income Thresholds for Each Rate
Section 1(h) of the tax code sets the tiered structure for long-term gains, and the dollar thresholds separating the tiers are adjusted for inflation each year.4Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed For tax year 2026, the IRS set the brackets as follows:5Internal Revenue Service. Rev Proc 2025-32
- 0% rate: Taxable income up to $49,450 for single filers, $98,900 for married filing jointly, or $66,200 for head of household.
- 15% rate: Taxable income from $49,451 to $545,500 for single filers, $98,901 to $613,700 for married filing jointly, or $66,201 to $579,600 for head of household.
- 20% rate: Taxable income above $545,500 for single filers, $613,700 for married filing jointly, or $579,600 for head of household.
The thresholds are based on your total taxable income, not just your investment income. Long-term gains stack on top of your ordinary income to determine which bracket applies. If you earn $90,000 in salary and sell stock for a $30,000 long-term gain, your total taxable income after deductions decides where that gain falls. Part of a single gain can sit in the 0% zone and part in the 15% zone. The rates work like the ordinary brackets, not as an all-or-nothing cliff.
The 15% bracket covers most American investors. The 0% rate is a real planning opportunity in low-income years, since gains realized while total taxable income stays under the threshold come out tax-free at the federal level.
The 3.8% Net Investment Income Tax
Higher earners face an additional 3.8% surcharge on investment income, including long-term gains.6Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax The Net Investment Income Tax applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds a fixed threshold: $200,000 for single filers and $250,000 for married couples filing jointly.
These thresholds are not indexed for inflation.7Internal Revenue Service. Questions and Answers on the Net Investment Income Tax More taxpayers cross them each year as wages rise. When the 3.8% surtax stacks on top of the 20% long-term rate, the effective federal tax on those gains reaches 23.8%. The surtax is reported on Form 8960.8Internal Revenue Service. About Form 8960, Net Investment Income Tax
Asset Types With Different Rates
Not every long-term gain gets the 0/15/20% treatment. A handful of asset categories carry their own maximum rates set directly in Section 1(h).4Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
Collectibles are taxed at a maximum of 28%. Gains from selling art, coins, antiques, gems, and stamps held more than a year are capped at that rate, and if your ordinary income rate is lower, you pay the lower figure. Investors in the higher brackets pay more on a profitable coin collection than they would on stock.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Depreciated real estate carries a maximum 25% rate on the portion of gain attributable to depreciation you previously claimed. This “unrecaptured Section 1250 gain” essentially reclaims some of the tax benefit those depreciation deductions provided. Any gain beyond the depreciation amount is taxed at the standard long-term rates.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Qualified small business stock under Section 1202 can be partially or fully excluded from federal tax. For stock acquired after July 4, 2025, the exclusion phases in with holding period: 50% after three years, 75% after four years, and 100% after five years, with a per-issuer cap of $15 million. Legislation signed in 2025 changed these rules significantly, so the treatment of any particular shares depends on when you acquired them.
Using Losses to Reduce What You Owe
Capital losses directly reduce a capital gains tax bill. Losses first net against gains in the same category: short-term against short-term, long-term against long-term. Any excess in one category then offsets gains in the other.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
If total losses exceed total gains for the year, you can deduct up to $3,000 of the net loss 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, so a bad year in the market can produce tax relief for years to come.
Watch out for the wash sale rule. If you sell a security at a loss and buy a substantially identical one within 30 days before or after the sale, the IRS disallows the loss.10Office 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 it isn’t gone forever, but it can’t offset gains in the current year.
Selling Your Home
Selling a primary residence is one place where a large long-term gain can escape federal tax entirely. If you owned and lived in the home for at least two of the five years before the sale, you can exclude up to $250,000 of gain, or up to $500,000 filing jointly.11Internal Revenue Service. Topic No. 701, Sale of Your Home The ownership and use periods don’t need to overlap, but both must be satisfied within the same five-year window.
You generally can’t take this exclusion if you already excluded gain from a different home sale within the prior two years. Any gain above the exclusion amount is taxed at the standard long-term rates.
Inherited Assets
Two rules make inherited property especially favorable. The basis resets to the fair market value on the date the original owner died, rather than carrying over what they originally paid.12Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If your grandmother bought stock for $5,000 decades ago and it was worth $100,000 when she died, your basis is $100,000. Sell it for $102,000 and only $2,000 is taxable.
Inherited property is also automatically treated as long-term regardless of how quickly you sell after the owner’s death.13Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property Even a sale two weeks after receiving the asset qualifies for the long-term rates.
Reporting and Estimated Tax
Individual sales are reported on Form 8949, which lists each transaction with purchase date, sale date, proceeds, and cost basis, and reconciles any differences with the Form 1099-B your broker sends.14Internal Revenue Service. Instructions for Form 8949 The totals flow into Schedule D, which summarizes short-term and long-term results for the year.
If you take a large gain during the year, don’t wait until April to think about the tax. The IRS expects tax to be paid throughout the year, and a big realized gain can trigger estimated tax obligations. If withholding and quarterly payments don’t cover at least 90% of your total tax for the year, you may owe an underpayment penalty on top of the tax itself.15Internal 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 Selling a concentrated position mid-year and ignoring the tax bill until spring is one of the more expensive mistakes investors make.