Short-Term vs. Long-Term Capital Gains: 2026 Rates, NIIT, and Special Assets

The difference between short-term and long-term capital gains comes down to how long you held the asset before selling it. Hold it more than a year, and your profit qualifies as a long-term gain, taxed at 0%, 15%, or 20% depending on your income. Sell within a year, and the gain is short-term, taxed at the same rates as your paycheck — up to 37% for 2026. That single calendar distinction can nearly halve your federal tax rate on investment profits.

The One-Year Holding Period

Federal tax law draws a bright line at one year. More than twelve months, and any profit qualifies as long-term. Twelve months or fewer, and it’s short-term.¹

Counting those months has a specific method. The day you buy does not count. Your holding period starts the following day and runs through the day you sell. Buy stock on March 1, and day one of your holding period is March 2. You need to wait until at least March 2 of the following year to cross into long-term territory.² Miss it by a single day and the entire gain gets taxed at ordinary income rates.

Short-Term Capital Gains Rates for 2026

Short-term gains get no preferential treatment. The IRS adds them to your wages, salary, and other ordinary income, then taxes the total using the standard graduated brackets. Seven federal brackets apply for 2026, running from 10% to 37%.³

For single filers in 2026:

10% on taxable income up to $12,400
12% from $12,401 to $50,400
22% from $50,401 to $105,700
24% from $105,701 to $201,775
32% from $201,776 to $256,225
35% from $256,226 to $640,600
37% over $640,600

Married couples filing jointly hit each threshold at roughly double those figures; the 37% rate kicks in above $768,700.³ Because short-term gains stack on top of everything else, a profitable quick trade can push you into a higher bracket. Someone earning $95,000 in salary who flips stock for a $15,000 short-term gain will see that gain split across the 22% and 24% brackets.

Long-Term Capital Gains Rates for 2026

Assets held for more than a year benefit from a separate, lower rate schedule. Instead of the seven ordinary brackets, long-term gains face only three possible rates: 0%, 15%, and 20%. Which one applies depends on your taxable income and filing status.⁴

0% rate: taxable income up to $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household)
15% rate: taxable income from those thresholds up to $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household)
20% rate: taxable income above those upper limits

The 0% bracket is worth paying attention to. If your total taxable income — including the gain itself — stays below the threshold, you owe nothing on the long-term profit. Retirees and people in lower-earning years often land there without realizing it, and anyone who does realize it can time asset sales to take advantage. The 15% rate covers most middle-income and upper-middle-income earners. Only income above $545,500 for a single filer or $613,700 for a married couple triggers the 20% maximum.⁴

The 3.8% Net Investment Income Tax

Higher earners face an additional 3.8% surtax on investment income, called the Net Investment Income Tax. It applies when your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.⁵ Those thresholds are not indexed for inflation and have stayed at the same dollar amounts since the tax took effect in 2013.

The 3.8% applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds the threshold. Combined with the 20% long-term rate, the effective federal rate on long-term gains reaches 23.8% for the highest earners. Short-term gains in the top bracket face a steeper combined hit: 37% plus 3.8%, or 40.8%.⁵

Assets That Don’t Follow the Standard Long-Term Rates

Not every long-term gain gets the 0/15/20 treatment. Several categories of property carry their own maximum rates, and missing these distinctions is a common source of return errors.

Collectibles

Gains on artwork, antiques, precious metals, coins, and similar tangible property are taxed at a maximum rate of 28%, even when held for more than a year.⁶ If your ordinary income rate would be lower than 28%, you pay the lower rate instead. The 15% and 20% long-term rates are never available for collectibles.

Depreciation Recapture on Real Estate

Sell a rental property or other depreciable real estate at a profit and a portion of that gain may represent depreciation you claimed in prior years. This “unrecaptured Section 1250 gain” is taxed at a maximum rate of 25%, separate from whatever long-term rate applies to the remaining profit.⁷ Only the depreciation portion is taxed at 25%; any gain above the original purchase price follows the normal long-term schedule.

Section 1231 Business Property

Property used in a trade or business — equipment, machinery, commercial buildings held for more than a year — falls under a hybrid rule. Net gains are treated as long-term capital gains and get the favorable rates. Net losses are treated as ordinary losses, which are more valuable because they offset regular income without the $3,000 annual cap that applies to capital losses.⁸ One catch: if you claimed ordinary losses under this rule in any of the prior five years, the IRS recharacterizes an equivalent amount of current-year gains as ordinary income before applying capital gains rates.

Qualified Small Business Stock

Gains from selling stock in a qualifying small business can receive a partial or full exclusion. The percentage depends on how long you held the stock:⁹

At least three years: 50% of the gain excluded
At least four years: 75% excluded
Five years or more: 100% excluded

To qualify, the company must be a domestic C corporation whose aggregate gross assets did not exceed $75 million at the time the stock was issued. For stock issued before July 5, 2025, the older $50 million limit applies.⁹ The business must also use at least 80% of its assets in an active qualified trade; certain industries like finance, hospitality, and professional services are excluded.

Using Losses to Offset Gains

Investment losses offset gains dollar-for-dollar within the same category. Short-term losses first reduce short-term gains; long-term losses first reduce long-term gains. Any excess in one category offsets gains in the other. If losses still exceed gains after netting, you can deduct up to $3,000 of the remaining loss against ordinary income ($1,500 if married filing separately).¹⁰ Losses beyond that limit carry forward to future tax years indefinitely.¹¹

Selling losing positions to offset gains, often called tax-loss harvesting, is a common year-end move. The wash sale rule puts a hard boundary on it. If you sell a security at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the IRS disallows the loss entirely.¹² The disallowed loss is not gone forever; it gets added to the cost basis of the replacement shares. But you lose the ability to use it in the current year. The 30-day window runs in both directions, so buying replacement shares before the sale creates the same problem.

1
Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
2
Internal Revenue Service. Publication 550 – Investment Income and Expenses
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Internal Revenue Service. Revenue Procedure 2025-32
5
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
6
Legal Information Institute. 26 USC 1(h)(4) – 28-Percent Rate Gain
7
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
8
Office of the Law Revision Counsel. 26 USC 1231 – Property Used in the Trade or Business and Involuntary Conversions
9
Office of the Law Revision Counsel. 26 USC 1202 – Partial Exclusion for Gain from Certain Small Business Stock
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Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
11
Internal Revenue Service. Topic No. 409 – Capital Gains and Losses
12
Office of the Law Revision Counsel. 26 USC 1091 – Loss from Wash Sales of Stock or Securities