Who Has to Pay Capital Gains Tax: Rates, Thresholds, and Exclusions

Anyone who sells an asset for more than they paid for it may owe federal capital gains tax, but plenty of profitable sales produce no tax bill at all. For 2026, single filers with taxable income up to $49,450 and married couples filing jointly up to $98,900 pay 0% on long-term gains.¹ Above those thresholds, the rate is 15% or 20%, and a 3.8% surtax can stack on top for higher earners. Whether you personally owe depends on your residency, how long you held the asset, your total taxable income for the year, and whether one of several exclusions applies.

Who Is on the Hook

U.S. citizens and resident aliens owe capital gains tax on profits from asset sales anywhere in the world, not just transactions inside the United States. Residency for tax purposes is determined by holding a green card or meeting the substantial presence test, which generally requires being physically present in the country for at least 31 days during the current year and a weighted total of 183 days over a three-year period.² If either applies, the IRS expects you to report gains on everything from a New York stock sale to a rental property you sold overseas.

Nonresident aliens face a narrower obligation. Their U.S. capital gains liability is generally limited to gains connected with a U.S. trade or business and gains from selling U.S. real property interests. That real property rule comes from the Foreign Investment in Real Property Tax Act, which treats gains from selling U.S. real estate as if the foreign seller were running a U.S. business.³ A 15% withholding usually applies at closing, with the actual tax settled when the nonresident files a return.

The One-Year Holding Line

The date on your purchase confirmation matters more than most investors realize. Sell an asset you’ve held for one year or less and the profit is a short-term capital gain, taxed at your ordinary income rate. For 2026, ordinary rates run from 10% up to 37%.⁴ Selling one day too early can nearly double the tax bill on a large gain.

Hold the asset for more than one year and the gain qualifies as long-term, dropping into the preferential 0%, 15%, or 20% brackets.⁵ The clock runs from the day after purchase to the day of sale. Shares bought on March 1, 2025 can first be sold for long-term treatment on March 2, 2026.

2026 Income Thresholds for Long-Term Gains

Your rate depends on your total taxable income for the year, not just the size of the gain. For tax year 2026:¹

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% ceiling up to $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household).
20% rate: taxable income above those 15%-bracket caps.

The 0% bracket is the one that surprises people. A retiree whose only income is a modest pension plus a stock sale can walk away owing no federal tax on the gain. The gain itself counts toward your taxable income for bracket purposes, though, so a large enough sale can push part of the profit from 0% into 15%.

Trusts and estates hit steeper brackets much faster. A trust crosses from 0% to 15% at just $3,300 of taxable income in 2026, and the 20% rate kicks in above $16,250.¹ That compression is why many trustees distribute gains out to beneficiaries in lower personal brackets.

The 3.8% Net Investment Income Surtax

Higher-income taxpayers face an additional 3.8% tax on net investment income, which includes capital gains, dividends, interest, and rental income. The surtax applies when modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married couples filing jointly, or $125,000 for married filing separately.⁶ Those thresholds are not indexed for inflation, so more taxpayers cross them each year as wages and asset prices rise.

The tax hits the lesser of your net investment income or the amount by which your MAGI exceeds the threshold.⁷ A married couple earning $300,000 with $80,000 of that coming from a stock sale pays the 3.8% surtax on $50,000 (the excess over $250,000), adding $1,900 on top of the regular capital gains bill. Combined with the 20% top rate, the effective federal rate on a large gain can reach 23.8%.

What Counts as a Capital Asset

The definition is broad. Almost everything you own for personal use or investment qualifies: stocks, bonds, mutual fund shares, cryptocurrency, real estate, jewelry, and artwork.⁸ The IRS treats digital assets, including cryptocurrency, as property subject to capital gains rules, so selling Bitcoin or Ethereum at a profit triggers the same tax as selling stock.⁹ The main exclusions are business inventory, depreciable property used in a trade or business, and accounts receivable. Tables sold from your furniture store produce ordinary income; the sale of the building the store sits in is a capital transaction.

Not every long-term gain gets the 0/15/20% treatment. Collectibles like coins, art, antiques, and precious metals carry a maximum long-term rate of 28%. Rental property owners face a separate wrinkle called depreciation recapture: the portion of a gain attributable to prior depreciation deductions is taxed at a maximum rate of 25%, with the remaining gain taking the standard long-term rates.¹⁰

Mutual fund investors can owe capital gains tax even without selling a share. When fund managers sell securities inside the fund at a profit, they pass the gain to shareholders as a capital gain distribution, which the IRS treats as long-term regardless of how long you’ve held your fund shares.¹¹

Exclusions and Basis Rules That Wipe Out the Tax

Selling Your Home

Selling your primary residence gets special treatment that removes most homeowners from the capital gains equation. You can exclude up to $250,000 of profit as a single filer, or $500,000 as a married couple filing jointly, provided you owned and used the home as your main residence for at least two of the five years before the sale.¹² Both spouses need to meet the use test for the full $500,000; only one needs to satisfy ownership. The two years don’t have to be consecutive. You also can’t have claimed the exclusion on another home sale within the prior two years. If your home’s appreciation exceeds the exclusion, you owe on the excess.

Inherited Assets Get a Stepped-Up Basis

When you inherit an asset, your cost basis resets to its fair market value on the date the previous owner died.¹³ If a parent bought stock for $10,000 forty years ago and it was worth $200,000 the day they died, your basis is $200,000. Sell for $205,000 and only $5,000 is taxable. Decades of unrealized appreciation are effectively erased.

Gifts Carry the Donor’s Basis

Gifts work the opposite way. When someone gives you an asset during their lifetime, you generally inherit their original cost basis.¹⁴ The same $10,000-basis stock, gifted to you and sold for $205,000, produces a $195,000 taxable gain. One exception applies for loss purposes: if fair market value at the time of the gift was lower than the donor’s basis, you use the lower value when calculating a loss.

Losses Reduce What You Owe

You don’t pay capital gains tax on gross profits. Losses offset gains dollar for dollar. Short-term losses first offset short-term gains, and long-term losses first offset long-term gains; excess losses in one category cross over to reduce gains in the other.¹⁰

If your losses exceed your gains for the year, you can deduct up to $3,000 of the net loss against ordinary income ($1,500 if married filing separately). Any remaining unused loss carries forward indefinitely to reduce gains in future years.¹⁰

Watch the wash sale rule. If you sell a security at a loss and buy a substantially identical security within 30 days before or after the sale, the loss is disallowed and instead gets added to the cost basis of the replacement shares.¹⁵ The deduction isn’t gone forever, but it’s postponed until you sell the replacement.

When You Have to Pay Before April

Selling a big-ticket asset mid-year and waiting until April to settle up can trigger an underpayment penalty. The IRS generally expects estimated tax payments when you’ll owe at least $1,000 after subtracting withholding and credits, unless your withholding covers at least 90% of your current-year tax liability or 100% of your prior year’s tax (110% if your prior-year AGI exceeded $150,000).¹⁶

Quarterly estimated payments for 2026 are due April 15, June 15, September 15, and January 15, 2027. If your gain lands in a single quarter, you can annualize your income using the worksheet in IRS Publication 505 to make a larger payment in that quarter rather than spreading it evenly, attaching Form 2210 with Schedule AI to your return. Simpler alternative: ask your employer to bump up federal withholding for the rest of the year to cover the extra liability.

Don’t Forget State Tax

Federal tax is only part of the picture. Most states tax capital gains as ordinary income, so your state rate stacks on top of what the IRS collects. State rates range from 0% in states with no income tax to over 13% at the high end. Rules on loss deductions, exclusions, and holding periods vary by state, so a sale that comes out tax-free federally can still generate a state bill.

1
Internal Revenue Service. Revenue Procedure 2025-32
2
Office of the Law Revision Counsel. 26 USC 7701 – Definitions
3
Office of the Law Revision Counsel. 26 USC 897 – Disposition of Investment in United States Real Property
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
6
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
7
Office of the Law Revision Counsel. 26 US Code 1411 – Imposition of Tax
8
Office of the Law Revision Counsel. 26 USC 1221 – Capital Asset Defined
9
Internal Revenue Service. Frequently Asked Questions on Digital Asset Transactions
10
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
11
Internal Revenue Service. Mutual Funds (Costs, Distributions, etc.) 4
12
Office of the Law Revision Counsel. 26 US Code 121 – Exclusion of Gain From Sale of Principal Residence
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Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent
14
Office of the Law Revision Counsel. 26 US Code 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
15
Internal Revenue Service. Wash Sales
16
Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc.