Capital Gains Tax in 2026: Short-Term vs. Long-Term Rates

Short-term vs. long-term: the one-year line

• Short-term (held one year or less): taxed at your ordinary income rates — 10% to 37%.
• Long-term (held more than one year): taxed at the preferential 0%, 15%, or 20% rates.

The clock starts the day after you buy and the holding period must exceed one full year. Selling on the 366th day instead of the 364th can cut your tax rate by more than half.

2026 long-term capital gains brackets

These thresholds apply to your total taxable income — ordinary income plus gains, after deductions:

Two things to note. First, gains stack on top of your other income: if your salary already fills the 0% space, your gains start in the 15% zone. Second, a separate 3.8% Net Investment Income Tax applies on top for higher earners — single filers with modified AGI over $200,000, joint filers over $250,000.

Worked example: single filer, $60,000 salary, $20,000 long-term gain. After the $16,100 standard deduction, ordinary taxable income is $43,900. The gain stacks on top: $43,900 + $20,000 = $63,900 of total taxable income. The 0% capital-gains space for a single filer runs to $49,450, so the first $5,550 of the gain ($49,450 − $43,900) is taxed at 0%, and the remaining $14,450 is taxed at 15% = $2,168. Total tax on a $20,000 gain: $2,168 — an effective rate under 11%.

Worked example: timing a sale. You bought shares for $50,000; they are worth $80,000 eleven months later — a $30,000 gain. Sell now (short-term) in the 24% bracket: about $7,200 of tax. Wait two more months (long-term) and, if your income keeps you in the 15% capital-gains zone: $4,500 of tax. Patience saves roughly $2,700.

Qualified dividends get the same deal

Dividends labeled "qualified" — most US company dividends and many foreign ones, held for the required period — are taxed at the same 0%/15%/20% rates as long-term gains. Ordinary (non-qualified) dividends are taxed like wages. Your brokerage's 1099-DIV tells you which is which.

Losses: the $3,000 consolation prize

Capital losses first offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 of the excess against ordinary income per year ($1,500 if married filing separately), and carry the rest forward indefinitely. Tax-loss harvesting — selling losers in December to offset winners — is a legitimate year-end strategy, but watch the wash-sale rule: you cannot claim the loss if you buy the same security within 30 days before or after the sale.

Real estate: the home-sale exclusion

Sell your primary residence and you may exclude up to $250,000 of gain ($500,000 for married couples filing jointly) — provided you owned and lived in the home for at least two of the last five years. This exclusion is why most middle-class home sales in the US are effectively tax-free. Rental and investment properties do not qualify; their gains are fully taxable (a 1031 exchange can defer them).

Special rates: collectibles, real estate depreciation, and small business stock

Not every long-term gain gets the 0%/15%/20% treatment:

• Collectibles (art, coins, precious metals): taxed at a maximum 28% rate, even long-term.
• Depreciation recapture on real estate: the portion of a rental property's gain attributable to depreciation you claimed is taxed at up to 25% (unrecaptured Section 1250 gain) — the rest follows normal capital-gains rates.
• Qualified small business stock (QSBS): sell stock in an eligible small C corporation held more than five years and you may exclude up to 100% of the gain (capped at $10 million or 10× your basis). This is one of the most valuable breaks in the code for startup employees and founders.

Worked example: rental property sale. You sell a rental for a $120,000 total gain, of which $40,000 is depreciation recapture. The $40,000 is taxed at up to 25% ($10,000), and the remaining $80,000 at your capital-gains rate — say 15% ($12,000). Total federal tax on the sale: about $22,000, not the $18,000 you'd get applying 15% to everything.

Stacking, AMT, and why your "real" rate differs

Capital gains stack on top of ordinary income, which creates planning opportunities: in a low-income year (a sabbatical, early retirement, a partial first year in the US), you may have unused 0% capital-gains space. Realizing gains deliberately in such years — "gain harvesting" — can mean paying 0% federal tax on them.

Two more wrinkles for higher earners:

• Net Investment Income Tax: the extra 3.8% on investment income above $200,000 single / $250,000 joint is not indexed for inflation and has no corresponding deduction. It has been quietly catching more taxpayers every year.
• AMT interaction: for alternative minimum tax purposes, long-term gains still use the 15%/20% preferential rates, but large gains can push other AMT adjustments around. If you exercise incentive stock options (ISOs), the AMT can bite hard in the exercise year even before you sell.

Worked example: gain harvesting in a gap year. Single filer, $30,000 of freelance income in 2026, standard deduction $16,100 → $13,900 ordinary taxable income. The 0% capital-gains space runs to $49,450, leaving $35,550 of room. Selling appreciated stock to realize $35,000 of long-term gains this year: federal tax on those gains = $0. The same sale in a $150,000-income year would cost 15%, or $5,250.