Capital Gains Tax Rates for 2026, and the Cutoffs

A capital gain is the profit on something you sold for more than you paid. How it is taxed depends almost entirely on one thing: how long you owned it.

Hold an asset for more than one year and the gain is long-term, taxed under its own rate schedule of 0%, 15% and 20%. Hold it for one year or less and the gain is short-term, taxed as ordinary income at the same rates as your salary. The holding period runs from the day after you acquired the asset to the day you disposed of it, and getting it wrong by a day changes the rate.

Long-term capital gains rates for 2026

Two features of this table do most of the work.

The first is that there is a real 0% band, and it is wider than people expect. A single filer with taxable income below $49,450 pays no federal tax on long-term gains at all. Not a reduced rate, nothing.

The second is that these are thresholds on taxable income, which is your income after deductions, not your gross pay. With the 2026 standard deduction of $16,100 for a single filer, somebody can earn meaningfully more than $49,450 gross and still have part of a gain fall in the 0% band.

The brackets are separate, but the income still stacks

This is where most of the confusion lives. The capital gains thresholds are not the ordinary income tax brackets. They are a second, parallel schedule with their own cutoffs.

But the two are not independent. Your ordinary income is counted first, and the gain sits on top of it. So your salary decides which capital gains band the gain lands in, even though the salary is taxed under a different schedule.

An example makes it concrete. A single filer with $40,000 of taxable income after deductions realises a $20,000 long-term gain.

The gain was not taxed at one rate. It straddled the threshold, and only the part above it was taxed. This is exactly how ordinary brackets work, which is the useful thing to remember: no threshold in the US system taxes all of your income at the higher rate once you cross it.

It also means a gain can push itself, but not your salary, into a higher band. Realising a large gain does not re-rate your wages.

The 3.8% surtax nobody budgets for

On top of the rates above, a Net Investment Income Tax of 3.8% applies to investment income once modified adjusted gross income passes a threshold. So the real top rate on a long-term gain is 23.8%, not 20%.

Two details matter more than the rate:

• The NIIT thresholds are not indexed for inflation. They have been the same nominal figures since the tax began, which means each year of wage growth pulls more people over them. Check the current thresholds against the IRS guidance rather than assuming they moved with the brackets, because they did not.
• The surtax applies to the smaller of your net investment income or the amount by which your income exceeds the threshold. Crossing it by $1,000 does not tax your whole gain, it taxes $1,000.

Short-term gains have no special treatment at all

A gain on something held a year or less is added to your ordinary income and taxed at your marginal rate. For somebody in the 24% bracket, the difference between selling at eleven months and thirteen months is 24% against 15%, on the whole gain.

That is $1,800 for waiting eight weeks. It is the single largest lever most people have over the tax on an investment, and it costs nothing but patience. It is not always the right call, because a price can fall further than the tax saves, but it should be a deliberate decision rather than an accident.

Losses offset gains, and then some income

Capital losses subtract from capital gains of the same type first, then across types. If losses exceed gains, up to $3,000 of the excess can be deducted against ordinary income in a year, and anything beyond that carries forward indefinitely.

The carry-forward is genuinely useful and widely forgotten. A large loss in one year keeps sheltering gains for as many years as it takes to use up, with no expiry. It is worth knowing what your carried-forward balance is before you sell anything.

The rule to be careful with is the wash sale: if you buy the same or a substantially identical security within 30 days before or after selling at a loss, the loss is disallowed for now and added to the basis of the new position instead. The 30 days runs in both directions, which catches people who buy first and sell second.

The 0% band is a planning tool, not a curiosity

Because the 0% band is defined by taxable income rather than by the size of the gain, it can be used deliberately.

In any year your income dips, a gap opens between your taxable income and the top of the 0% band, and gains realised into that gap are taxed at nothing. A career break, a redundancy, a year of graduate study, the first year of retirement before Social Security starts: each one creates a window.

The move is to sell an appreciated holding and immediately buy it back. The gain is realised at 0%, and your cost basis resets upward, so a future sale is taxed on a smaller gain. Nothing about your portfolio changes.

The wash sale rule does not block this, because that rule disallows losses, not gains. Repurchasing immediately after realising a gain is permitted.

Two cautions. Filling the band raises your income for other purposes, which can affect health insurance subsidies or the taxable portion of Social Security. And the calculation is on taxable income, so you need a realistic estimate of the year's total before you sell, not after.

Know your basis before you sell

Your gain is the sale price minus your cost basis, and basis is where most reporting errors start.

Basis is what you paid, plus commissions, plus anything reinvested. Reinvested dividends are the big one. Every reinvested dividend was taxed when it was paid and bought additional shares, and those shares have their own basis. Somebody who ignores fifteen years of reinvestment and treats their original purchase price as the whole basis will overstate the gain and overpay, sometimes badly.

Brokers now report basis to the IRS for most shares bought since the reporting rules took effect, but older holdings and transferred accounts often arrive with basis missing or wrong. If a 1099-B shows basis as unknown, that is the number to fix before the return is filed.

When you sell part of a holding you can also choose which shares go. Selling the highest-basis lots first produces the smallest gain. Most brokers default to first-in, first-out, which after a long run of growth is usually the worst choice available. The election generally has to be made at or before the sale rather than afterwards.

The fund distribution nobody sees coming

You can owe capital gains tax on a mutual fund you never sold.

When a fund manager sells holdings at a profit, the fund distributes those gains to everybody holding it on the record date, usually late in the year. You receive a taxable distribution whether you wanted it or not, and whether or not your own position is up. Buying a fund in November, days before a distribution, can produce a tax bill on gains earned entirely before you owned it.

Two defences. Check a fund's estimated distribution before making a large purchase late in the year. And hold funds that distribute heavily inside a retirement account, where distributions are not taxed as they occur. Exchange-traded funds generally distribute far less than actively managed mutual funds, which is a large part of their tax advantage.

Harvesting losses on purpose

The mirror of filling the 0% band is realising losses deliberately while keeping your market exposure.

Sell a position that is down, book the loss, and buy something similar but not substantially identical. The loss offsets gains elsewhere, or up to $3,000 of ordinary income, and your portfolio still holds roughly what it held before.

The line to respect is "substantially identical". Selling one broad index fund and buying a different provider's fund tracking a different index is generally accepted. Selling and rebuying the same fund is not, and neither is buying it in your IRA within the window, which disallows the loss permanently rather than deferring it.

What is not covered here

• State tax. Most states tax capital gains as ordinary income, with no long-term preference at all. A few have no income tax and therefore no gains tax on wages or investments. See states with no income tax.
• Your home. A main residence has its own exclusion rules and is not taxed like an ordinary asset.
• Collectibles and certain property. These carry different maximum rates.
• Retirement accounts. Gains inside a 401(k) or IRA are not taxed as they occur, so none of this applies until money comes out.