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

How Capital Gains Tax Works in 2026

A capital gain occurs when you sell a capital asset, such as stocks, bonds, real estate, or cryptocurrency, for more than your adjusted cost basis. Your cost basis includes the original purchase price plus any transaction fees, commissions, or improvements you made. The IRS only taxes gains when they are realized, meaning you must actually sell the asset to create a taxable event. Unrealized appreciation in your portfolio is not taxed.

The critical factor determining your tax rate is the holding period. Assets held for one year or less produce short-term capital gains, which are taxed at your ordinary income tax rate. Assets held for more than one year produce long-term capital gains, which qualify for significantly lower preferential rates. This distinction alone can mean the difference between paying 37% and 15% on the same dollar of profit.

Capital losses offset capital gains dollar for dollar within the same category first, then across categories. If your total capital losses exceed your total capital gains, you can deduct up to $3,000 of excess losses against ordinary income each year, carrying any remaining losses forward indefinitely. Use the Income Tax Calculator to see how gains affect your overall tax liability.

2026 Short-Term Capital Gains Tax Rates

Short-term capital gains are taxed as ordinary income. They are added to your wages, salary, and other income and taxed according to the standard federal income tax brackets. For 2026, those brackets are:

Because short-term gains stack on top of your other income, a large short-term gain can push you into a higher tax bracket. For example, a single filer earning $90,000 in salary who realizes a $50,000 short-term gain would have $140,000 in total income, with the gain taxed partly at 22% and partly at 24%. See the exact breakdown with the Tax Bracket Calculator.

2026 Long-Term Capital Gains Tax Rates

Long-term capital gains enjoy three preferential tax rates: 0%, 15%, and 20%. Which rate you pay depends on your taxable income and filing status. These thresholds are adjusted annually for inflation.

The 0% rate is particularly valuable for retirees and lower-income investors. A married couple filing jointly with $96,700 or less in taxable income can sell long-term investments and owe zero federal capital gains tax. This creates an annual opportunity to "harvest gains" by selling appreciated assets and immediately repurchasing them to reset the cost basis at a higher level.

Net Investment Income Tax (NIIT): The 3.8% Surtax

High-income taxpayers face an additional 3.8% Net Investment Income Tax on the lesser of their net investment income or their modified adjusted gross income (MAGI) exceeding $200,000 (single) or $250,000 (married filing jointly). This surtax applies to capital gains, dividends, interest, rental income, and royalties.

Combined with the 20% long-term rate, the maximum effective federal rate on long-term capital gains is 23.8%. For short-term gains, the maximum is 40.8% (37% + 3.8%). State taxes can add another 0% to 13.3% depending on where you live. Use the Income Tax Calculator to estimate your combined federal and state tax on investment gains.

The NIIT thresholds are not indexed for inflation, which means more taxpayers are subject to this surtax each year as wages and investment values grow. Strategic income management, such as maximizing retirement plan contributions to keep MAGI below the threshold, can help you avoid triggering the surtax entirely.

Home Sale Exclusion: The $250K/$500K Rule

One of the most generous capital gains provisions is the home sale exclusion under Section 121 of the tax code. If you sell your primary residence, you can exclude up to $250,000 of gain (single) or $500,000 (married filing jointly) from taxation. To qualify, you must have owned and used the home as your primary residence for at least two of the five years before the sale.

The two-year requirement does not need to be continuous. You can meet the test with 24 months of ownership and 24 months of use within the five-year lookback window. If you do not meet the full requirement due to a job relocation, health condition, or unforeseen circumstance, you may qualify for a partial exclusion prorated based on the time you lived there.

Homeowners planning to sell should calculate their expected gain carefully, factoring in capital improvements that increase the cost basis. Adding a new roof, remodeling a kitchen, or installing a new HVAC system all add to your basis, reducing the taxable gain. Use Amortio to calculate your mortgage payoff and HammerIO to estimate improvement costs.

Capital Gains on Cryptocurrency

The IRS treats cryptocurrency as property, not currency. Every sale, trade, or exchange of crypto is a taxable event that triggers capital gains or losses. This includes trading one cryptocurrency for another, using crypto to purchase goods or services, and receiving crypto as payment for work performed.

Starting in 2026, cryptocurrency exchanges are required to issue Form 1099-DA reporting your transactions to both you and the IRS. This means accurate reporting is more critical than ever. The same short-term and long-term holding period rules apply: crypto held over one year qualifies for the preferential long-term rates. Read our detailed Cryptocurrency Tax Guide 2026 for reporting strategies.

Collectibles and Section 1250 Recapture

Not all capital gains qualify for the standard 0%/15%/20% rates. Collectibles, including art, antiques, coins, stamps, wine, and precious metals, face a maximum long-term rate of 28%. Short-term gains on collectibles are still taxed at ordinary rates.

Section 1250 recapture applies to depreciated real property. When you sell rental property or business real estate, the portion of your gain attributable to depreciation deductions you previously claimed is taxed at a maximum rate of 25%, not the standard long-term rate. The remaining gain above the original cost basis qualifies for the standard 0%/15%/20% rates. This recapture rule prevents taxpayers from taking depreciation deductions at ordinary rates and then paying only long-term rates on the full gain when selling.

Tax-Loss Harvesting Strategies

Tax-loss harvesting involves selling investments at a loss to offset capital gains and reduce your tax bill. The strategy is straightforward: you sell a losing investment, use the loss to cancel out a gain of the same type, and then either sit in cash or reinvest in a similar but not "substantially identical" security to maintain your market exposure.

The wash sale rule prevents you from claiming a loss if you repurchase the same or a substantially identical security within 30 days before or after the sale. This 61-day window (30 days before, the sale date, and 30 days after) must be observed carefully. Purchasing a similar but different ETF that tracks a different index is a common workaround.

Losses are applied in a specific order: short-term losses offset short-term gains first, then long-term gains. Long-term losses offset long-term gains first, then short-term gains. After netting, if you still have net losses, you can deduct up to $3,000 against ordinary income, with excess losses carrying forward to the next year. This strategy is especially powerful in volatile markets. Check how losses affect your overall tax position using the Effective Tax Rate Calculator.

Strategies to Minimize Capital Gains Tax in 2026

Beyond tax-loss harvesting, several strategies can help reduce or defer capital gains tax:

• Hold assets over one year: The simplest and most impactful strategy. Waiting just one day beyond the one-year mark can cut your tax rate from up to 37% to as low as 0% or 15%.
• Harvest gains in the 0% bracket: If your taxable income falls below the 0% long-term threshold, sell appreciated assets and immediately repurchase them to reset your cost basis at a higher level, tax-free.
• Maximize retirement contributions: Contributing to a 401(k) or Traditional IRA reduces your taxable income, potentially lowering the rate applied to your capital gains and keeping you below NIIT thresholds. See the impact on your net paycheck.
• Donate appreciated assets to charity: Donating stocks or other assets held over one year to a qualified charity lets you deduct the full fair market value without paying capital gains tax on the appreciation. Read our charitable deductions guide for details.
• Use 1031 exchanges for real estate: A like-kind exchange under Section 1031 allows you to defer capital gains tax on investment property by reinvesting the proceeds into a similar property within strict timelines.
• Qualified Opportunity Zones: Investing capital gains into a Qualified Opportunity Fund can defer gains through 2026 and potentially eliminate gains on the new investment if held for 10+ years.
• Gift assets to family in lower brackets: Gifting appreciated assets to a family member in a lower tax bracket (or in the 0% long-term bracket) can result in lower or zero capital gains tax when they sell. Be aware of the kiddie tax for children under 19 (or under 24 if full-time students).

State Capital Gains Taxes

Nine states have no income tax and therefore no state capital gains tax: Alaska, Florida, Nevada, New Hampshire (interest and dividends only through 2026), South Dakota, Tennessee, Texas, Washington (but has a 7% capital gains tax on gains over $270,000), and Wyoming. All other states tax capital gains as ordinary income, with rates ranging from about 2% to 13.3% (California).

Washington's capital gains tax, enacted in 2021 and upheld by the state Supreme Court, imposes a 7% tax on long-term capital gains exceeding $270,000 for individuals. This makes Washington one of the most unusual states for tax planning, as it has no income tax but does tax investment gains above a threshold. Compare all state tax burdens with the state tax comparison guide.

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