Capital Gains Tax Explained: Short-Term vs Long-Term
Sell a stock, some crypto, or a rental property for more than you paid and the IRS wants a slice. How big a slice depends mostly on one thing: how long you held the asset. This guide walks through the 2026 rules with real numbers. To run your own scenario, use the free capital gains tax calculator.
In short: hold an asset more than one year and your profit is taxed at 0%, 15%, or 20%. Sell within a year and it's taxed like a paycheck, at up to 37%. The one-year line is the most valuable date on an investor's calendar.
What counts as a capital gain?
A capital gain is the profit from selling, or otherwise disposing of, a capital asset: stocks, ETFs, mutual funds, crypto, real estate, a business, even collectibles. A trade or exchange counts as a disposition too. The gain is simply your sale price minus your cost basis (what you paid, plus commissions and qualifying improvements). Sell for less than your basis and you have a capital loss, which can offset gains and up to $3,000 of ordinary income per year.
Crucially, tax is only due when you realize the gain by selling. An investment that has grown but sits untouched owes nothing.
Short-term: taxed like your paycheck
Sell an asset you've held for one year or less and the profit is a short-term gain. It's stacked on top of your other income and taxed at ordinary federal rates, 10% to 37% in 2026. For most working investors that means every dollar of short-term gain is taxed at their marginal rate: 22%, 24%, or higher.
Long-term: the 0% / 15% / 20% brackets
Hold for more than one year and the gain becomes long-term, taxed at just three rates. For 2026 (per IRS Rev. Proc. 2025-32), the brackets by taxable income are:
| Rate | Single | Married filing jointly | Head of household |
|---|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 | Up to $66,200 |
| 15% | $49,450 – $545,500 | $98,900 – $613,700 | $66,200 – $579,600 |
| 20% | Over $545,500 | Over $613,700 | Over $579,600 |
Yes, 0% is a real bracket. A married couple with $80,000 of taxable income can realize roughly $19,000 of long-term gains and pay no federal tax on them at all.
How gains "stack" on your income
Long-term gains don't get their bracket from the gain alone. They stack on top of your ordinary taxable income. Say you're single with $40,000 of taxable income and a $30,000 long-term gain. The first $9,450 of gain fills the rest of the 0% bracket (up to $49,450) and is tax-free; the remaining $20,550 is taxed at 15% ($3,083). One gain, two rates. The calculator does this stacking automatically.
The extra 3.8%: net investment income tax
High earners pay a surtax on investment income. If your modified adjusted gross income tops $200,000 (single/head of household) or $250,000 (married filing jointly), the NIIT adds 3.8% to the gain above the threshold, pushing the top federal rate on long-term gains to 23.8% and on short-term gains to 40.8%.
Selling your home? Most of the gain may be tax-free
The Section 121 exclusion lets you wipe out up to $250,000 of gain on your primary residence ($500,000 for married couples filing jointly) if you owned and lived in the home for at least 2 of the last 5 years. Only the gain above the exclusion is taxed, and because of the 2-year rule it always qualifies for long-term rates.
Don't forget your state
Most states tax capital gains as ordinary income at rates from about 2.5% to over 13% (California). Eight states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming) tax no personal capital gains at all. Washington is the special case: it has no income tax but levies a 7% excise tax on long-term gains above roughly $278,000 (9.9% over $1 million), with real estate exempt. Several states, including Arkansas, Hawaii, Montana, New Mexico, North Dakota, South Carolina, and Wisconsin, give long-term gains a partial exclusion or reduced rate.
Five legal ways to pay less
- Cross the one-year line. A $100,000 gain for a single filer earning $50,000 costs about $22,846 in federal tax if short-term, but $15,000 if long-term. A few weeks of patience can save thousands.
- Harvest losses. Selling losers offsets winners dollar-for-dollar, plus up to $3,000 against ordinary income per year (beware the 30-day wash-sale rule on repurchases).
- Use the 0% bracket. In lower-income years, such as early retirement or a sabbatical, you can realize gains up to the 0% ceiling tax-free and reset your cost basis.
- Shelter in retirement accounts. Assets inside 401(k)s, IRAs, and Roth IRAs don't generate capital gains tax when traded.
- Hold until death, or donate. Heirs receive a stepped-up basis, and appreciated shares donated to charity escape the gain entirely while remaining deductible.
Frequently asked questions
What is the capital gains tax rate for 2026?
Long-term gains: 0%, 15%, or 20% depending on taxable income (single filers reach 15% above $49,450 and 20% above $545,500). Short-term gains: ordinary rates from 10% to 37%.
How do I know if my gain is short-term or long-term?
Count from the day after you acquired the asset to the day you sold it. One year or less is short-term; more than one year is long-term. For inherited assets, the holding period is automatically long-term.
Is crypto taxed like stocks?
Yes. The IRS treats cryptocurrency as property, so the same short-term/long-term rules and rates apply, including on crypto-to-crypto trades, which are taxable events.
Do capital gains push my salary into a higher bracket?
No. Long-term gains stack on top of ordinary income, so they can push the gain into a higher gains bracket, but they never raise the tax rate on your wages.
When do I pay the tax?
With your tax return for the year of the sale. If the gain is large, you may need estimated quarterly payments to avoid an underpayment penalty.
Ready to see your number? Try the free capital gains tax calculator. It compares short-term vs long-term treatment and includes NIIT and your state.
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