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

How Capital Gains Taxation Works

A capital gain occurs when you sell a capital asset — stocks, bonds, ETFs, mutual funds, real estate, cryptocurrency, collectibles, or business interests — for more than your cost basis. The cost basis is what you originally paid for the asset, plus any transaction fees, commissions, or improvements (in the case of real estate). If the sale price exceeds the cost basis, the difference is your capital gain. If the sale price is lower, you have a capital loss.

Capital gains are not taxed until you realize them by selling. Unrealized gains — paper profits on assets you still hold — do not create a tax liability in the current year (though proposed legislation has occasionally targeted unrealized gains for very high-net-worth individuals). The moment you sell, the gain is locked in for tax purposes, and the amount you owe depends on the holding period and your income level.

Use our capital gains tax calculator to estimate your specific federal tax liability on any investment sale.

2026 Short-Term Capital Gains Rates

Short-term capital gains apply to assets held for one year or less. They are taxed at the same rates as your ordinary income — wages, salaries, and self-employment income. For 2026, the federal income tax brackets (which are also the short-term capital gains brackets) are as follows:

Because short-term gains stack on top of your other income, a large short-term gain can push you into a higher bracket. For example, a single filer earning $95,000 in wages is in the 22 percent bracket. If they realize a $20,000 short-term gain, the combined total of $115,000 pushes part of that gain into the 24 percent bracket. Understanding how gains layer on top of ordinary income is essential for tax planning.

2026 Long-Term Capital Gains Rates

Long-term capital gains are taxed at significantly lower rates than ordinary income. To qualify, you must hold the asset for more than one year — that means at least one year and one day. An asset purchased on January 10, 2025 becomes long-term eligible on January 11, 2026. Selling on January 10, 2026 — exactly 365 days later — still counts as short-term. A single extra day of holding can save you thousands in taxes.

These thresholds are based on your total taxable income, including the capital gains themselves. Your ordinary income sits in the base layer, and long-term capital gains stack on top. If your ordinary income alone is $40,000 (single) and you have $20,000 in long-term gains, the first $7,025 of gains falls in the 0 percent zone and the remaining $12,975 is taxed at 15 percent. This layering calculation is exactly what our tax calculator handles automatically.

Net Investment Income Tax (NIIT): The Extra 3.8 Percent

On top of the standard capital gains rates, high-income taxpayers face a 3.8 percent surtax called the Net Investment Income Tax. Enacted as part of the Affordable Care Act, the NIIT applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds:

• Single or Head of Household: $200,000
• Married Filing Jointly: $250,000
• Married Filing Separately: $125,000

Net investment income includes capital gains, dividends, interest, rental income, and royalties. It does not include wages, self-employment income, or distributions from most retirement accounts.

When the NIIT applies on top of the 20 percent long-term capital gains rate, the combined maximum federal rate becomes 23.8 percent. For short-term gains, the maximum is the top ordinary rate of 37 percent plus 3.8 percent, totaling 40.8 percent — before state taxes are even considered.

Unlike the ordinary income tax brackets, the NIIT thresholds are not adjusted for inflation. The $200,000/$250,000 thresholds have remained unchanged since 2013, meaning more taxpayers fall into the NIIT each year due to inflation alone.

Collectibles Tax Rate: 28 Percent Maximum

Long-term gains on collectibles receive their own special (and higher) tax rate. Collectibles include:

• Art and antiques
• Coins and stamps
• Gems and jewelry
• Fine wine
• Precious metals (physical gold, silver, platinum)
• Rare books and memorabilia
• Certain gold and silver ETFs backed by physical metal (e.g., GLD, SLV)

Long-term gains on collectibles are taxed at a maximum rate of 28 percent — higher than the standard 20 percent maximum for stocks and real estate. If your ordinary income tax bracket is below 28 percent, you pay at your bracket rate instead. Short-term gains on collectibles are taxed at your ordinary income rate, just like any other asset.

This higher rate often surprises investors who hold physical gold or gold ETFs expecting the same preferential rates as stock investments. A $50,000 long-term gain on gold bullion at the 28 percent rate costs $14,000 in federal tax, versus $10,000 if the same gain were on stocks at the 20 percent rate — a $4,000 difference.

Qualified Small Business Stock (QSBS) Exclusion

Section 1202 of the Internal Revenue Code offers one of the most generous tax breaks available: a potential 100 percent exclusion of capital gains on qualified small business stock. If the stock meets all requirements, you can exclude up to the greater of $10 million or 10 times your cost basis from federal capital gains tax.

Requirements for the QSBS exclusion:

• The stock must be in a domestic C corporation with gross assets of $50 million or less at the time the stock was issued
• You must have acquired the stock at original issuance (directly from the company, not on a secondary market)
• The corporation must use at least 80 percent of its assets in the active conduct of a qualified trade or business (certain industries like finance, law, engineering, and hospitality are excluded)
• You must hold the stock for at least 5 years

The exclusion percentage depends on when the stock was acquired. Stock acquired after September 27, 2010 qualifies for the full 100 percent exclusion. For stock acquired between February 18, 2009 and September 27, 2010, the exclusion is 75 percent, and for stock acquired before that date, it is 50 percent.

This provision is particularly impactful for startup founders and early employees. A founder who invested $100,000 in a startup and sold their shares five years later for $5 million could potentially exclude the entire $4.9 million gain — saving over $900,000 in federal taxes at the 20 percent rate (plus 3.8 percent NIIT savings).

State Capital Gains Taxes

Federal rates are only part of the picture. Most states also tax capital gains, and the rates vary dramatically. Understanding your state's treatment is essential for accurate tax planning.

For a high earner in California, the combined maximum rate on long-term gains is 23.8 percent (federal) plus 13.3 percent (state) = 37.1 percent. In contrast, a Texas resident pays only the federal 23.8 percent — a 13.3 percentage point difference on the same gain. On a $500,000 gain, that gap translates to $66,500 in additional state taxes. This is why some investors time large asset sales around moves to no-income-tax states, though most states have "clawback" rules that tax gains on assets sold shortly after relocation.

Tax-Loss Harvesting Strategy

Tax-loss harvesting is the practice of selling investments that are currently at a loss to offset capital gains realized elsewhere in your portfolio. It is one of the most effective legal strategies for reducing investment taxes, and it can be done throughout the year — not just in December.

How the netting works:

1. Short-term losses first offset short-term gains
2. Long-term losses first offset long-term gains
3. Excess losses from either category offset gains of the other type
4. If total losses exceed total gains, up to $3,000 of net losses offsets ordinary income per year ($1,500 if married filing separately)
5. Unused losses carry forward to future tax years indefinitely

Example: You sell stock A for a $25,000 long-term gain. You also hold stock B, which is down $18,000. If you sell stock B, your net long-term gain drops to $7,000 — saving $2,700 in tax at the 15 percent rate. You then immediately buy a similar (but not identical) fund to maintain your market exposure.

The critical constraint is the wash-sale rule: you cannot repurchase the same or "substantially identical" security within 30 days before or after the sale, or the loss is disallowed. Selling a Vanguard S&P 500 ETF and immediately buying a Schwab total stock market ETF is generally acceptable because they track different indexes, even though they are highly correlated.

For a deep dive on this strategy, including advanced techniques and common mistakes, read our complete guide on tax-loss harvesting.

1031 Exchanges: Deferring Real Estate Gains

A 1031 exchange (also called a like-kind exchange) allows you to defer capital gains tax on the sale of investment or business real estate by reinvesting the proceeds into a similar property. There is no limit on how many times you can do a 1031 exchange, allowing some investors to defer gains for decades — or even permanently through the step-up in basis at death (discussed below).

Key rules for a valid 1031 exchange:

• Both properties must be held for investment or business use — personal residences and vacation homes do not qualify
• The replacement property must be of equal or greater value to defer the full gain
• You must identify the replacement property within 45 days of selling the original property
• You must close on the replacement property within 180 days of the sale
• A qualified intermediary must hold the proceeds — you cannot touch the money between transactions
• Since 2018, only real property qualifies for 1031 exchanges (personal property like equipment and vehicles no longer qualifies)

Example: You sell a rental property for $500,000 with a cost basis of $300,000, producing a $200,000 gain. Without a 1031 exchange, you owe approximately $30,000 to $47,600 in federal capital gains tax (depending on your rate and the NIIT). With a 1031 exchange into a $550,000 replacement property, you defer the entire gain. Your cost basis in the new property carries over at $300,000, so the tax is deferred until you sell the replacement property (unless you do another 1031 exchange).

Holding Period Rules: When Short-Term Becomes Long-Term

The holding period determines whether your gain is taxed at ordinary income rates or the lower long-term rates. Getting this right can save or cost you thousands of dollars.

• Start date: The day after you acquire the asset
• End date: The day you sell or dispose of the asset
• Threshold: More than one year — you must hold the asset for at least one year and one day
• Gifted assets: You inherit the donor's holding period in addition to your own holding time
• Inherited assets: Always treated as long-term regardless of how long the decedent held them
• Stock splits and dividends: New shares from stock splits or stock dividends take the holding period of the original shares
• Options: The holding period for exercised stock options begins the day after exercise, not the grant date (for NSOs and ISOs)

Tax planning tip: If you are approaching the one-year mark on a profitable position and considering selling, check the exact date. Waiting just one or two more days to cross the long-term threshold can reduce your tax rate by 7 to 17 percentage points.

Cryptocurrency Capital Gains

The IRS classifies all cryptocurrency as property, not currency. This means every disposal event triggers a capital gain or loss calculation. Taxable crypto events include:

• Selling crypto for US dollars or any fiat currency
• Trading one cryptocurrency for another (e.g., Bitcoin for Ethereum)
• Using crypto to pay for goods or services
• Receiving crypto as payment for work (taxed as ordinary income at receipt, then capital gains on subsequent sale)

Non-taxable crypto events:

• Buying crypto with fiat currency
• Transferring crypto between your own wallets
• Donating crypto to a qualified charity

The same short-term and long-term holding period rules apply. Bitcoin held for 14 months before selling qualifies for the long-term rate. Bitcoin held for 11 months and sold is short-term. Starting in 2025, crypto exchanges are required to issue Form 1099-DA for reporting purposes, and the IRS has increased enforcement resources for crypto tax compliance.

One notable current advantage for crypto: the wash-sale rule technically applies only to "securities" under current law, and the IRS has not yet classified most cryptocurrencies as securities. This means you can sell Bitcoin at a loss, immediately repurchase Bitcoin, and still claim the loss — unlike with stocks. However, proposed legislation could close this loophole, and the SEC's classification of various tokens as securities adds ambiguity.

Step-Up in Basis at Death

One of the most powerful tax provisions in the entire code is the step-up in basis at death. When someone dies, the cost basis of their assets is "stepped up" (or down) to the fair market value on the date of death. All unrealized capital gains accumulated during the decedent's lifetime are permanently erased for income tax purposes.

Example: A parent bought 1,000 shares of stock at $10 per share ($10,000 total basis) in 1990. At the time of death in 2026, the shares are worth $200 per share ($200,000 total value). The unrealized gain is $190,000. When the heir inherits the stock, their new cost basis is $200,000 — the stepped-up value. If the heir sells immediately for $200,000, the capital gain is zero. The $190,000 gain is never taxed.

This provision has significant implications for estate planning and investment strategy:

• Hold appreciated assets until death if the goal is to pass wealth to heirs tax-efficiently
• Combine with 1031 exchanges: Continuously defer real estate gains through 1031 exchanges during life, then the step-up at death eliminates all deferred gains permanently
• Do not harvest gains in highly appreciated legacy positions unless there is a specific need — the step-up will handle the tax
• Community property states provide a full step-up on both halves of jointly held property (not just the decedent's half), doubling the benefit for surviving spouses

The step-up in basis has been a recurring target for reform. President Biden proposed replacing it with carryover basis (heirs inherit the original cost basis) and taxing unrealized gains above $1 million at death. As of 2026, the step-up remains in effect, but future changes are possible. Use our investment calculator to project the growth of positions you plan to hold long-term.

Strategies to Minimize Capital Gains Tax

Here is a summary of the most effective strategies covered in this guide and beyond:

• Hold for more than one year: The simplest and most impactful strategy — moves your rate from up to 37 percent to a maximum of 20 percent
• Maximize the 0 percent bracket: If your taxable income is low enough, realize long-term gains at zero federal tax. Especially valuable in early retirement before Social Security begins
• Harvest losses year-round: Do not wait until December — review your portfolio quarterly for tax-loss harvesting opportunities
• Use tax-advantaged accounts: Hold assets that generate frequent taxable events (actively traded stocks, REITs, bonds) in IRAs and 401(k)s
• Donate appreciated assets: Donating stock held long-term to charity lets you deduct the full market value while avoiding the capital gains tax entirely
• Utilize 1031 exchanges for real estate: Defer gains indefinitely by rolling proceeds into replacement investment properties
• Consider QSBS eligibility: If you are starting or investing in a small business, structure it as a C corporation and hold shares for five or more years to potentially exclude up to $10 million in gains
• Plan around the NIIT: If your income is near the $200,000/$250,000 threshold, timing large gains across tax years can help avoid or reduce the 3.8 percent surtax
• Relocate strategically: Moving to a no-income-tax state before a large liquidity event can save 5 to 13 percent in state taxes, but verify residency rules and clawback periods

Frequently Asked Questions