What is the capital gains tax rate for 2026?

Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your taxable income. Short-term capital gains (assets held one year or less) are taxed at ordinary income rates ranging from 10% to 37%. High earners may also owe the 3.8% Net Investment Income Tax.

How long do you have to hold a stock to pay long-term capital gains tax?

You must hold the asset for more than one year — at least one year and one day — to qualify for long-term capital gains rates. The holding period begins the day after you purchase the asset and ends on the day you sell it.

Can you avoid capital gains tax entirely?

Yes, in several ways. If your taxable income falls within the 0% long-term rate bracket (up to $48,350 for single filers in 2026), you pay no federal tax on long-term gains. You can also avoid gains by investing inside tax-advantaged accounts like Roth IRAs, donating appreciated stock to charity, or using tax-loss harvesting to offset gains with losses.

What is the wash-sale rule?

The wash-sale rule prevents you from claiming a tax loss if you buy a substantially identical security within 30 days before or after the sale. If triggered, the disallowed loss is added to the cost basis of the replacement security. You can avoid it by waiting 31 days to repurchase or by buying a similar but not identical investment.

Do you pay capital gains tax on your primary residence?

Most homeowners are exempt. If you've lived in your home for at least two of the last five years, you can exclude up to $250,000 in gains ($500,000 for married couples filing jointly) from federal taxes. Gains above these thresholds are taxed at standard capital gains rates.

Capital Gains Tax Explained — Short-Term vs ...

Every time you sell a stock, mutual fund, or piece of real estate for more than you paid, the IRS wants its share. Capital gains tax is one of the most consequential — and most misunderstood — levies facing American investors, and in 2026, the difference between short-term and long-term rates can mean paying anywhere from 0% to 37% on the same profit depending on how long you held the asset.

With the S&P 500 trading near $686 and up roughly 42% from its 52-week low, millions of investors are sitting on unrealized gains heading into tax season. The Federal Reserve's rate-cutting cycle — the fed funds rate has fallen from 4.33% in August 2025 to 3.64% in January 2026 — has fueled equity appreciation, but it also means more Americans face capital gains decisions in their 2025 tax returns. Understanding how these rates work, when they apply, and how to legally minimize them is no longer optional for anyone with a brokerage account.

This guide breaks down the 2026 capital gains tax structure, explains the critical distinction between short-term and long-term rates, and walks through proven strategies — from tax-loss harvesting to holding period optimization — that can meaningfully reduce what you owe.

How Capital Gains Tax Works — The Basics Every Investor Needs to Know

A capital gain occurs whenever you sell an asset for more than your cost basis — the original purchase price plus any transaction costs, reinvested dividends, or improvements (in the case of real estate). The gain is the difference between the sale price and the cost basis, and it's this gain, not the total sale proceeds, that gets taxed.

Capital gains are divided into two categories based on holding period. Short-term capital gains apply to assets held for one year or less and are taxed as ordinary income — meaning they're added to your wages, salary, and other income and taxed at your marginal federal rate, which ranges from 10% to 37% in 2026. Long-term capital gains apply to assets held for more than one year and receive preferential tax rates of 0%, 15%, or 20% depending on your taxable income.

This distinction is the single most important factor in investment tax planning. An investor in the 32% marginal bracket who sells a stock after 11 months pays 32% on the gain. Wait one more month, and the same gain is taxed at just 15% — nearly cutting the tax bill in half. The holding period is measured from the day after purchase to the day of sale, inclusive.

2026 Long-Term Capital Gains Tax Rates and Income Thresholds

For the 2025 tax year (filed in 2026), long-term capital gains are taxed at three rates. The thresholds are adjusted annually for inflation by the IRS.

0% rate applies to single filers with taxable income up to $48,350 and married filing jointly up to $96,700. This means investors with modest incomes can sell long-held assets and pay zero federal tax on the gains — a powerful tool for retirees drawing down portfolios or lower-income investors strategically realizing gains.

15% rate applies to single filers with taxable income from $48,351 to $533,400 and married filing jointly from $96,701 to $600,050. This is the rate most middle- and upper-middle-class investors pay, and it represents a substantial discount compared to ordinary income rates in the same income range (22% to 35%).

20% rate applies to single filers with taxable income above $533,400 and married filing jointly above $600,050. Even at the highest long-term rate, investors save significantly compared to the top ordinary income rate of 37%.

2026 Long-Term Capital Gains Tax Rates vs Ordinary Income Rates

High earners should also factor in the Net Investment Income Tax (NIIT), a 3.8% surtax on investment income for individuals with modified adjusted gross income above $200,000 ($250,000 married filing jointly). This effectively raises the top long-term capital gains rate to 23.8% for the wealthiest investors.

Short-Term Capital Gains — When Ordinary Income Rates Apply

Short-term capital gains receive no preferential treatment. They're stacked on top of your other ordinary income and taxed at whatever marginal bracket that combined income falls into. For 2026, the seven federal income tax brackets are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

This creates a significant tax penalty for frequent trading. Consider an investor in the 24% bracket who realizes a $10,000 gain on a stock held for six months. The federal tax bill is $2,400. If that same investor had held the stock for 13 months, the tax bill drops to $1,500 at the 15% long-term rate — a $900 savings on a single trade.

Tax on a $10,000 Gain by Holding Period and Tax Bracket

Day traders, options traders, and anyone who regularly holds positions for less than a year should pay particular attention. Not only do short-term gains face higher rates, they can also push other income into higher brackets. A $50,000 short-term trading profit could push a filer from the 24% bracket into the 32% bracket on their regular income as well.

Tax-Loss Harvesting — Turning Losses Into Tax Savings

Tax-loss harvesting is the most widely used strategy for reducing capital gains taxes. The concept is straightforward: sell investments that are currently trading below your cost basis to realize a loss, then use that loss to offset gains elsewhere in your portfolio.

Capital losses first offset capital gains of the same type — short-term losses offset short-term gains, and long-term losses offset long-term gains. Any remaining net losses can then offset gains of the other type. If your total capital losses exceed your total capital gains for the year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately). Unused losses carry forward indefinitely to future tax years.

The wash-sale rule is the critical constraint. The IRS disallows the loss deduction if you purchase a "substantially identical" security within 30 days before or after the sale. However, you can buy a similar but not identical investment — for example, selling one S&P 500 index fund and immediately buying a different S&P 500 ETF from another provider, or swapping individual stocks within the same sector.

With the S&P 500 near record highs, many investors may assume they have no losses to harvest. But individual holdings often diverge from the broader market. A portfolio up 20% overall might contain positions down 10% to 30% that represent harvesting opportunities. Review your portfolio at both the aggregate and position level before year-end.

Five Strategies to Minimize Your Capital Gains Tax Bill in 2026

Beyond tax-loss harvesting, several evidence-based strategies can reduce your capital gains exposure.

1. Hold for the long term. This is the simplest and most effective strategy. The rate differential between short-term (up to 37%) and long-term (0% to 20%) gains makes holding for at least one year and one day a powerful default. If you're considering selling a profitable position held for 10 or 11 months, run the numbers on waiting.

2. Maximize tax-advantaged accounts. Gains realized inside a 401(k), traditional IRA, or Roth IRA are not subject to capital gains tax. In 2026, individuals can contribute up to $23,500 to a 401(k) ($31,000 if age 50+) and $7,000 to an IRA ($8,000 if age 50+). Every dollar of appreciation that occurs inside these accounts avoids capital gains entirely. Roth accounts are especially powerful — qualified withdrawals in retirement are completely tax-free.

3. Use specific identification for cost basis. When selling partial positions, instruct your broker to sell the highest-cost-basis shares first (known as "specific identification" or "highest in, first out"). This minimizes the taxable gain on each sale. Most brokerages default to FIFO (first in, first out), which sells the oldest — and often cheapest — shares first, maximizing your gain.

4. Time your income strategically. If you expect your income to be lower in a particular year — perhaps due to retirement, a job transition, or a sabbatical — that's the year to realize gains. The 0% long-term rate applies to taxable income up to $48,350 for single filers, meaning a retiree with modest pension income could sell $30,000 or more in appreciated stock and pay zero federal capital gains tax.

5. Consider charitable giving of appreciated assets. Donating stock held for more than a year directly to a qualified charity lets you deduct the full fair market value as a charitable contribution while avoiding capital gains tax entirely. If you would otherwise sell the stock and donate cash, this approach saves both capital gains tax and potentially increases your deduction.

Conclusion

Capital gains tax is one of the few areas of the tax code where investor behavior directly and immediately controls the outcome. The gap between short-term rates (up to 37%) and long-term rates (0% to 20%) is not a loophole — it's an intentional policy designed to reward patient investing, and every investor should take full advantage of it.

As the Fed continues its rate-cutting cycle and equity markets trade near all-time highs, 2026 is likely to be a year of significant capital gains activity. Whether you're rebalancing a retirement portfolio, trimming a concentrated position, or cashing out of a real estate investment, understanding the mechanics of capital gains taxation can save thousands of dollars. The strategies outlined above — holding period management, tax-loss harvesting, cost basis optimization, and strategic use of tax-advantaged accounts — are not exotic techniques reserved for the wealthy. They're accessible to every investor willing to be deliberate about when and how they sell.

One final consideration: state taxes can add meaningfully to your capital gains bill. States like California impose rates up to 13.3% on capital gains with no long-term discount, while states like Florida, Texas, and Nevada impose no state income tax at all. Your total capital gains tax rate is the sum of federal, state, and potentially the 3.8% NIIT surtax — so the full picture requires looking beyond the IRS brackets alone.

Frequently Asked Questions

Sources & References

FRED — Federal Funds Effective Rate

fred.stlouisfed.org

FRED — 10-Year Treasury Constant Maturity Rate

fred.stlouisfed.org

FRED — Consumer Price Index for All Urban Consumers

fred.stlouisfed.org

Capital Gains Tax Explained — Short-Term vs Long-Term Rates and How to Minimize Your Tax Bill

Key Takeaways

How Capital Gains Tax Works — The Basics Every Investor Needs to Know

2026 Long-Term Capital Gains Tax Rates and Income Thresholds

2026 Long-Term Capital Gains Tax Rates vs Ordinary Income Rates

Short-Term Capital Gains — When Ordinary Income Rates Apply

Tax on a $10,000 Gain by Holding Period and Tax Bracket

Tax-Loss Harvesting — Turning Losses Into Tax Savings

Five Strategies to Minimize Your Capital Gains Tax Bill in 2026

Conclusion

Frequently Asked Questions

Sources & References

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