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Capital gains tax 2026: Short-term vs. long-term rates explained
How the IRS taxes investment gains in 2026 — short-term as ordinary income, long-term at 0/15/20%, and the 3.8% NIIT for high earners. Plus the strategies that cut the bill.
The single most important capital gains rule: hold an investment for more than one year before you sell. The tax rate often drops by half on the same dollar of gain.
This guide covers the 2026 rates, the holding period rule, the Net Investment Income Tax, the home-sale exclusion, and the strategies that legally reduce what you owe. Tax-bracket figures cited here come from IRS news release IR-2025-103 (Rev. Proc. 2025-32, October 9, 2025).
Short-term vs. long-term: the one-day rule
The IRS divides capital gains into two categories based on how long you held the asset:
- Short-term — held one year or less. Taxed as ordinary income (10%–37% in 2026).
- Long-term — held more than one year. Taxed at preferential rates of 0%, 15%, or 20%.
The holding period starts the day after you buy and ends on the day you sell. To qualify as long-term, the sale date must be at least one year and one day after the purchase date.
| Purchase date | Earliest sale date for long-term |
|---|---|
| March 15, 2026 | March 16, 2027 |
| June 30, 2026 | July 1, 2027 |
The 2026 long-term capital gains brackets
Long-term rates are tied to your taxable income, not your gain. The brackets stack on top of your ordinary-income calculation.
2026 brackets (per IR-2025-103, Rev. Proc. 2025-32):
| Rate | Single (taxable income) | MFJ | HOH |
|---|---|---|---|
| 0% | Up to ~$49,450 | Up to ~$98,900 | Up to ~$66,200 |
| 15% | ~$49,450 to ~$545,500 | ~$98,900 to ~$613,700 | ~$66,200 to ~$579,600 |
| 20% | Above ~$545,500 | Above ~$613,700 | Above ~$579,600 |
Figures are 2026 IRS inflation-adjusted thresholds per Rev. Proc. 2025-32 (IR-2025-103, October 9, 2025). Cross-check the exact threshold at IRS.gov before filing.
The Net Investment Income Tax (3.8%)
High earners pay an additional 3.8% on investment income. The Net Investment Income Tax (NIIT) applies when modified adjusted gross income exceeds:
- $200,000 — single or head of household
- $250,000 — married filing jointly
- $125,000 — married filing separately
These thresholds are not indexed for inflation and have not changed since 2013. The NIIT applies to the lesser of your net investment income or your AGI above the threshold.
For a high earner, the effective LTCG rate becomes 18.8% (15% + 3.8%) or 23.8% (20% + 3.8%).
Worked examples
Example 1: Single filer, $80,000 taxable income, $10,000 long-term gain.
Income lands above the $49,450 threshold but well below $545,500 → 15% rate. Tax on the gain: $1,500. No NIIT (income under $200K).
Example 2: Single filer, $45,000 taxable income, $5,000 long-term gain.
Income plus the gain ($50,000 combined) sits right at the top of the 0% bracket. The first $4,450 of gain fills the 0% bracket; the last $550 of gain hits 15%. Tax: $82. The takeaway: low-income years are great years to harvest gains.
Example 3: Same single filer, $5,000 short-term gain instead.
Short-term gains are taxed as ordinary income. At $45,000 of base income, an additional $5,000 mostly fills the 22% bracket. Tax: ~$1,100. That's 13x what the same gain would've cost long-term — same dollar, same investment, very different outcome.
Example 4: MFJ couple, $400,000 taxable income, $50,000 long-term gain.
Combined income above $250K NIIT threshold → 15% LTCG + 3.8% NIIT = 18.8%. Tax on the gain: $9,400.
The home-sale exclusion ($250K / $500K)
If you sell your primary residence, you can exclude:
- Up to $250,000 of gain as a single filer
- Up to $500,000 of gain as a married couple filing jointly
Two tests must both be met:
- Ownership test — you owned the home for at least 2 of the 5 years before the sale.
- Use test — you lived in it as your primary residence for at least 2 of the 5 years.
This is a per-sale, not lifetime, exclusion.You can use it once every 2 years. Above the exclusion, gain is taxed at long-term rates. Investment property doesn't qualify (use §1031 like-kind exchange instead for those).
Strategies to legally reduce capital gains tax
1. Hold for more than one year
The single highest-leverage move. A 22% ordinary-income filer who waits one extra day to cross the long-term threshold pays 15% instead of 22% on the gain — a 32% relative tax cut on the same dollar.
2. Tax-loss harvesting
Sell losing positions to offset realized gains. Realized losses cancel realized gains dollar-for-dollar. Excess losses deduct up to $3,000/year against ordinary income; the rest carries forward indefinitely.
Watch the wash-sale rule: buying a substantially identical security within 30 days before or after disallows the loss. See our tax-loss harvesting guide for mechanics.
3. Hold investments in tax-advantaged accounts
Gains inside a 401(k), Traditional IRA, Roth IRA, or HSA are not taxed at realization.If you sell VTI inside a Roth IRA, there's no capital gains event. Use these accounts for the most actively traded or highest-growth positions.
4. Donate appreciated stock to charity
If you donate stock you've held more than a year, you get an itemized deduction for the full market value AND you avoid paying capital gains on the appreciation. A donor-advised fund (Fidelity Charitable, Schwab Charitable, Vanguard Charitable) bundles this into one step.
5. Time gain realization around income
Low-income year (sabbatical, between jobs, retirement)? Take gains. You may pay 0% LTCG. High-income year? Defer if possible, or pair the realization with harvested losses.
6. Use specific lot identification
When you sell part of a position, pick which tax lots are sold. Fidelity, Schwab, and Vanguard let you choose specific shares — usually the highest-cost-basis lots to minimize gain. The default is usually FIFO (first-in-first-out) which often maximizes tax.
Where capital gains tax is paid
Brokerages report sales on Form 1099-B. Long-term and short-term gains are reported separately. The 1099-B feeds Form 8949 and Schedule D on your return.
If you take big gains, you may owe estimated tax during the yearto avoid an underpayment penalty. Brokerages don't withhold tax on gains the way employers withhold on wages.
Brokerage matters here
The brokerage you hold investments at affects how easily you can run these strategies.Specific lot ID, automated tax-loss harvesting, and clean cost-basis reporting aren't given everywhere.
Alternatives with strong tax tooling:
The bottom line
Capital gains tax is one of the most controllable taxes you pay. The holding-period rule alone — one year + one day — can cut your tax in half. Pair it with tax-loss harvesting, tax-advantaged account use, and lot ID, and a typical investor saves several thousand dollars of tax over a decade with little extra effort.
Related reading
Frequently asked questions
- What is the difference between short-term and long-term capital gains?
- Short-term capital gains apply to assets held one year or less and are taxed at your ordinary income tax rate (10%–37% in 2026). Long-term capital gains apply to assets held more than one year and are taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income. The single-day difference between 'one year' and 'one year and a day' can cut your tax in half.
- What are the 2026 long-term capital gains rates?
- 0%, 15%, or 20%. The IRS adjusts the income thresholds annually via the revenue procedure that sets income brackets (Rev. Proc. 2025-32, IR-2025-103 for 2026 figures). Single filers in 2026 stay in the 0% bracket for taxable income up to approximately $49,450, hit 15% above that, and 20% above ~$545,500. Verify the exact 2026 thresholds at IRS.gov before filing.
- What is the Net Investment Income Tax (NIIT)?
- The 3.8% NIIT applies to investment income (including capital gains) for single filers with modified AGI over $200,000 or married-filing-jointly couples over $250,000. These thresholds are not indexed for inflation and have not changed since 2013. For a high earner, the effective long-term capital gains rate becomes 18.8% (15% + 3.8%) or 23.8% (20% + 3.8%).
- Do I have to pay capital gains tax on my home sale?
- Single filers can exclude up to $250,000 of gain ($500,000 for married filing jointly) on the sale of a primary residence if you've owned and lived in it for at least 2 of the last 5 years. Above the exclusion, the gain is taxed at long-term rates. Investment property or second homes don't qualify for this exclusion.
- How can I reduce my capital gains tax?
- Several strategies: (1) hold positions for more than a year to qualify for long-term rates; (2) harvest losses to offset gains via tax-loss harvesting; (3) use tax-advantaged accounts (IRA, 401(k), HSA) where gains are tax-deferred or tax-free; (4) donate appreciated stock to charity instead of cash; (5) for high earners, manage income to stay below NIIT thresholds in years you take large gains.
- How does tax-loss harvesting work?
- Sell investments at a loss to offset gains elsewhere — realized losses cancel realized gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000/year against ordinary income (the remainder carries forward to future years). Watch the wash-sale rule: if you buy a substantially identical security within 30 days before or after the sale, the loss is disallowed. See our full tax-loss harvesting guide for the mechanics.