The one-year line decides your rate
How long you hold an asset decides how its profit is taxed. If you hold it for more than one year, the gain is long-term. If you hold it for one year or less, the gain is short-term.
Long-term gains get their own lower rates: 0%, 15% or 20%. Short-term gains get no special treatment. They are taxed at the same ordinary rates as your wages, which run from 10% to 37% for 2026.
Qualified dividends follow the long-term rates too. Ordinary (nonqualified) dividends and interest are taxed like wages.
How the holding period is counted
The clock generally starts the day after you buy and includes the day you sell. To be long-term, the holding period must be more than one year. Selling exactly one year after the purchase date still counts as short-term.
- Bought March 10, 2025, sold March 10, 2026: one year or less, so short-term.
- Bought March 10, 2025, sold March 11, 2026: more than one year, so long-term.
Special rules can change the start date. Inherited property is generally treated as long-term no matter how briefly the heir held it. Gifted property often carries over the giver’s holding period. Each purchase lot of the same stock has its own date, so one sale can include both kinds of gain.
Reinvested dividends create new lots too. If you reinvest dividends every quarter, each small purchase starts its own one-year clock. Your broker’s Form 1099-B normally labels each sale as short-term or long-term, but it is still worth checking the dates.
The gain itself is the sale price minus your cost basis. Basis is usually what you paid, plus fees and commissions. Selling costs reduce the amount realized. A higher basis means a smaller taxable gain, so accurate records matter for both types of gain.
2026 long-term capital gains brackets
The 0%, 15% and 20% rates apply based on your total taxable income, including the gain itself. The thresholds below are for tax year 2026, the return you file in 2027.
| Filing status | 0% rate up to | 15% rate up to | 20% rate above |
|---|---|---|---|
| Single | $49,450 | $545,500 | $545,500 |
| Married filing jointly | $98,900 | $613,700 | $613,700 |
| Head of household | $66,200 | $579,600 | $579,600 |
| Married filing separately | $49,450 | $306,850 | $306,850 |
Source: IRS Revenue Procedure 2025-32. Short-term gains use the regular brackets in our 2026 federal tax brackets guide.
Gains stack on top of ordinary income
Long-term gains are counted last. Your wages and other ordinary income fill the brackets first, after deductions. The gain then sits on top of that amount.
This matters because the 0% band is shared. If your ordinary taxable income already uses part of the 0% range, only the leftover room is available for gains at 0%. Anything above that room is taxed at 15%, and above the 15% ceiling at 20%.
Stacking works in one direction only. A large gain can push part of itself into a higher capital gains rate. It does not raise the rate on your wages. Your ordinary income is taxed the same way whether or not you sell anything.
Short-term gains are different. They are simply added to ordinary income, so a big short-term gain can move part of it into the 22% or 24% bracket.
Quick joint-return check: a married couple filing jointly has $112,200 of wages and a $40,000 long-term gain. After the $32,200 standard deduction, ordinary taxable income is $80,000. The 0% band runs to $98,900, so $18,900 of the gain is taxed at 0%. The other $21,100 is taxed at 15%, or $3,165.
Worked example: same gain, two holding periods
Take a single filer with a $50,000 salary and no other income. She sells stock for a $30,000 profit in 2026. She takes the $16,100 standard deduction.
Ordinary taxable income: $50,000 − $16,100 = $33,900. Tax on that amount is $1,240 + 12% × ($33,900 − $12,400) = $1,240 + $2,580 = $3,820.
If the gain is long-term
- Room left in the 0% band: $49,450 − $33,900 = $15,550 taxed at 0%.
- Rest of the gain: $30,000 − $15,550 = $14,450 taxed at 15% = $2,167.50.
- Total federal income tax: $3,820 + $2,167.50 = $5,987.50.
If the gain is short-term
- Total taxable income: $33,900 + $30,000 = $63,900.
- Tax from the regular brackets: $5,800 + 22% × ($63,900 − $50,400) = $5,800 + $2,970 = $8,770.
- Tax caused by the gain: $8,770 − $3,820 = $4,950.
Holding the stock past the one-year mark cuts the tax on this gain from $4,950 to $2,167.50. That is a difference of $2,782.50. State tax is not included in these figures.
Her effective rate on the long-term gain is $2,167.50 ÷ $30,000, or about 7.2%. The short-term version works out to $4,950 ÷ $30,000, or 16.5%. Both are well below her top ordinary bracket of 22%, because part of each gain falls in a lower band. Timing a sale is a personal decision, and taxes are only one factor to weigh.
The 3.8% Net Investment Income Tax
Higher earners may owe an extra 3.8% on investment income. This Net Investment Income Tax (NIIT) applies to both short-term and long-term gains, plus interest, dividends and most rental income.
The tax is 3.8% of the smaller of two amounts: your net investment income, or your modified adjusted gross income (MAGI) above the threshold. The thresholds are $200,000 for single and head of household, $250,000 for married filing jointly and $125,000 for married filing separately. They are not adjusted for inflation.
Example: a single filer has MAGI of $260,000, including $40,000 of net investment income. MAGI is $60,000 over the threshold. The smaller amount is $40,000, so NIIT is 3.8% × $40,000 = $1,520. This is on top of the regular capital gains tax. See the IRS page on the Net Investment Income Tax for what counts as investment income.
High-income example: 20% plus NIIT
A single filer has a $560,000 salary and a $30,000 long-term gain. Ordinary taxable income is $560,000 − $16,100 = $543,900. Only $1,600 of room is left below the $545,500 ceiling.
- $1,600 at 15% = $240.
- $28,400 at 20% = $5,680.
- NIIT: MAGI of $590,000 is far above $200,000, so the smaller amount is the $30,000 gain. 3.8% × $30,000 = $1,140.
- Total federal tax on the gain: $240 + $5,680 + $1,140 = $7,060.
That works out to about 23.5% of the gain. Had the same gain been short-term, it would fall in the 35% bracket, before NIIT.
Losses, netting and other details
Mutual funds and ETFs add one twist. Capital gain distributions paid by a fund are generally treated as long-term, even if you bought the fund shares recently. Your Form 1099-DIV shows these amounts in their own box.
Gains and losses are netted before any rate applies. Short-term losses first offset short-term gains, and long-term losses offset long-term gains. Any net loss in one group then offsets net gain in the other.
If losses exceed gains overall, a limited amount of the net loss can reduce ordinary income each year. The rest carries forward to future years. The IRS instructions for Schedule D give the current limit.
A few assets follow different long-term rates. Gains on collectibles, such as art and coins, and part of the gain on depreciated real estate can face higher maximum rates than 20%. Sales are reported on Form 8949 and Schedule D. The IRS capital gains topic covers these rules, and a tax professional can help with unusual sales.
Estimate your own gain
To see how a sale might stack on your income, try the Capital Gains Tax Calculator. Enter your filing status, ordinary income and gain to compare long-term and short-term results. It gives a federal estimate only.