A capital gain is the profit you make when you sell an asset for more than you paid for it.

The IRS taxes that profit, but the rate depends almost entirely on one number: how long you owned the asset before selling. Hold it for a year or less and the gain is taxed like your paycheck. Hold it longer and a separate, usually lower, set of rates applies. For 2026, those long-term rates are 0%, 15%, or 20%, and the income thresholds that decide which one you pay have just risen with inflation.

What counts as a capital gain

A capital asset is broader than most people think. According to the IRS, «almost everything you own and use for personal or investment purposes is a capital asset» — stocks, bonds, mutual funds, exchange-traded funds, real estate, a car, even a coin or art collection. When you sell one of these for more than your cost basis (generally what you paid, plus certain fees and improvements), the difference is a capital gain. Sell for less and you have a capital loss, which can offset gains.

A gain is taxed only when it is realized — that is, when you actually sell. A stock that doubles in value but stays in your account triggers no tax. That is why the timing of a sale matters so much.

Short-term vs. long-term: the one-year rule

The single most important date in capital gains taxation is the one-year mark.

  • Short-term gains apply to assets held for one year or less. They are taxed as ordinary income — the same rates that apply to wages — which in 2026 run from 10% to 37%. A short-term gain stacked on top of a solid salary can be taxed at 32% or more.
  • Long-term gains apply to assets held for more than one year. They qualify for the preferential 0%, 15%, or 20% rates.

The holding period starts the day after you buy and includes the day you sell. Missing the one-year line by even a single day can move a sale from the long-term column into the short-term one. Because short-term gains are taxed at the same ordinary rates as your wages, it is worth knowing where you land in the federal income tax brackets for 2026 before you sell.

2026 long-term capital gains rates

Long-term rates are tied to your total taxable income, not just the size of the gain. The IRS raised the thresholds for 2026 under Revenue Procedure 2025-32. Here is where each rate kicks in.

0% rate — applies if 2026 taxable income is:

  • Up to $49,450 — single filers
  • Up to $98,900 — married filing jointly
  • Up to $66,200 — head of household

15% rate — applies to taxable income of:

  • $49,451 to $545,500 — single filers
  • $98,901 to $613,700 — married filing jointly
  • $66,201 to $579,600 — head of household

20% rate — applies to taxable income above $545,500 for single filers and above $613,700 for married couples filing jointly.

Two points are easy to miss. First, these brackets use taxable income, which is your income after the standard deduction — $16,100 for single filers and $32,200 for married couples in 2026 — or after itemized deductions. Second, the gain itself counts toward that income. A large long-term gain can push part of itself out of the 0% band and into the 15% band.

The 3.8% surtax some investors also owe

High earners face an extra layer. The Net Investment Income Tax (NIIT) adds 3.8% on top of the long-term rate once modified adjusted gross income passes $200,000 for single filers or $250,000 for married couples filing jointly. Unlike the capital gains brackets, these thresholds are not adjusted for inflation — they have been fixed since the tax took effect in 2013, so each year more taxpayers cross them. An investor in the 20% bracket who also owes the NIIT effectively pays 23.8% on long-term gains.

Two special cases: your home and collectibles

Not every asset follows the standard rules.

When you sell your primary residence, the Section 121 exclusion lets you exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly, as long as you owned and lived in the home for at least two of the five years before the sale. Only gain above that exclusion is taxed.

Collectibles — art, antiques, coins, precious metals — are treated differently again. Long-term gains on collectibles are taxed at a maximum rate of 28%, higher than the 20% ceiling that applies to stocks and funds.

How to pay less capital gains tax

You cannot avoid the tax entirely, but a few legal moves reliably lower it.

  • Hold for more than a year. The jump from ordinary rates down to long-term rates is the largest single saving available to most investors.
  • Use the 0% bracket. In a low-income year — early retirement, a career break, a gap between jobs — realizing long-term gains while taxable income sits under the 0% threshold can erase the tax on those gains entirely.
  • Harvest losses. Selling a losing investment in the same year locks in a capital loss that offsets your gains dollar for dollar. Up to $3,000 of net loss can also offset ordinary income, and any remainder carries forward to future years.
  • Keep growth inside tax-advantaged accounts. Gains realized inside a 401(k) are not taxed each year, and qualified withdrawals from a Roth IRA come out completely tax-free, capital gains included.

One trap to avoid is the wash-sale rule. If you sell a security at a loss and buy the same one — or a «substantially identical» one — within 30 days, the IRS disallows the loss.

The bottom line

Capital gains tax rewards patience more than almost any other part of the tax code. The difference between selling at month eleven and month thirteen can be the difference between a 32% bill and a 15% one — or no tax at all. Before you sell a winning investment, check your holding period, estimate your taxable income for the year, and, when the numbers are large, run them past a tax professional.

Sources: IRS Revenue Procedure 2025-32 (2026 inflation adjustments); IRS Topic No. 409, Capital Gains and Losses; IRS Publication 523, Selling Your Home; IRS rules on the Net Investment Income Tax and wash sales; Kiplinger, “IRS Updates Capital Gains Tax Thresholds for 2026.”