Capital Gains Tax Rates 2026: What You Need to Know

Capital Gains Tax Rates 2026: What You Need to Know

When you sell an investment for more than you paid, the profit is a capital gain. How much tax you owe depends on how long you held the asset and your taxable income. Understanding the capital gains tax rates for 2026 can help you time sales strategically and keep more of your investment returns.

Short-Term vs Long-Term Capital Gains

Short-term capital gains apply to assets held for one year or less. They are taxed as ordinary income at your marginal tax rate — the same rate as your wages.

Long-term capital gains apply to assets held for more than one year. They are taxed at preferential rates: 0%, 15%, or 20%.

This distinction is one of the most valuable in the tax code. Waiting one day past the one-year mark on a position can meaningfully reduce your tax bill.

2025 Long-Term Capital Gains Tax Rates

(Rates for the 2025 tax year, filed in 2026)

These thresholds are based on your total taxable income, not just investment income.

The 0% Capital Gains Rate: An Underused Strategy

Many taxpayers in the 10% or 12% ordinary income brackets qualify for the 0% long-term capital gains rate. If your total taxable income falls within those thresholds, you can realize investment gains without owing any federal capital gains tax.

This creates a tax-planning opportunity: in a lower-income year, consider intentionally harvesting gains on appreciated assets to reset your cost basis tax-free.

Net Investment Income Tax (NIIT)

High earners face an additional 3.8% Net Investment Income Tax on capital gains and other investment income. The NIIT applies to the lesser of:

• Your net investment income, or
• The amount by which your MAGI exceeds $200,000 (single) or $250,000 (married)

This means the effective top federal capital gains rate is 23.8% (20% + 3.8%) for high earners.

State Capital Gains Taxes

Most states tax capital gains as ordinary income at their standard income tax rate. Notable exceptions:

• No capital gains tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington (except Washington's 7% tax on long-term gains above $250,000), Wyoming
• Washington: 7% tax on long-term gains above $250,000

California taxes capital gains as ordinary income, with rates up to 13.3% — making California's combined federal/state rate the highest in the country for top earners.

Tax-Loss Harvesting

If you have capital losses in a given year, you can use them to offset capital gains dollar for dollar. Additional losses above your gains can offset up to $3,000 of ordinary income per year, with any remaining losses carried forward to future years.

Year-end tax-loss harvesting is a standard planning strategy for taxable investment accounts. Be aware of the wash-sale rule: you cannot repurchase the same or substantially identical security within 30 days before or after the sale.

Special Assets with Different Rates

Collectibles (art, coins, wine): Long-term gains taxed at a maximum of 28%.

Section 1250 property (real estate depreciation recapture): Taxed at a maximum of 25%.

Qualified small business stock (QSBS): Up to $10 million in gains may be excluded if holding period and other requirements are met.

Planning Around Capital Gains

The most effective strategies for minimizing capital gains taxes include:

• Holding assets longer than one year to qualify for long-term rates
• Harvesting losses to offset gains
• Locating high-growth assets in tax-advantaged accounts (IRA, 401(k))
• Donating appreciated stock to charity (avoid gains entirely while claiming a deduction)
• Gifting appreciated assets to lower-income family members who qualify for the 0% rate