Capital Gains Tax Explained: 2026 Rates, Brackets and Ways to Pay Less

When you sell an investment, a home or other property for more than you paid, the profit is a capital gain. How much tax you pay depends mostly on two things: how long you owned it and your income.

Short-term vs long-term

• Short-term: owned one year or less. Taxed as ordinary income, at your regular bracket (10% to 37%).
• Long-term: owned more than one year. Taxed at lower rates: 0%, 15% or 20%.

Waiting just past the one-year mark can cut the tax on a gain significantly.

2026 long-term capital gains brackets

These thresholds are based on your total taxable income, including the gain. Gains "stack" on top of your other income.

The 3.8% Net Investment Income Tax

Higher earners may owe an extra 3.8% NIIT on investment income when modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). These thresholds are not adjusted for inflation.

Example

A married couple has $70,000 of taxable income from wages (after deductions) and sells stock held for three years with a $40,000 long-term gain. Their total taxable income is $110,000.

• The first $28,900 of the gain fills the 0% bracket (up to $98,900): $0 tax.
• The remaining $11,100 is taxed at 15%: $1,665.

Total federal tax on a $40,000 gain: about $1,665, an effective 4.2%. Simplified example.

Selling your home

If you owned and lived in your home as your main residence for at least two of the last five years, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) from tax.

Legal ways to pay less capital gains tax

1. Hold for more than a year to qualify for long-term rates.
2. Use tax-advantaged accounts. Trades inside a 401(k), IRA or HSA don't trigger capital gains tax.
3. Harvest losses to offset gains. See tax-loss harvesting.
4. Harvest gains in low-income years. If you're in the 0% bracket (for example, early retirement or a gap year), sell and rebuy to raise your cost basis tax-free.
5. Donate appreciated assets to charity instead of cash.
6. Mind the timing. Spreading a large sale across two tax years can keep more of the gain in a lower bracket.
7. Remember the step-up. Assets inherited at death generally get a cost basis equal to their value at that time, wiping out the built-in gain.

Special cases

• Collectibles (art, coins, precious metals) held long-term can be taxed at up to 28%.
• Cryptocurrency is taxed as property: selling, swapping or spending it can trigger a gain.
• Mutual fund distributions can create taxable gains even if you didn't sell. ETFs tend to distribute fewer; see index funds vs ETFs.

Sources: IRS 2026 inflation adjustments; IRS Topic 409 (Capital gains and losses).