Sell an investment you’ve held for more than a year and the profit is taxed at the federal long-term capital gains rate, which is 0%, 15%, or 20% depending on your total taxable income and filing status. That’s the core of how capital gains tax works after one year, and it’s usually far better than the short-term treatment that applies to assets held a year or less, where gains are taxed as ordinary income at rates up to 37%. Certain assets and higher-income taxpayers face additional layers on top.
2026 Long-Term Capital Gains Brackets
The rate you pay depends on your total taxable income, not the size of the gain alone. For the 2026 tax year, the IRS set the brackets in Revenue Procedure 2025-32 as follows.1Internal Revenue Service. Revenue Procedure 2025-32
- 0% rate: taxable income up to $49,450 single, $98,900 married filing jointly, $66,200 head of household.
- 15% rate: $49,451 to $545,500 single, $98,901 to $613,700 married filing jointly, $66,201 to $579,600 head of household.
- 20% rate: income above $545,500 single, $613,700 married filing jointly, $579,600 head of household.
Capital gains stack on top of your ordinary income when figuring which bracket applies. If wages and other income already fill the 15% capital gains bracket, a gain can push part of the profit into 20%. Only the portion above the threshold takes the higher rate; the rest stays where it was.
The savings against short-term treatment can be substantial. Someone in the 24% ordinary bracket who sells at 11 months pays 24% on the gain. Waiting two more months to cross the one-year-and-one-day mark drops that to 15%, or possibly 0%. On a $50,000 gain, that’s $12,000 versus $7,500 in federal tax. Short-term gains are taxed at ordinary rates that run from 10% to 37% in 2026.2Internal Revenue Service. Topic no. 409, Capital Gains and Losses3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
How the One-Year Clock Is Counted
The IRS uses a “day after” rule. Your holding period starts the day after you acquire the asset and includes the day you sell.2Internal Revenue Service. Topic no. 409, Capital Gains and Losses Buy stock on March 1, 2025, and day one is March 2, 2025. You need to sell on or after March 2, 2026, for long-term treatment. Selling exactly one year later, on March 1, 2026, is still short-term.
Two situations override the usual counting:
- Inherited property is treated as held long-term regardless of how long you actually owned it. You could sell the day after the prior owner’s death and still get long-term rates. This deemed treatment applies to inherited property whose basis is determined under the stepped-up basis rules.4Internal Revenue Service. Publication 544, Sales and Other Dispositions of Assets5Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property
- Gifted property generally carries over the donor’s basis and holding period. If your uncle bought stock four years ago and gave it to you last month, your holding period includes those four years, so a sale today qualifies as long-term.
A separate rule governs the sale of a primary residence: an exclusion of up to $250,000 of gain ($500,000 for joint filers) is available under IRC section 121, but it requires ownership and use of the home for at least two of the five years before the sale.6Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Selling a home after only one year typically doesn’t qualify for the full exclusion.
Assets That Don’t Get the 0/15/20% Rates
Two categories of long-term assets face higher maximum federal rates even after being held more than a year.
Collectibles
Gains on collectibles are taxed at a maximum rate of 28%. Collectibles include artwork, antiques, rugs, stamps, coins, gems, precious metals, and alcoholic beverages.2Internal Revenue Service. Topic no. 409, Capital Gains and Losses The 28% is a ceiling, not a flat rate. If your income would otherwise put you in the 15% long-term bracket, you still pay 15% on the collectible gain. Above that level, the 28% cap kicks in.
Depreciation Recapture on Real Estate
Owners of rental property and other depreciable real estate face a separate bite when they sell. Depreciation deductions taken during the holding period reduce ordinary income; when the property sells at a gain, the IRS taxes the depreciation-related portion of the gain at a maximum rate of 25%.2Internal Revenue Service. Topic no. 409, Capital Gains and Losses Any remaining gain above the original purchase price is taxed at the standard long-term rates.
An example: if you claimed $80,000 in depreciation over 10 years and sell for a $200,000 gain, the first $80,000 faces the 25% recapture rate and the remaining $120,000 is taxed at your regular long-term rate.
The 3.8% Net Investment Income Tax
Higher-income taxpayers pay an additional 3.8% surcharge, the Net Investment Income Tax, on top of the long-term rate. The threshold is modified adjusted gross income above $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately.7Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
The 3.8% applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold.8Internal Revenue Service. Topic no. 559, Net Investment Income Tax A taxpayer in the 20% long-term bracket ends up at an effective 23.8% federal rate. These thresholds are set by statute and not adjusted for inflation, so more taxpayers cross them each year.
State Taxes Add to the Bill
Federal is only part of what you’ll owe. Most states tax capital gains as ordinary income. State rates range from 0% in states with no income tax up to roughly 14% in the highest-tax states. A handful of states offer preferential treatment for long-term gains or exclude certain gains, but the majority treat them the same as wages. For high-income residents of high-tax states, the combined federal and state rate can approach or exceed 30%.
Reporting and Paying the Tax
Individual sales are reported on Form 8949, listing the date acquired, date sold, sale price, and cost basis for each.9Internal Revenue Service. Instructions for Form 8949 If your broker reported cost basis to the IRS and no adjustments are needed, you can enter totals directly on Schedule D without filling out Form 8949 for those transactions.
Totals flow to Schedule D, where long-term gains net against long-term losses and short-term against short-term, then the two results combine into your overall net for the year.10Internal Revenue Service. Schedule D (Form 1040) – Capital Gains and Losses A net capital loss can offset up to $3,000 of ordinary income ($1,500 if married filing separately), with any excess carrying forward indefinitely.2Internal Revenue Service. Topic no. 409, Capital Gains and Losses
A large gain during the year can create an estimated tax obligation before filing. The IRS generally requires estimated payments if you expect to owe at least $1,000 after withholding and credits, and your withholding won’t cover the lesser of 90% of your current-year tax or 100% of last year’s tax (110% if prior-year AGI exceeded $150,000).11Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc.
If the gain lands in a single quarter, the annualized income installment method on Form 2210, Schedule AI, lets you concentrate the estimated payment in that quarter rather than spreading it across four. If you have wage income, another option is to increase W-4 withholding for the rest of the year. The IRS treats withholding as paid evenly through the year no matter when it was actually taken, which can be simpler than filing quarterly.