Federal long-term capital gains tax rates have ranged from 0% to the full ordinary income rate since the modern income tax began in 1913. The historical capital gains tax rates trace an arc from full taxation, through a long exclusion era that effectively capped the rate near 25%, to today’s three-tier structure of 0%, 15%, and 20%, or 23.8% when the net investment income tax applies. More than a dozen major laws have reshaped the rate along the way.
1913: Gains Taxed as Ordinary Income
When the modern income tax launched after ratification of the 16th Amendment in 1913, capital gains were taxed exactly like any other income.1National Archives. 16th Amendment to the U.S. Constitution: Federal Income Tax (1913) There was no separate rate, no holding-period distinction, and no preference for patient investors. A dollar of profit on a stock sale carried the same tax as a dollar of wages.
1921 to 1978: The Exclusion Era
The Revenue Act of 1921 introduced the first preferential treatment for long-term gains. Assets held longer than two years qualified for an alternative 12.5% rate, well below the 65% top marginal rate on ordinary income at the time.
Rather than building a separate rate schedule, Congress used an exclusion mechanism for most of the 20th century. Only a portion of a long-term gain counted as taxable income; the rest was excluded. The Revenue Act of 1942 set that inclusion at 50%, meaning half of any long-term gain was taxable and half was not. With the top ordinary rate applied only to the included half, the effective maximum capital gains rate was capped at 25%. That 50% inclusion rule and its 25% cap held for decades.2Department of the Treasury. Report to Congress on the Capital Gains Tax Reductions of 1978
The Revenue Act of 1978 pushed the exclusion higher, from 50% to 60%. Only 40% of a long-term gain was now included. With the top ordinary rate at 70%, the effective maximum capital gains rate worked out to 28% (40% × 70%).2Department of the Treasury. Report to Congress on the Capital Gains Tax Reductions of 1978 That 28% figure would return again and again in later legislation.
1986: Equalization and the 28% Cap
The Tax Reform Act of 1986 was the most sweeping overhaul of the tax code in a generation, and it did something few had expected: it eliminated the long-term capital gains exclusion entirely.3Department of the Treasury. Compendium of Tax Research 1987 – Investment Incentives Under the Tax Reform Act of 1986 Congress slashed the top ordinary rate to 28% (with a temporary 33% effective rate for some high earners due to a surcharge phasing out lower brackets), so lawmakers saw no need for a separate capital gains preference. Long-term gains were taxed as ordinary income.
Equalization lasted about four years. The 1986 law included a safeguard: the maximum rate on capital gains was capped at 28% even if Congress later raised ordinary rates. That provision turned out to be prophetic.
1990 and 1993: Ordinary Rates Rise, the Cap Holds
The Omnibus Budget Reconciliation Act of 1990 pushed the top ordinary rate to 31%, immediately re-creating a three-point gap between ordinary income and capital gains. Three years later, the Omnibus Budget Reconciliation Act of 1993 raised the top rate to 39.6% while the capital gains cap stayed at 28%.4Congressional Budget Office. An Economic Analysis of the Revenue Provisions of OBRA-93 The gap had widened to roughly 11 percentage points, and the political consensus shifted firmly toward maintaining a permanent preference for investment gains.
1997: The Tiered System Arrives
The Taxpayer Relief Act of 1997 replaced the single 28% cap with a graduated system tied to the taxpayer’s ordinary income bracket. Lower-bracket taxpayers paid a maximum of 10% on long-term gains; everyone else paid a maximum of 20%.5Congressional Budget Office. An Economic Analysis of the Taxpayer Relief Act of 1997 The 28% rate survived only for collectibles and certain recaptured depreciation. For the first time, capital gains rates varied by the taxpayer’s income level rather than sitting under a single flat cap.
2003: Rates Cut Again
The Jobs and Growth Tax Relief Reconciliation Act of 2003 cut rates further. The 20% top rate dropped to 15%, and the 10% lower rate fell to 5%, eventually reaching 0% for the lowest-income taxpayers. These historically low rates were initially temporary, set to expire after a few years, but Congress extended them repeatedly.
2012: The 0/15/20 Structure Becomes Permanent
The American Taxpayer Relief Act of 2012 made the 0% and 15% rates permanent and added a 20% bracket for taxpayers at the top ordinary income level. The three-tier structure of 0%, 15%, and 20% that still governs long-term gains today dates from this law.
2013: The Net Investment Income Tax
The Affordable Care Act of 2010 added a 3.8% surtax on net investment income, effective January 1, 2013.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax The Net Investment Income Tax applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.7Internal Revenue Service. Topic No. 559, Net Investment Income Tax Those thresholds are not indexed for inflation, so they catch more taxpayers each year.
Net investment income includes capital gains, dividends, interest, and passive rental income.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax For someone already in the 20% long-term capital gains bracket, the NIIT brings the effective federal rate to 23.8%, the highest combined rate on general long-term gains since the 28% cap era of the early 1990s.
2017: The TCJA Decouples the Brackets
The Tax Cuts and Jobs Act kept the 0%, 15%, and 20% long-term rates intact but made a structural change. For tax years 2018 through 2025, the income thresholds that determine which capital gains rate applies were decoupled from the ordinary income brackets and given their own separate breakpoints, indexed annually for inflation. Before this change, the capital gains rate was effectively set by where income fell within the ordinary income brackets.
Because the TCJA simultaneously lowered ordinary rates and reshuffled the brackets, tying capital gains rates to the old bracket structure would have produced unintended shifts in who paid what. The separate thresholds kept the capital gains rate distribution roughly stable while the ordinary income side was overhauled.
Most individual provisions of the TCJA are scheduled to sunset after December 31, 2025. The separate capital gains bracket thresholds technically expire for 2026, and the rate structure reverts to being linked to the ordinary income brackets. The 0%, 15%, and 20% rates themselves are not affected by the sunset, since they were permanently enacted in 2012. What changes is how the income thresholds are calculated.
Where the Rates Stand for 2026
The three-tier long-term capital gains rate structure remains in effect for 2026, with thresholds adjusted annually for inflation.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses
- 0% rate: taxable income up to roughly $49,450 for single filers and about $98,900 for married couples filing jointly.
- 15% rate: taxable income between approximately $49,450 and $545,500 for single filers, and between roughly $98,900 and $613,700 for joint filers.
- 20% rate: taxable income above $545,500 for single filers and above $613,700 for joint filers.
These thresholds are approximate for the 2026 tax year based on inflation adjustments. The IRS publishes official figures in its annual revenue procedures, and rounding can shift the exact breakpoints by a few dollars. Add the 3.8% NIIT for high earners, and the top effective federal rate on long-term capital gains reaches 23.8%.
Short-term gains sit outside this history. Profit on an asset held one year or less is taxed at ordinary income rates, the same rates that apply to wages.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses The rate story above is the long-term story.
Asset Classes That Don’t Follow the Tiers
A few categories of long-term gains carry their own maximums rather than the 0/15/20 structure.
- Collectibles. Gains on items like art, antiques, coins, and precious metals are taxed at a maximum rate of 28%, the same rate that served as the general capital gains cap in the early 1990s.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses
- Depreciation recapture on real estate. If depreciation deductions have been claimed on rental or business property, the gain attributable to that depreciation (unrecaptured Section 1250 gain) is taxed at a maximum of 25%. Any gain above the depreciation amount falls back to the standard long-term rates.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses
- Qualified small business stock. Under Section 1202, gains from the sale of stock in certain small C corporations may be partially or fully excluded if the shares have been held for at least five years. For stock acquired after September 27, 2010, the exclusion can reach 100%, producing a 0% federal rate on qualifying gains.9Office of the Law Revision Counsel. 26 USC 1202 – Partial Exclusion for Gain From Certain Small Business Stock