Is Capital Gains Tax Progressive? Tiers, NIIT, and State Taxes

Yes, the federal capital gains tax is progressive. Rates rise with your total taxable income at every stage of the calculation: long-term gains move through three tiers (0%, 15%, and 20%), short-term gains are taxed at the same graduated rates as wages, and a 3.8% surcharge stacks on top once income crosses statutory thresholds. Two people selling the same asset for the same profit can owe very different amounts depending on what else they earn.

The Three Long-Term Rate Tiers

Long-term capital gains come from assets held longer than one year, and the tax code assigns them one of three rates based on your total taxable income, not the size of the gain itself.¹ That tiered structure is what makes the long-term tax progressive rather than flat.

For the 2026 tax year, the brackets are:²

0% on taxable income up to $49,450 for single filers, or $98,900 for married couples filing jointly.
15% on taxable income from $49,451 to $545,500 for single filers, or from $98,901 to $613,700 for joint filers.
20% on taxable income above $545,500 for single filers, or above $613,700 for joint filers.

The 0% bracket does real work. A retired couple with modest pension income and $30,000 in long-term stock gains can owe zero federal tax on those gains if total taxable income stays below $98,900. A single filer earning $600,000 pays 20% on the same type of gain. That spread is the core of the progressivity.

Taxable income here means income after deductions. The 2026 standard deduction is $16,100 for single filers and $32,200 for joint filers, which shields the first chunk of income and pushes more gains into the 0% tier than gross income alone would suggest.²

Short-Term Gains Are Taxed as Ordinary Income

Profits from assets held one year or less get no preferential rate. The IRS taxes them exactly like wages, using the standard graduated brackets.¹ Those rates for 2026 run from 10% to 37%:²

10% on income up to $12,400 single ($24,800 joint)
12% on income over $12,400 ($24,800 joint)
22% on income over $50,400 ($100,800 joint)
24% on income over $105,700 ($211,400 joint)
32% on income over $201,775 ($403,550 joint)
35% on income over $256,225 ($512,450 joint)
37% on income over $640,600 ($768,700 joint)

The gap between short-term and long-term treatment is dramatic. A single filer earning $300,000 pays 15% on a long-term gain but 32% or 35% on the same gain if it’s short-term. Holding an investment for at least a year and a day roughly halves the rate for most taxpayers above the lowest brackets. And because the ordinary rates climb through seven brackets, short-term gains are themselves progressive.

The 3.8% Net Investment Income Tax

Above certain income levels, capital gains carry an additional 3.8% surcharge called the Net Investment Income Tax, established by Section 1411 of the Internal Revenue Code.³ The NIIT applies when your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers.⁴

The 3.8% stacks on the base capital gains rate. A top-bracket taxpayer already paying 20% on long-term gains effectively pays 23.8%. Someone in the 15% long-term bracket whose MAGI crosses the threshold pays 18.8%. The surcharge adds another progressive step, concentrating the heaviest burden on taxpayers with both high income and significant investment returns.

Unlike the capital gains brackets, the NIIT thresholds are fixed by statute and have never been adjusted for inflation. The $200,000 single-filer threshold meant something different when the tax took effect in 2013 than it does in 2026. A separate 0.9% Additional Medicare Tax is sometimes confused with the NIIT, but it applies only to wages and self-employment income, not to capital gains.⁵

Higher Rates for Collectibles and Depreciated Real Estate

Not every long-term gain qualifies for the 0%/15%/20% tiers. Two categories carry higher maximum rates, which makes the overall system more layered than the headline brackets suggest.

Long-term gains on collectibles, including coins, art, antiques, and precious metals, face a maximum rate of 28%.¹ If your ordinary income rate is below 28%, you pay your regular rate instead. A high-income collector selling a painting held for decades pays 28% rather than the 20% that would apply to a stock at the same income level. With the NIIT added, the effective rate reaches 31.8%.

Depreciated real estate triggers a category called unrecaptured Section 1250 gain. When you sell rental or commercial property and have claimed depreciation over the years, the portion of your gain tied to that depreciation is taxed at a maximum rate of 25%.¹ Any remaining gain above the depreciation recapture is taxed at the standard long-term rates. Because both of these caps only bind at higher income levels, they preserve the progressive shape of the system while ceilings the rate for these specific assets.

State Taxes Add Another Layer

The federal structure is only part of the picture. Most states tax capital gains as ordinary income, applying their own graduated rates on top of the federal tax. A handful of states impose no income tax at all, while the highest-tax states push combined rates above the mid-30% range once federal and state obligations are added together. A few states treat capital gains differently from ordinary income or offer partial deductions, but most simply fold them into the same brackets used for wages. Two taxpayers with identical incomes and identical gains can face meaningfully different total tax burdens depending on where they live.

1
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
4
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
5
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax