Capital gains tax is the tax you pay on profit from selling an asset — stocks, real estate, cryptocurrency, or other investments. The rate you pay depends entirely on how long you held the asset: short-term gains (held less than one year) are taxed at your ordinary income rate, while long-term gains (held one year or more) receive preferential rates of 0%, 15%, or 20%.
Short-Term vs Long-Term Rates
Capital Gain = Sale Price − Purchase Price − Transaction Costs Your purchase price (cost basis) includes commissions, fees, and improvements (for real estate). The gain is the profit subject to tax.
| Tax Type | Holding Period | 2026 Rates |
|---|---|---|
| Short-term capital gains | Less than 1 year | 10%, 12%, 22%, 24%, 32%, 35%, or 37% (your ordinary income bracket) |
| Long-term capital gains | 1 year or longer | 0%, 15%, or 20% based on taxable income |
| Net Investment Income Tax | Either | Additional 3.8% for high earners (MAGI above $200k single / $250k married) |
| Collectibles | 1 year or longer | 28% maximum |
2026 Long-Term Capital Gains Brackets
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351–$533,400 | Above $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701–$600,050 | Above $600,050 |
These thresholds are based on taxable income (after the standard deduction), not gross income. A single filer earning $60,000 with a $15,000 standard deduction has taxable income of $45,000 — below the $48,350 threshold, meaning their long-term gains are taxed at 0%. Use the Capital Gains Tax Calculator to model your exact scenario.
Strategies to Minimize Capital Gains Tax
- Hold for at least one year. The difference between short-term (up to 37%) and long-term (0–20%) rates is enormous.
- Tax-loss harvesting. Sell losing investments to offset gains dollar-for-dollar. Up to $3,000 in net losses can offset ordinary income each year, with excess carried forward.
- Use tax-advantaged accounts. Gains inside a 401(k), IRA, or Roth IRA are not subject to capital gains tax. Roth gains are never taxed.
- Manage your income. If your taxable income stays below the 0% threshold, you pay no federal tax on long-term gains. Retirees with low income can harvest gains tax-free.
- Primary residence exclusion. When selling your home, up to $250,000 in gains ($500,000 for married couples) is excluded from tax if you lived there for at least 2 of the past 5 years.
Key Takeaways
- Long-term gains (1+ year) are taxed at 0%, 15%, or 20% — significantly lower than short-term rates.
- The 0% rate applies to single filers with taxable income under ~$48,350 and married filers under ~$96,700.
- Tax-loss harvesting offsets gains and can reduce your tax bill to zero in years with both winners and losers.
- Home sale exclusion ($250k/$500k) is one of the most powerful tax benefits available.
- NIIT adds 3.8% for high earners on top of the standard capital gains rate.
Frequently Asked Questions
Do I have to pay capital gains tax on stocks I haven't sold?
No. Capital gains tax is only triggered when you sell an asset (a taxable event). Unrealized gains (paper profits on stocks you still hold) are not taxed. This is why buy-and-hold strategies are tax-efficient: you defer taxes until you choose to sell.
How is cryptocurrency taxed?
Cryptocurrency is treated as property by the IRS, not currency. Selling crypto, trading one crypto for another, or using crypto to buy goods are all taxable events that trigger capital gains or losses. The same short-term (less than 1 year, ordinary rates) and long-term (1+ year, 0/15/20%) rules apply as for stocks.
Can capital losses offset ordinary income?
Yes, but with limits. You can use capital losses to offset capital gains dollar for dollar. If your net losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income per year. Any remaining losses carry forward to future tax years indefinitely.