Long-Term Capital Gains Rates

Long-term capital gains — profits from selling assets held for more than one year — are taxed at preferential rates well below ordinary income tax rates, a deliberate policy choice to encourage long-term investment. For 2026, the rates are 0% (for most taxpayers in the lower brackets), 15% (the rate most investors pay), and 20% (for high earners above approximately $545,500 single / $613,700 married filing jointly in taxable income). This preferential treatment creates the famous situation where a billionaire investor can pay a lower marginal tax rate than their salaried employees — though the actual dynamics are more nuanced because capital gains rates apply only to realized gains, not unrealized appreciation. For high-income investors, the Net Investment Income Tax (NIIT) adds 3.8% on top, bringing the combined federal top rate on long-term capital gains to 23.8% plus state taxes. The long-term vs. short-term distinction is binary: hold an asset 366 days and you're taxed at the preferential rate; hold it 365 days and it's ordinary income (up to 37% plus NIIT). This cliff creates strong incentives around holding-period decisions for investors in higher brackets, particularly around year-end tax planning.

Current Law (2026)

Long-term capital gains (assets held more than one year) are taxed at preferential rates below ordinary income tax rates.

Filing Status	0% Rate	15% Rate	20% Rate
Single	Up to $49,450	$49,450 - $545,500	Over $545,500
MFJ	Up to $98,900	$98,900 - $613,700	Over $613,700
HOH	Up to $66,200	$66,200 - $579,600	Over $579,600

Thresholds are based on taxable income (after deductions), not gross income. Married filing separately uses $49,450 and $306,850.

Net Investment Income Tax (NIIT)

An additional 3.8% tax applies to net investment income (including capital gains) for taxpayers with MAGI above $200,000 (single) or $250,000 (MFJ). See Net Investment Income Tax.

Effective top rate: 20% + 3.8% NIIT = 23.8% on long-term capital gains for high earners.

Legal Authority

26 U.S.C. § 1(h) — Maximum capital gains rates
26 U.S.C. § 1221 — Capital asset defined
26 U.S.C. § 1222 — Other terms relating to capital gains and losses
26 U.S.C. § 1223 — Holding period of property
IRC Section 1411 — Net Investment Income Tax

How It Works

To qualify for long-term treatment, you must hold the asset for more than one year from the acquisition date to the sale date. Exactly 365 days is short-term, taxed as ordinary income up to 37%. One year and one day is long-term at the preferential 0%, 15%, or 20% rate. The holding period applies to each specific lot — if you've made multiple purchases of the same stock, which shares you sell determines whether that particular gain is short-term or long-term. Specific-identification lot accounting lets you designate which shares to sell; without an explicit election, brokers typically default to FIFO (first-in, first-out). Tracking lot accounting at year-end is the most common way investors save on capital gains taxes with minimal effort.

Long-term capital gains are "stacked" on top of ordinary income when determining which rate applies. If your ordinary taxable income (after deductions) is $40,000 as a single filer and you have $20,000 in long-term gains, those gains don't sit in a separate column — they stack on top. The first $9,450 of gains falls in the 0% bracket (the space between your $40,000 ordinary income and the $49,450 LTCG threshold for 2026 single filers), and the remaining $10,550 is taxed at 15%. Wages and ordinary income fill the lower brackets first; capital gains occupy whatever room remains. This stacking principle means the same gain can be taxed at 0%, 15%, or 20% depending on how much ordinary income you have in the same year.

Capital gains and losses are netted before rates apply: short-term gains offset short-term losses, long-term gains offset long-term losses, then net short-term results net against net long-term results. If the final result is still a net capital loss, that loss offsets up to $3,000 of ordinary income per year — a limit that has never been indexed for inflation since 1978. Any excess loss carries forward indefinitely to future tax years with no expiration. Unrealized capital loss carryforwards are among the most underutilized assets in investor accounts; check your Schedule D carryforwards from prior-year returns before year-end planning.

Not all long-term capital gains qualify for the 0%/15%/20% rates. Collectibles — art, coins, antiques, precious metals, and certain coins — face a maximum federal rate of 28%, not 20%, on long-term gains. Qualified dividends from U.S. corporations and qualifying foreign corporations receive the same preferential 0%/15%/20% structure as long-term capital gains, making them especially tax-efficient in taxable brokerage accounts. Qualified Small Business Stock (QSBS) under Section 1202 offers the most powerful exclusion in the tax code: gains on original-issue shares in qualifying C-corporations held for more than five years may be 100% excluded from federal capital gains tax (50% or 75% for some earlier issuance dates), up to the greater of $10 million or 10 times the original investment per issuer. State conformity varies widely — California, for example, does not conform to the federal QSBS exclusion, making the effective state tax rate on qualifying gains as high as 13.3%.

How It Affects You

If you're deciding when to sell an appreciated investment: The one-year holding period is one of the most valuable timing thresholds in the tax code. Selling at 11 months means your gain is taxed as ordinary income at your marginal rate — potentially 22%, 24%, 32%, or 37%. Wait two more months to cross the one-year mark and the same gain is taxed at 0%, 15%, or 20%. On a $100,000 gain, the difference between a 37% ordinary rate and a 15% long-term rate is $22,000 in federal tax. The stacking rule matters here: your capital gains sit on top of your ordinary income for bracket purposes. If you have $60,000 in wages and $40,000 in long-term gains, the wages fill up the ordinary income brackets first, and your gains get taxed at the LTCG rate that applies to your total taxable income of $100,000 — which for a single filer in 2026 means $9,450 of gains fall in the 0% bracket (the room between $60,000 and $49,450 is negative, so all gains are at 15%).

If you have a mix of gains and losses in your portfolio: Tax-loss harvesting — selling positions with unrealized losses to offset realized gains — is one of the few ways to directly reduce your tax bill through investment decisions. Net long-term losses first offset long-term gains, then short-term gains, then up to $3,000 of ordinary income per year; excess losses carry forward indefinitely to future years. The key constraint is the wash sale rule: you cannot repurchase substantially identical securities within 30 days before or after the sale, or the loss is disallowed. Replace sold positions with similar-but-not-identical ETFs or funds to maintain market exposure while locking in the loss. Year-end planning matters most — review your realized gains and look for harvesting opportunities before December 31, because losses must occur in the same tax year as the gains you're offsetting.

If you're retired or have lower income in a particular year: The 0% long-term capital gains bracket extends to $49,450 (single) or $98,900 (married filing jointly) of taxable income in 2026 — and taxable income is after deductions. A married couple with the standard deduction ($30,000 in 2026) can have $128,900 in gross income (wages, Social Security, distributions) and still pay zero federal tax on their long-term capital gains. This makes "gains harvesting" — strategically realizing gains in low-income years — a powerful planning tool: sell appreciated assets, pay 0% federal tax, buy them right back (unlike losses, there's no wash sale rule for gains), and reset your cost basis higher. This strategy works particularly well during early retirement before Social Security or required minimum distributions kick in, creating a window to harvest gains at 0% that may otherwise be taxed at 15% later.

If you want to give to charity or leave assets to heirs: Appreciated long-term assets — stocks, mutual funds, real estate — are the most tax-efficient charitable gifts. If you donate stock worth $10,000 that you purchased for $2,000, you avoid $1,200 in capital gains tax (15% × $8,000 gain) AND receive a $10,000 charitable deduction at fair market value if you itemize. Selling the stock, paying the tax, and donating cash would only give you a $8,800 deduction. Donor-advised funds make this accessible even for gifts too small to name at a specific charity — contribute appreciated securities to the DAF, get the full deduction in that tax year, then recommend grants to charities over multiple years. For assets transferred at death, the step-up in basis rule eliminates all capital gains accrued during the decedent's lifetime — heirs inherit assets at fair market value on the date of death, with no capital gains tax owed on appreciation during the decedent's ownership.

State Variations

Most states tax capital gains as ordinary income. Notable exceptions:

No income tax: AK, FL, NV, NH (interest/dividends only), SD, TN, TX, WA, WY
WA: No income tax but has a 7% capital gains tax on gains over $270,000 (upheld by state supreme court)
CA: Taxes capital gains as ordinary income at rates up to 13.3%
NJ, NY: Tax capital gains as ordinary income (rates up to 10.75% and 10.9%)
AZ: Allows 25% deduction on capital gains (effective max rate 3.375%)
WI, SC, ND: Various partial exclusions or lower rates for capital gains

Implementing Regulations

26 CFR Part 1 — Income tax regulations, capital gains provisions: capital gains look-through rules for partnership and trust distributions, capital loss limitation rules (Section 1211), capital loss carryover and carryback provisions (Section 1212), Qualified Opportunity Zone gain deferral elections (Section 1400Z-2), consolidated return capital gain and loss rules, and REIT capital gains distribution treatment
26 CFR 1.1(h)-1 — Capital gains look-through rule for sales or exchanges of partnership interests (look-through to underlying assets to determine the character of partnership interest sale gain — collectibles, unrecaptured § 1250 gain)
26 CFR 1.1014-1 — Basis of property acquired from a decedent (the foundational step-up in basis rule: fair market value at date of death becomes the new basis)
26 CFR 1.1014-2 — Property acquired from a decedent (specific rules for property included in the gross estate)

Pending Legislation (119th Congress)

HR4102 — RISE Act — Cap tax rate on adjusted net capital gains at 15% by rewriting the capital gains rate formula (Rep. Hill, R-AR)
HR1857 — Capital Gains Inflation Relief Act — Index stock, crypto, and business property bases for inflation, reducing taxable capital gains on long-held assets (Rep. Davidson, R-OH)
HR2908 — Middle Class Savings Act — Raise five long-term capital gains thresholds to match current income tax bracket breakpoints (Rep. Barr, R-KY)
HR2927 — All-Americans Tax Relief Act — Raise top capital gains rate to 25% while expanding refundable credits (Rep. Cherfilus-McCormick, D-FL)
HR7303 — Middle Class Tax Cut Act — Remove preferential capital gains rates entirely; tax all income at rewritten bracket rates (119th Congress)
S2047 — No Capital Gains Allowance for American Adversaries Act — Treat gains from China, Russia, Belarus, Iran, North Korea assets as ordinary income; remove step-up in basis for those assets (Sen. Ricketts, R-NE)
HR6836 — Beginning Farmer Tax Incentive Act — 40% capital gains exclusion for farmland sales to certified beginning farmers (119th Congress)
S 930 (Sen. McConnell, R-KY) — Exclude capital gains from farmland sales if proceeds are contributed to an IRA within 60 days, with 10-year recapture rules. Status: Introduced.
Mark-to-market / unrealized gains tax: Recurring proposals to tax unrealized gains annually for ultra-high-net-worth individuals.
Step-up in basis: Proposals to eliminate the step-up in basis at death. See Step-Up in Basis.

Recent Developments

Current federal LTCG structure remains 0% / 15% / 20% for 2026: The top combined federal rate for affected taxpayers remains 23.8% when NIIT applies. Proposals to raise long-term capital gains rates or tax unrealized gains have not been enacted as of April 6, 2026.
Washington state 7% capital gains tax upheld: The Washington Supreme Court upheld the state's 7% capital gains tax on gains over $262,000 (adjusted annually) in March 2023. Washington's tax applies despite having no general income tax. This marked the first state to successfully impose a standalone capital gains tax outside the income tax framework — a model other no-income-tax states could follow.
Massachusetts 4% "millionaire's tax" in effect: Massachusetts voters approved a 4% surtax on income (including capital gains) over $1 million in November 2022, effective 2023. Combined with the base 5% income tax, Massachusetts now taxes capital gains at 9% for high earners — making it one of the most aggressive states for capital gains taxation.
Mark-to-market / unrealized gains proposals gaining traction: Proposals to tax unrealized gains on investment portfolios exceeding a threshold (sometimes called a "wealth tax" or "billionaire minimum income tax") appeared in multiple legislative and executive proposals during 2021-2025. None have passed at the federal level, but the debate has increased scrutiny of the "buy, borrow, die" strategy that allows wealthy investors to avoid capital gains taxes indefinitely.
QSBS Section 1202 enforcement: IRS has increased scrutiny of Section 1202 Qualified Small Business Stock exclusions, particularly on whether companies truly meet the "active business" and "original issuance" requirements. If you've claimed the 100% QSBS exclusion on a large gain, ensure your documentation is airtight.