Short-Term vs. Long-Term Capital Gains Tax (2026 Rates)

Your gain equals the sale price minus your cost basis. Basis is normally what you paid plus commissions, adjusted for reinvested dividends, stock splits and, for real estate, improvements and depreciation. Your broker reports sales on Form 1099-B, and you list them on Form 8949 and Schedule D of your 1040.

Example: you buy 100 shares at $50 ($5,000) and sell them at $80 ($8,000). Your gain is $3,000.

• Short-term: held one year or less. Taxed at your ordinary income rates (10% to 37%).
• Long-term: held more than one year. Taxed at preferential rates of 0%, 15% or 20%.

The holding period starts the day after you buy and includes the day you sell. Inherited assets are always treated as long-term, and gifted assets carry over the donor's holding period.

These thresholds apply to taxable income, including the gain itself. Gains "stack" on top of your ordinary income, so part of a gain can fall in the 0% bracket and part in 15%. Our tax brackets guide explains the stacking logic.

Sam is single with $40,000 of taxable wages after the standard deduction and sells stock for a $20,000 gain.

• If held 11 months (short-term): the gain is taxed as ordinary income at 12% and 22%, roughly $4,100.
• If held 13 months (long-term): $9,450 falls in the 0% bracket and $10,550 in the 15% bracket, for about $1,580.
• Waiting two extra months saves Sam around $2,500.

Higher earners pay an extra 3.8% Net Investment Income Tax (NIIT) on investment income when modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). These thresholds are not indexed for inflation. Some assets also have special maximum rates: collectibles such as art, coins and precious metals are taxed at up to 28%, and depreciation recaptured on real estate (unrecaptured Section 1250 gain) at up to 25%.

Capital losses first offset gains of the same type (short against short, long against long), then the other type. If losses exceed gains, up to $3,000 per year ($1,500 if married filing separately) can be deducted against ordinary income, and the rest carries forward indefinitely. Beware the wash-sale rule: if you buy the same or a substantially identical security within 30 days before or after selling at a loss, the loss is disallowed for now and added to the basis of the new shares.

• Home sale: up to $250,000 of gain ($500,000 for married couples) is excluded if you owned and lived in the home for 2 of the last 5 years.
• Retirement accounts: trades inside a 401(k) or IRA are not taxed when made.
• Step-up in basis: heirs generally receive a basis equal to the value at death, erasing the decedent's unrealized gain.
• Qualified small business stock (Section 1202) can exclude a large share of gains for eligible founders and early investors.

Most states tax capital gains as ordinary income. States with no income tax, such as Texas and Florida, do not tax them, while Washington levies a separate 7% tax (9.9% on the portion above $1 million) on large long-term gains. See our no-income-tax states guide for details.