Capital gains are taxed differently depending on how long you hold an asset. Short-term gains (held one year or less) are taxed as ordinary income at your marginal rate. Long-term gains (held over one year) receive preferential rates.
Long-term capital gains rates for 2026 are: - 0% for single filers with taxable income up to $48,350 ($96,700 married) - 15% for income between $48,351 and $533,400 ($96,701 to $600,050 married) - 20% for income above $533,400 ($600,050 married)
These thresholds are indexed for inflation and may differ slightly in final IRS announcements.
High earners face an additional 3.8% Net Investment Income Tax (NIIT) on investment income — including capital gains, dividends, interest, and rental income — if modified AGI exceeds $200,000 (single) or $250,000 (married).
Combined with the 20% long-term rate, NIIT brings the top federal capital gains rate to 23.8%. State taxes add additional layers.
Section 1202 allows up to 100% exclusion on gains from qualified small business stock held over five years. This powerful incentive supports startup investment but requires meeting specific holding and business criteria.
QSBS exclusion limits the greater of $10 million or 10x the adjusted basis of the stock.
Sell losing investments to offset gains. Up to $3,000 of net losses can offset ordinary income annually. Unused losses carry forward indefinitely.
Be mindful of the wash-sale rule: repurchasing the same or substantially identical security within 30 days negates the loss deduction. Consider purchasing similar (but not identical) ETFs during the waiting period.
While our calculator focuses on earned income, understanding capital gains timing can save thousands. Plan asset sales around tax year boundaries and rate thresholds using the bracket projections above.