← All Guides
💰 Taxes

Capital Gains Tax 2026: Short-Term vs Long-Term Rates

7 min read · Updated July 2026

You bought 100 shares of Apple at $50 and sold them at $200. Nice profit. But how much tax do you owe on that $15,000 gain? The answer depends on one thing: how long you held the shares. That single variable can change your tax rate from 10% to 37%, or from 0% to 20%.

The One-Year Cliff

Capital gains are divided into two categories based on holding period:

  • Short-term: Assets held for one year or less. Taxed as ordinary income — same rates as your salary. If you're in the 22% bracket, your short-term gains are taxed at 22%.
  • Long-term: Assets held for more than one year. Taxed at preferential rates: 0%, 15%, or 20%, depending on your income.

The difference is enormous. A $50,000 gain for someone earning $80,000:

  • Short-term: Taxed at 22% = $11,000
  • Long-term: Taxed at 15% = $7,500
  • Savings from holding 1 extra day: $3,500

The Three Long-Term Rates (2026)

Long-term capital gains rates are based on your taxable income (including the gain itself):

  • 0% rate: Taxable income up to $48,350 (single) or $96,700 (married filing jointly). If your income is low enough, you pay zero federal tax on long-term gains.
  • 15% rate: Taxable income between $48,351 and $533,400 (single) or $96,701 and $600,050 (married). This is where most people land.
  • 20% rate: Taxable income above $533,400 (single) or $600,050 (married). The top rate, for high earners.

The 0% bracket opportunity

If you're retired and your income is low, you might be in the 0% long-term capital gains bracket. You could sell $40,000 of appreciated stock, pay zero federal tax on the gain, and immediately rebuy (if you want to stay invested). This is called tax-gain harvesting. Just watch out for the wash-sale rule — it applies to losses, not gains, so you're free to rebuy immediately.

The NIIT: The Hidden 3.8% Surtax

If your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married), you owe an additional 3.8% Net Investment Income Tax (NIIT) on investment income — including capital gains, dividends, interest, and rental income.

This means the effective top long-term rate is 23.8% (20% + 3.8%), not 20%. The NIIT catches people who think they're in the 15% bracket but have a large one-time gain that pushes their MAGI over $200,000.

Example: Selling a rental property

You earn $120,000 salary and sell a rental property for a $100,000 long-term gain.
New MAGI: $220,000 — above the $200,000 NIIT threshold.
Long-term capital gains tax: $100,000 × 15% = $15,000
NIIT: $100,000 × 3.8% = $3,800
Total federal tax on the gain: $18,800 (effective rate: 18.8%)

State Capital Gains Tax

Most states tax capital gains as ordinary income — no preferential rate. California taxes your gains at your regular state rate (up to 13.3%). New York adds up to 10.9%. Nine states have no income tax, so no state capital gains tax either.

A few states offer special treatment. Montana and Arkansas have lower rates for long-term gains. Most don't. If you live in a high-tax state, your effective capital gains rate could be 30-35% combined (federal + state + NIIT).

Strategies to Reduce Capital Gains Tax

  • Tax-loss harvesting: Sell losing positions to offset gains. If you have $15,000 in gains and $10,000 in losses, you only pay tax on $5,000. You can deduct up to $3,000 of net losses against ordinary income per year; excess carries forward.
  • Hold for 366 days: The simplest strategy. If you're close to the one-year mark, wait. The tax savings often outweigh short-term market risk.
  • Donate appreciated stock: Give stock directly to charity instead of selling and donating cash. You deduct the full market value and pay zero capital gains tax. A $10,000 stock you bought for $2,000 gives you a $10,000 deduction and zero tax on the $8,000 gain.
  • Use a 1031 exchange (real estate): Defer capital gains on investment real estate by reinvesting in another property within 180 days. The gain isn't eliminated — it's deferred until you sell the new property.
  • Opportunity Zones: Invest capital gains in a Qualified Opportunity Fund within 180 days. The gain is deferred until 2026, and if held 10+ years, the new investment's appreciation is tax-free.
  • Asset location: Hold tax-inefficient assets (bonds, REITs) in tax-advantaged accounts (IRA, 401(k)). Hold tax-efficient assets (index funds, growth stocks you plan to hold long-term) in taxable accounts.

📈 Try our free Capital Gains Calculator

Our Capital Gains Tax Calculator computes your federal tax, NIIT, and state tax for both short-term and long-term gains. Enter your income, gain amount, and holding period to see the difference.

The Bottom Line

  1. Hold assets for more than one year to get long-term rates (0/15/20% instead of ordinary income rates).
  2. The NIIT adds 3.8% if your MAGI exceeds $200K/$250K. Effective top rate is 23.8%.
  3. Most states offer no capital gains preference — they tax gains as ordinary income.
  4. Harvest losses to offset gains. You can deduct $3K of net losses against ordinary income per year.
  5. Donate appreciated stock to charity for a double tax benefit (full deduction + no gain tax).

Disclaimer: This guide is for informational purposes only and does not constitute tax advice. Tax laws change annually. Consult a tax professional for your specific situation.