The United States taxes capital gains at two different sets of rates depending on how long you held the asset. Hold it more than one year and the federal rate is 0, 15 or 20 per cent, decided by your total taxable income. Hold it one year or less and the gain is added to your ordinary income and taxed at your ordinary rate. For 2026 the 0 per cent band runs up to $49,450 of taxable income for a single filer and $98,900 for a couple filing jointly.

What counts as a capital gain, and when is it taxed?

A capital gain is the difference between what you sold an asset for and your cost basis in it, which is normally what you paid plus certain adjustments.

The tax is triggered by the sale, not by the increase in value. An unrealised gain on an asset you still hold is not taxed, however large it has become, which is the single most important fact about this tax and the reason holding is treated differently from trading.

Selling for cash is a disposal. So is exchanging one asset for another, and so is using an asset to buy something. Moving an asset between two accounts you own is not.

What are the 2026 long-term capital gains rates?

Three bands, set against your taxable income for the year. These figures come from the Internal Revenue Service's annual inflation adjustments for tax year 2026, in Revenue Procedure 2025-32.

The 0 per cent rate applies while taxable income is at or below $49,450 for a single filer, $98,900 for a married couple filing jointly and $66,200 for a head of household.

The 15 per cent rate applies above those figures.

The 20 per cent rate applies above $545,500 single, $613,700 married filing jointly and $579,600 head of household.

The rates themselves did not change for 2026. Only the thresholds moved, with inflation.

What is the stacking rule, and why does it catch people?

Because the brackets are measured against your total taxable income, not against the gain alone.

Ordinary income fills the brackets first. The capital gain then sits on top of it and is taxed at whichever band it lands in. So the same $20,000 gain can be taxed at 0 per cent for someone with very little other income and at 15 per cent for someone whose salary has already used up the 0 per cent band.

A large gain can also straddle two bands, with part taxed at 0 per cent and the rest at 15. Nothing jumps the whole gain into the higher rate.

The standard deduction matters here too, because taxable income is after it. For 2026 it is $16,100 single, $32,200 married filing jointly and $24,150 head of household, so gross income has to clear that before any of it is taxable at all.

What is a worked example?

Take a single filer with $70,000 of salary who sells shares held for three years at a $20,000 gain, with no other income and taking the standard deduction.

Gross income is $90,000. Subtract the 2026 standard deduction of $16,100 and taxable income is $73,900.

Ordinary income fills the brackets first: $70,000 less the deduction leaves $53,900 of ordinary taxable income, which has already used up the 0 per cent capital gains band of $49,450. The $20,000 gain therefore stacks above it and all of it falls in the 15 per cent band, for federal tax of $3,000 on the gain.

Now change one thing. If the same person's salary were $40,000 instead, ordinary taxable income would be $23,900, leaving $25,550 of room inside the 0 per cent band. The first $25,550 of gain would be taxed at nothing and the remaining portion at 15 per cent.

The gain is identical in both cases. The tax is not, and nothing about the investment changed.

What is the 3.8 per cent surtax?

The net investment income tax, and it is separate from and additional to the rates above.

It applies at 3.8 per cent to investment income once modified adjusted gross income exceeds $200,000 for a single filer or $250,000 for a couple filing jointly. Those thresholds are fixed in statute and are not indexed for inflation, which means more people cross them every year without their real income changing.

The practical effect is that the top federal rate on a long-term gain is 23.8 per cent rather than 20, for anyone above the threshold.

Does the state tax it too?

Usually, and this is where the total bill varies most.

Most states tax capital gains as ordinary income, with no preferential long-term rate, so a state income tax rate applies on top of the federal one. A handful of states levy no individual income tax at all. A few apply their own separate treatment.

Because of that spread, the all-in rate on the same gain can differ by more than ten percentage points depending on residence. Any single quoted rate for US capital gains tax is a federal rate only.

Are all long-term gains taxed at 0, 15 or 20?

No, and the exceptions catch specific assets.

Collectibles, which includes art, antiques, coins and precious metals, are taxed at a maximum rate of 28 per cent even when held long term.

Unrecaptured section 1250 gain, which arises on real property that has been depreciated, is taxed at up to 25 per cent.

Qualified small business stock under section 1202 can qualify for an exclusion, subject to detailed conditions. And a primary residence has its own exclusion of gain, with its own ownership and use tests.

None of those is a loophole. They are separate regimes with their own rules, which is why a flat statement about the capital gains rate is almost always incomplete.

Can losses reduce the bill?

Yes, and this is the most-used mechanism in the whole area.

Capital losses offset capital gains of the same character first, then the other character, and a net capital loss can offset up to $3,000 of ordinary income a year, with the remainder carried forward indefinitely.

The constraint is the wash sale rule. If you sell at a loss and buy the same or a substantially identical security within thirty days before or after the sale, the loss is disallowed for that year and added to the basis of the replacement. Thirty days each side means a sixty-one day window around the sale, which is wider than most people assume.

Who reports what to the IRS?

Brokers report proceeds, and often basis, on Form 1099-B, and gains and losses are reported by the taxpayer on Form 8949 and Schedule D.

Basis is where errors cluster. A broker may not have basis for assets transferred in from another institution, for inherited or gifted assets, or for very old holdings, and reinvested dividends raise basis in a way that is easy to lose track of. Overstating a gain by using the wrong basis is a common and entirely avoidable overpayment. Keeping your own records matters for the same reason compounding matters: the arithmetic runs over decades and nobody else is tracking it for you.

Does holding for exactly one year count?

No. The holding period must be more than one year, so one year exactly is still short term. The count starts the day after acquisition and includes the disposal date.

For an asset bought on 10 March, a sale on 10 March the following year is short term and a sale on 11 March is long term. One day decides whether the gain is taxed at an ordinary rate or at 0, 15 or 20 per cent, which for a large gain is the single highest-value calendar fact in this article.

The short version

Work out your taxable income for the year including the gain. Find which band the gain lands in, remembering that ordinary income fills the brackets first. Add 3.8 per cent if you are above the net investment income threshold. Add your state. Check whether the asset is one of the exceptions.

This article explains how the rules work and is not tax advice. Figures are for US federal tax year 2026 and were verified on 20 October 2026. Speak to a qualified tax professional about your own position.