About Capital Gains Taxes in 2026

What is a capital gains tax?

Capital gain refers to the profit earned from the sale of a capital asset. Capital assets can include stocks, bonds, real estate, artwork and other investments.

Selling price - purchase price = capital gain

In order to calculate how much tax is owed from this gain, several factors must be considered, such as the type of asset that was sold, how long it was held prior to being sold and the taxpayer’s tax bracket.

Short-term capital gains tax

Short-term capital gains are capital assets that have been held for less than a year. Short-term capital gains tax rates are typically higher than long-term capital gains tax rates because short-term gains are considered part of an individual's regular income and are therefore taxed at the same rate as the rest of their income.

Long-term capital gains tax

If an asset has been held for longer than a year, the capital gains are taxed between 0% and 20% in most cases. Most individuals pay a tax rate of 15% or less, according to the Internal Revenue Service (IRS).

How does capital gains tax work?

Generally, you’ll pay your capital gains taxes when you file your annual taxes, though people with larger incomes may be required to make quarterly estimated tax payments.

To report capital gains and losses, taxpayers use IRS Form 1040, the U.S. Individual Income Tax Return form, along with Schedule D, the Capital Gains and Losses form.

Capital gains tax exemption

In some circumstances, the IRS offers a capital gains tax exemption for the sale of your primary residence. To be eligible, you must have lived in the home for at least two years before the sale date.

Net investment income tax

Net investment income tax (NIIT) includes capital gains and income from rentals, royalties and nonqualified annuities. According to the IRS, NIIT rates apply at 3.8% to some individuals, estates and trusts.

» MORE: Capital Gains vs. Investment Income: How They Differ

2025 capital gains tax rates

Capital gains tax brackets can change over time due to inflation and changes in tax laws. For short-term capital gains, you’ll use the current federal income tax brackets to determine your rate.

Long-term capital gains tax rates for 2025

The table below shows the long-term capital gains tax rates for the 2025 tax year:

In exceptional cases, the tax rate for long-term capital gains can surpass 20%, as shown in the table below.

Short-term capital gains tax rates for 2025

The table below shows the 2025 federal income tax brackets, which are used for the short-term capital gains tax rates:

2026 capital gains tax rates

The short-term and long-term capital gains tax rates have been adjusted for inflation for the 2026 tax year.

Long-term capital gains tax rates for 2026

The table below shows the long-term capital gains tax rates for the 2026 tax year:

Short-term capital gains tax rates for 2026

The table below shows the 2026 federal income tax brackets for short-term capital gains taxes:

How can you reduce your capital gains tax?

You can potentially minimize or avoid capital gains tax by giving to charities, selling capital assets after you've retired or investing within a tax-deferred retirement plan.

Here are some other popular ways to reduce capital gains taxes:

Tax-loss harvesting

Tax-loss harvesting is when you sell poor investments that have lost value for a capital loss. This capital loss can help offset capital gains.

Home sale

For real estate sales of primary residences, homeowners are exempt from capital gains taxes on the first $250,000 of the sale’s capital gain if they are single and $500,000 if they are married and filing a joint return. This exemption can only be used once every two years.

Timing investments

Another strategy includes buying and gifting your investments at the right time.

“Do not purchase active mutual funds late in the year,” said Glen Goland, a wealth manager at Coldstream, a financial services firm. “These funds often distribute capital gains sometime in December, so it is best to wait until after the record date to purchase the shares.”

Goland also suggested making your charitable gifts with appreciated stocks rather than cash.

“Gifts of stock essentially write the IRS out of the equation, since the charitable entity is exempt from tax on the gains that arise when the charity sells the stock that has been gifted to them,” Goland said.

» MORE: Best Tax Software and Services

FAQ

Bottom line

Capital gains can be an important source of investment income, but they can also trigger tax liabilities that can diminish your profits. By understanding how capital gains taxes work, you can make informed investment decisions that help you maximize your after-tax returns.