How Capital Gains Are Taxed: Short Term, Long Term and Your Bracket

How the IRS taxes profits from selling investments: the one-year holding period, the 0%, 15% and 20% long-term rates for 2026, and how your other income decides which rate applies.

Published by Greg M., Editor in Chief · Updated November 9, 2026

When you sell an investment for more than you paid, the profit is a capital gain, and in a taxable brokerage account the IRS taxes it in the year you sell. How much tax depends on two things: how long you owned the investment, and how much other taxable income you have that year. This guide explains both, using the federal figures for the 2026 tax year.

Everything here is federal tax. State income taxes on capital gains may work differently, and this guide doesn’t cover them. Gains inside accounts such as IRAs follow those accounts’ own rules, covered in which account does what.

What counts as a capital gain

The gain is the difference between what you receive when you sell and your basis, which for an investment you bought is generally what you paid, including commissions (IRS Publication 551, checked November 9, 2026). If you sell for less than your basis, you have a capital loss. Working out basis, especially when you bought shares at different times, is covered in cost basis and Form 1099-B.

Nothing is taxed while you simply hold an investment that has risen in value. The gain is “realized” when you sell or otherwise dispose of it. Funds can be an exception in practice: a mutual fund or ETF can pass capital gains it realized inside the fund to you as a distribution, even if you didn’t sell any shares. Those distributions are explained in the dividends guide.

Short term or long term: the one-year line

The IRS sorts every gain and loss into one of two groups by holding period. If you held the investment more than one year, the gain or loss is long-term. If you held it one year or less, it’s short-term (IRS Topic 409, checked November 9, 2026).

How the days are counted matters at the edge. IRS Publication 550 says to begin counting on the day after you acquired the property, and that the day you disposed of it is part of the holding period. For exchange-traded securities, the holding period starts the day after the trade date, not the settlement date (IRS Publication 550, 2025 edition, checked November 9, 2026).

An invented example: shares bought on March 10, 2025 and sold on March 10, 2026 have been held exactly one year, which is not more than one year, so the gain is short-term. Sold on March 11, 2026, the same shares would produce a long-term gain.

A few special cases have their own holding-period rules. Inherited property is treated as long-term regardless of how long you or the person who died held it, and gifted property can carry over the donor’s holding period (Publication 550).

How short-term gains are taxed

A net short-term capital gain is taxed as ordinary income, at the same rates as wages and interest (IRS Topic 409). There’s no special rate. If your ordinary income falls in a given tax bracket, a short-term gain is taxed at that bracket’s rate, and a large gain can push part of your income into a higher bracket.

How long-term gains are taxed: 0%, 15% and 20%

Net long-term gains get lower rates. For most investments in stocks, bonds and funds, the rate is 0%, 15% or 20%. Which one applies depends on your total taxable income, including the gain itself.

For the 2026 tax year, the IRS set these inflation-adjusted thresholds in Revenue Procedure 2025-32, section 4.03 (Internal Revenue Bulletin 2025-45, checked November 9, 2026):

These are taxable-income figures, after deductions, not gross income. They are revised each year. As of the date checked, the IRS Topic 409 page still showed the 2025 amounts, so the 2026 figures above come from the revenue procedure itself.

Separate figures for 2027 (not 2026). The IRS announced its 2027 inflation adjustments on November 5, 2026 (IR-2026-133, checked November 9, 2026), with details in Revenue Procedure 2026-35. For 2027, the IRS has announced these thresholds in section 3.03 of Revenue Procedure 2026-35 (checked November 9, 2026): the 0% rate applies to taxable income up to $51,050 for single filers and married filing separately, $102,100 for married filing jointly and $68,350 for head of household, and the 15% rate up to $563,200 (single), $633,600 (joint), $316,800 (separately) and $598,400 (head of household). Those 2027 figures apply to tax year 2027 returns, filed in 2028. Everything else in this guide, including the table above and the example below, uses 2026 figures.

How the rate and your bracket interact

The thresholds don’t mean “if your income is under $49,450, all your gains are tax-free.” The IRS worksheet that figures the tax stacks income in layers: your ordinary income fills up the lower part of taxable income first, and your long-term gains (and qualified dividends) sit on top. Only the part of the gain that falls below the 0% threshold is taxed at 0%; the part above it is taxed at 15%, and any part above the 15% threshold at 20%. That’s how the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions (2025 edition, checked November 9, 2026) is built.

An invented example, 2026, single filer. Taxable income is $60,000: $45,000 of ordinary income (after deductions) and a $15,000 long-term gain.

• Ordinary income occupies the first $45,000.
• The 0% band runs to $49,450, so $4,450 of the gain ($49,450 − $45,000) is taxed at 0%.
• The remaining $10,550 of the gain ($15,000 − $4,450) falls between $49,450 and $545,500, so it’s taxed at 15%: $10,550 × 0.15 = $1,582.50.
• The $45,000 of ordinary income is taxed at the ordinary bracket rates, as it would be without the gain.

Had the same $15,000 been a short-term gain, all of it would have been added to ordinary income and taxed at bracket rates instead.

Exceptions: 25% and 28% gains

Some long-term gains have higher maximum rates. Topic 409 lists three: net gains on collectibles (such as coins or art) and the taxable part of gain on qualified small business stock under section 1202 can be taxed at up to 28%, and “unrecaptured section 1250 gain” from selling depreciated real property can be taxed at up to 25%. Funds can pass these gains through too: Publication 550 notes that Form 1099-DIV boxes 2b, 2c and 2d show a fund’s distributions of unrecaptured section 1250 gain, section 1202 gain and collectibles gain. A tax professional can confirm how they apply to a particular holding.

The net investment income tax

Higher-income investors may also owe the 3.8% net investment income tax, which applies to investment income including dividends and net gains from selling stocks, bonds and mutual funds. It applies to the smaller of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 (single or head of household), $250,000 (married filing jointly or qualifying surviving spouse) or $125,000 (married filing separately) (IRS Topic 559, checked November 9, 2026). The IRS notes that these thresholds are not indexed for inflation (IRS NIIT questions and answers, checked November 9, 2026).

Losses offset gains

Capital losses reduce capital gains. If your losses for the year are larger than your gains, you can deduct up to $3,000 of the excess against other income ($1,500 if married filing separately), and carry the rest forward to later years (IRS Topic 409). The Schedule D instructions (2025 edition, checked November 9, 2026) include a Capital Loss Carryover Worksheet that tracks short-term and long-term carryovers separately.

Selling at a loss and buying the same investment back within 30 days can trigger the wash sale rule, which postpones the loss. See wash sales and tax-loss harvesting.

Where gains show up on your return

Your broker reports sales on Form 1099-B. Sales are generally listed on Form 8949 and totaled on Schedule D, with short-term and long-term transactions in separate parts (Form 8949 instructions, checked November 9, 2026). Some transactions with no adjustments can go straight onto Schedule D. The form instructions are the authority on exactly how to report.

Because the tax on a gain depends on the holding period and on how the gain stacks with other income, people often compare the timing of a sale, and which account an investment sits in, before acting. How account type changes the picture is covered in asset location. A tax professional can confirm how the rules apply to your own return.

Common questions

Is a capital gain taxed if I reinvest the money? Yes. Selling realizes the gain in a taxable account whether you spend the proceeds or buy something else with them. Reinvesting doesn’t defer the tax.

Does the 0% rate mean I don’t report the gain? No. A gain taxed at 0% is still reported on your return. The rate is applied on the tax worksheet, which starts from your full taxable income, gain included.

Is the holding period one year or 12 months and a day? The rule is “more than one year,” counted from the day after you bought. Selling on the one-year anniversary of the purchase date is still short-term.

Do the thresholds apply to my gain or my total income? To your total taxable income, with long-term gains stacked on top of ordinary income. Only the part of the gain that fits under a threshold gets that rate.

Are the 2026 thresholds the same as 2025? No. They’re adjusted for inflation each year. The 2026 figures here come from Revenue Procedure 2025-32.

Sources checked November 9, 2026: IRS Topic 409, Capital gains and losses; Revenue Procedure 2025-32, Internal Revenue Bulletin 2025-45; IRS Publication 550 (2025); Form 1040 instructions (2025); IRS Topic 559, Net investment income tax; IRS NIIT questions and answers; Schedule D instructions (2025); Form 8949 instructions (2025); IR-2026-133; Revenue Procedure 2026-35.