Long-term capital gains receive preferential tax treatment compared to ordinary income. Understanding these rates and how to qualify for them can save you thousands of dollars in taxes. This guide covers everything you need to know about long-term capital gains tax rates.
What is a Long-Term Capital Gain?
A long-term capital gain is profit from selling an asset that you held for more than one year. This includes stocks, bonds, mutual funds, ETFs, real estate, and other investments. The holding period is measured from the day after you purchase the asset to the day you sell it.
The One-Year Rule: To qualify for long-term capital gains rates, you must hold an investment for more than 365 days. Selling on day 365 or earlier results in short-term treatment.
2026 Long-Term Capital Gains Tax Rates
Long-term capital gains are taxed at three rates: 0%, 15%, or 20%, depending on your taxable income and filing status.
Single Filers (2026)
- 0% rate: Taxable income up to $47,025
- 15% rate: Taxable income $47,026 to $518,900
- 20% rate: Taxable income over $518,900
Married Filing Jointly (2026)
- 0% rate: Taxable income up to $94,050
- 15% rate: Taxable income $94,051 to $583,750
- 20% rate: Taxable income over $583,750
The Net Investment Income Tax (NIIT)
High-income taxpayers may also owe the 3.8% Net Investment Income Tax on their capital gains. This applies when your modified adjusted gross income exceeds:
- Single: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
This means the maximum federal tax rate on long-term capital gains is effectively 23.8% (20% + 3.8% NIIT).
How to Qualify for the 0% Rate
The 0% long-term capital gains rate is a powerful tax benefit. Here is how to take advantage of it:
0% Rate Example
You are married filing jointly with $80,000 in ordinary taxable income.
- Your 0% LTCG bracket extends to $94,050
- You have $14,050 of "room" in the 0% bracket
- You can realize $14,050 in long-term gains tax-free
- Any gains above $14,050 are taxed at 15%
Strategies for the 0% Rate
- Gain harvesting: Intentionally sell appreciated assets in low-income years
- Retirement planning: Take gains in early retirement before Social Security and RMDs begin
- Income management: Time income and deductions to stay within the 0% bracket
- Roth conversions: Balance Roth conversions with capital gains to optimize overall taxes
Comparing Long-Term vs. Short-Term Rates
Short-term capital gains are taxed at ordinary income rates, which range from 10% to 37%. The difference can be substantial:
Tax Savings Example
You have a $10,000 capital gain and are in the 32% ordinary income bracket:
- Short-term tax: $10,000 x 32% = $3,200
- Long-term tax: $10,000 x 15% = $1,500
- Savings: $1,700 by holding more than one year
Special Types of Long-Term Capital Gains
Collectibles
Long-term gains on collectibles (art, antiques, coins, precious metals) are taxed at a maximum rate of 28%, not the standard 15% or 20% rate.
Qualified Small Business Stock (QSBS)
Gains from qualified small business stock held more than five years may be eligible for partial or complete exclusion from federal tax under Section 1202.
Real Estate
Gains from real estate are generally taxed at long-term rates if held more than one year. However, depreciation recapture is taxed at a maximum rate of 25%.
Section 1256 Contracts
Futures and certain options receive special 60/40 treatment: 60% long-term and 40% short-term, regardless of holding period.
State Capital Gains Taxes
In addition to federal taxes, most states tax capital gains as ordinary income. A few states have special treatment:
- No state income tax: Texas, Florida, Nevada, Washington, and others
- Lower LTCG rates: Some states offer reduced rates for long-term gains
- High-tax states: California, New York, and New Jersey can add over 10%
Total Tax Example: A California resident in the top bracket could pay 37.1% on long-term capital gains (20% federal + 3.8% NIIT + 13.3% state).
Strategies to Minimize Long-Term Capital Gains Taxes
- Hold for more than one year: Always verify your holding period before selling
- Use tax-advantaged accounts: Hold high-growth investments in IRAs and 401(k)s
- Harvest losses: Offset gains with losses from other investments
- Donate appreciated stock: Give to charity to avoid gains tax and get a deduction
- Use the 0% bracket: Plan sales for low-income years
- Consider installment sales: Spread gains over multiple years
- Qualified Opportunity Zones: Defer and potentially reduce gains through QOZ investments
Calculating Your Holding Period
The holding period begins the day after you acquire the asset and ends on the day you sell. Be careful with these situations:
- Stock splits: Holding period continues from original purchase
- Reinvested dividends: Each reinvestment has its own holding period
- Gifted stock: You generally inherit the donor's holding period
- Inherited stock: Automatically qualifies as long-term
- Options exercised: Holding period starts when you exercise, not when you bought the option
Track Your Holding Periods Automatically
Pro Trader Dashboard tracks your holding periods and alerts you before you sell, helping you avoid accidentally triggering short-term gains.
Planning for Large Gains
If you have a large gain coming (selling a business, real estate, or concentrated stock position), consider these strategies:
- Charitable remainder trust: Defer gains while generating income
- Installment sale: Spread gain recognition over multiple years
- 1031 exchange: Defer real estate gains by reinvesting in like-kind property
- Opportunity Zone investment: Defer gains by investing in designated zones
- Exercise stock options strategically: Consider ISOs for potential LTCG treatment
Summary
Long-term capital gains enjoy preferential tax rates of 0%, 15%, or 20%, compared to ordinary income rates up to 37%. The key to qualifying is holding your investments for more than one year. Strategic planning around your holding periods, income levels, and the use of tax-advantaged accounts can significantly reduce your investment taxes.
Continue learning about investment taxes with our guides on short-term capital gains and tax-efficient investing strategies.