What is a Capital Gains Tax?
A capital gain is the profit when you sell an asset — stocks, a fund, crypto, real estate — for more than your cost basis. The federal tax on that profit depends on two things: how long you owned the asset and how much other income you have.
Hold for one year or less and the gain is 'short-term,' taxed like a paycheck at your ordinary rates. Hold for more than a year and it becomes 'long-term,' taxed at the lower 0/15/20% rates. The gain is stacked on top of your ordinary income to decide which of those rates apply.
Why it matters
The holding period is one of the most valuable, most controllable levers in personal finance. The same $20,000 gain can be taxed at 22–24% if sold a day too early, or 15% — even 0% — if you wait past the one-year mark. On larger gains, that timing difference is thousands of dollars.
It also interacts with your income: because long-term gains stack on ordinary income, a lower-income year (early retirement, a sabbatical, a gap between jobs) can be a chance to realize gains at the 0% rate. Understanding the stacking is what turns capital-gains tax from a surprise into a plan.
What to do next
Before selling, check your holding period — if you're close to a year, waiting could move the gain into long-term rates. Estimate the tax both ways here so the trade-off is concrete.
If you have losers in your portfolio, consider realizing losses in the same year to offset gains (tax-loss harvesting). And if your income is unusually low this year, look at whether some long-term gains can be realized in the 0% bracket. For large or complex sales — especially real estate — confirm the details with a tax professional.
Frequently asked questions
What's the difference between short-term and long-term capital gains?
It's the holding period. If you held the asset one year or less, the gain is short-term and taxed at your ordinary income tax rates (10–37%). Held more than a year, it's long-term and taxed at the preferential 0%, 15%, or 20% rates. The one-year line is the single biggest lever on your capital-gains bill.
What are the long-term capital gains rates for 2026?
Long-term gains are taxed at 0%, 15%, or 20% depending on your taxable income. For 2026 (single), the 0% rate applies up to $49,450 of income, 15% up to $545,500, and 20% above that; married-filing-jointly thresholds are roughly double. The gain stacks on top of your ordinary income to determine which rate(s) apply.
How is the capital gains rate determined?
Your long-term gain is 'stacked' on top of your ordinary taxable income. The portion that lands in the 0% band is untaxed, the portion in the 15% band is taxed at 15%, and so on. So a modest income can keep some or all of a gain in the 0% bracket, while a high income pushes it to 15% or 20%.
What is cost basis?
Cost basis is what you paid for the asset, including commissions and fees, plus any reinvested dividends for funds. Your gain is proceeds minus basis. Keeping accurate basis records matters — overstating basis underpays tax, while understating it makes you pay more than you owe.
What happens if I sell at a loss?
A capital loss offsets capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 against ordinary income each year and carry the remainder forward to future years. Strategically realizing losses to offset gains is called tax-loss harvesting.
Does this include the Net Investment Income Tax?
No. High earners may owe an additional 3.8% Net Investment Income Tax on gains above certain income thresholds ($200k single, $250k married). This calculator estimates the base capital-gains tax; factor in the 3.8% separately if your income is above those levels.
2025 & 2026 long-term capital-gains brackets (0/15/20%) per IRS Rev. Proc. 2024-40 & 2025-32; short-term gains taxed at ordinary rates (2026).