Capital gains tax applies when you sell an asset for more than you paid. Stocks, bonds, mutual funds, cryptocurrency, real estate, and collectibles can all trigger capital gains when sold at a profit.
The rate depends on how long you held the asset and your total income. Hold for more than one year and you qualify for preferential long-term rates. Sell within a year and gains are taxed as ordinary income at your marginal rate.
Short-term vs. long-term gains
Short-term capital gains (assets held one year or less) are taxed at ordinary income rates, 10% to 37% federally in 2026, plus state tax.
Long-term capital gains (held more than one year) are taxed at 0%, 15%, or 20% depending on taxable income. Most middle-income investors pay 15%; very high earners pay 20%.
Qualified dividends receive the same preferential long-term rates. Ordinary (non-qualified) dividends are taxed as ordinary income.
The 0% long-term capital gains bracket
In 2026, single filers with taxable income up to about $49,450 and married couples up to about $98,900 can pay 0% federal tax on long-term gains and qualified dividends.
This creates a tax-planning opportunity: retirees or low-income years can realize gains tax-free by staying within the 0% bracket.
State taxes may still apply even when federal long-term gains are 0%. California and New York tax capital gains as ordinary income.
Capital losses and tax-loss harvesting
Capital losses offset capital gains dollar for dollar. If losses exceed gains, you can deduct up to $3,000 of net losses against ordinary income per year. Excess losses carry forward to future years.
Tax-loss harvesting means selling losing positions to offset gains, then reinvesting in similar (but not identical) assets to maintain market exposure. The wash-sale rule blocks the loss if you buy a substantially identical security within 30 days.
Loss harvesting is most valuable in taxable brokerage accounts. Losses inside retirement accounts (401k, IRA) do not generate tax deductions because those accounts are already tax-advantaged.
Home sale exclusion
Selling your primary residence may qualify for a large exclusion: up to $250,000 of gain for single filers and $500,000 for married filing jointly, if you owned and lived in the home for at least two of the five years before the sale.
Gains above the exclusion are taxed as long-term capital gains. Second homes and investment properties do not qualify for the exclusion.
Improvements that add to your cost basis (renovations, not repairs) reduce taxable gain when you sell.
Estimate capital gains tax on your return
Enter short-term and long-term capital gains, qualified dividends, and other income in the tax estimator to see how gains affect your marginal rate and total tax.
Model selling scenarios before year-end to stay within favorable brackets or offset gains with harvested losses.