Hold an investment for 364 days and sell it at a gain, and the IRS treats the profit like wages. Hold it one day longer and the same dollar of gain can be taxed at a meaningfully lower rate. That single date — one year — is the entire dividing line between short-term and long-term capital gains, and missing it by a few days can cost real money.
General information only — not personalized tax advice.
What changed in 2026
- Federal income tax brackets and the long-term capital gains thresholds are adjusted for inflation each year — check the current-year IRS figures rather than assuming last year's numbers still apply.
- The Net Investment Income Tax (an additional surtax on investment income above certain thresholds for higher earners) remains in effect and applies on top of ordinary capital gains tax.
- Wash-sale rule enforcement has gotten more automated through broker reporting, so claiming a loss and immediately rebuying the same or a substantially identical security is easier for the IRS to catch than it used to be.
- More brokers now display estimated holding-period status directly next to each position, making it easier to avoid an accidental short-term sale.
The holding period rule
If you sell an investment you have owned for one year or less, the gain is short-term and taxed as ordinary income, at your regular marginal tax rate. Hold it for more than one year, and the gain is long-term, taxed at the lower long-term capital gains rates that most filers qualify for. The clock starts the day after you buy and includes the day you sell.
| Holding period |
Tax treatment |
Typical rate range |
| One year or less |
Short-term, taxed as ordinary income |
Same as your income tax bracket |
| More than one year |
Long-term capital gains |
Generally 0%, 15%, or 20% depending on income |
| High earners (either) |
Add Net Investment Income Tax if applicable |
+3.8% on top, above income thresholds |
Exact bracket dollar amounts change yearly with inflation adjustments — confirm the current figures before estimating your own bill.
Strategies worth knowing
Tax-loss harvesting — selling a losing position to offset gains elsewhere — can reduce your bill, but the wash-sale rule blocks you from claiming the loss if you rebuy the same or a substantially identical security within 30 days before or after the sale. Gifting appreciated stock to a donor-advised fund or a lower-tax-bracket family member can also sidestep gains entirely in some cases. And simply waiting to cross the one-year mark before selling, when the decision is close, is often the simplest move available.
Pitfalls to watch
- Selling one day too early. A trade at day 364 versus day 366 can mean a meaningfully different tax bill on the same gain.
- Forgetting reinvested dividends reset nothing — each dividend reinvestment purchase starts its own separate holding-period clock for those specific shares.
- Ignoring state taxes, which most states apply on top of federal capital gains tax, often without a long-term discount.
- Triggering a wash sale unintentionally by rebuying in a different account, including an IRA, which still counts.
FAQ
Do capital losses offset capital gains?
Yes, losses offset gains dollar for dollar, and up to a limited amount of net loss can offset ordinary income each year, with any excess carried forward to future years.
Does this apply to my 401(k) or IRA?
No — gains inside tax-advantaged retirement accounts are not taxed as capital gains at all; they follow the account's own tax rules (deferred or, for Roth, potentially tax-free).
Is real estate taxed the same way?
The same short-term/long-term line generally applies, though primary-residence sales have a separate exclusion for a portion of gain — that is a distinct topic worth checking separately.
What counts as substantially identical for the wash-sale rule?
The same security is the clearest case; similar but not identical securities (like different ETFs tracking the same index) are a gray area best confirmed with a tax professional.
Where to go next
See how corporate actions interact with your gains in stock buybacks explained, how reinvested payouts affect your basis in dividend reinvestment (DRIP) explained, and a deferral option for larger gains in qualified opportunity zones explained.