Capital gains are the profit you make when you sell an asset — stock, real estate, crypto, collectibles — for more than you paid. They are a tax event, not a paperwork event, and the rate you pay is largely determined by a single number: how many days you held before you sold.
What changed in 2026
- Long-term rate thresholds adjusted for inflation. The 0%, 15%, and 20% breakpoints shift slightly year to year. For 2026 tax filings, check current IRS tables — ranges are approximate until final publication.
- Crypto capital gains enforcement intensified. Exchanges now issue 1099-DAs with on-chain cost basis data. Every swap, sale, or spend is a taxable event.
- Real estate remained under ordinary income rules for short holds. The one-year cutoff applies to investment property the same as equities.
- Tax-loss harvesting tools proliferated. Most robo-advisors and several self-directed brokerage platforms now offer automated harvesting; the strategy went mainstream.
The core concept: cost basis
Your cost basis is what you paid for the asset, including commissions. The capital gain is:
Capital Gain = Proceeds − Cost Basis
If you bought 100 shares at $40 ($4,000 total) and sold at $60 ($6,000 total), your capital gain is $2,000. That $2,000 is what the IRS taxes — not the full $6,000.
If cost basis is higher than proceeds, you have a capital loss, which can offset gains.
Short-term vs long-term: the key split
| Holding period |
Tax treatment |
2026 effective rates |
| 12 months or less |
Short-term — ordinary income rates |
~10%–37% depending on bracket |
| More than 12 months |
Long-term — preferential rates |
0%, 15%, or 20% |
| High earners (MAGI above threshold) |
Long-term + Net Investment Income Tax |
Add 3.8% on top |
The one-year mark is counted from the day after purchase to the day of sale. Missing it by a day costs you the preferential rate.
Long-term capital gains rates (approximate 2026 brackets)
| Filing status |
0% up to ~ |
15% up to ~ |
20% above ~ |
| Single |
~$47,000 |
~$518,000 |
above ~$518,000 |
| Married filing jointly |
~$94,000 |
~$583,000 |
above ~$583,000 |
Figures are approximate; confirm against IRS 2026 publication once finalized. These do not include state taxes.
How to pick (which lots to sell)
- Identify your tax situation first — are you in the 0% long-term bracket? Harvest gains, not losses.
- In higher brackets, prioritize selling long-term positions over short-term to keep rates preferential.
- Use specific lot identification ("SpecID") when your broker allows — sell the highest-basis lots to minimize the taxable gain.
- Harvest losses in taxable accounts before year-end to offset gains already realized during the year.
- Defer realization into a lower-income year if you have timing flexibility.
Common mistakes
Ignoring the 1-year threshold. Selling at 11 months and 29 days triggers ordinary income rates on a gain that would have been taxed at 15% in two more days.
Forgetting wash-sale rules. You cannot harvest a loss and repurchase a "substantially identical" security within 30 days before or after. The loss is deferred, not gone.
Omitting crypto trades. Each sale, swap, or spend is a taxable event. Track cost basis from the first transaction.
Not accounting for state taxes. Most states tax capital gains as ordinary income regardless of federal preferential treatment.
What to skip
- Holding a deteriorating position past one year just for the long-term rate — if the investment thesis is broken, the tax savings rarely outweigh continued losses.
- Selling your entire position when only a portion has a high tax burden — harvest strategically lot by lot.
- Ignoring the NIIT if your modified adjusted gross income crosses the threshold (~$200K single / ~$250K joint). The 3.8% surcharge applies to the lesser of net investment income or the excess over the threshold.
FAQ
Do I owe capital gains taxes if I don't sell?
No — unrealized gains are not taxed. The tax event is the sale (or exchange, gift to non-spouse, etc.).
Can capital losses offset ordinary income?
Only up to $3,000 per year of net capital losses can offset ordinary income. Additional losses carry forward to future years without limit.
What is the step-up in basis at death?
When an asset is inherited, the cost basis resets to the fair market value on the date of death, eliminating the accrued capital gain for the heir. This remains the rule under current law.
Are capital gains taxed differently in a Roth IRA?
No capital gains tax applies inside a Roth IRA on growth or qualified withdrawals. IRAs and 401(k)s are tax-advantaged accounts where capital gains tracking does not apply in the same way.
Where to go next
See What is a dividend yield in 2026, How to claim tax deductions in 2026, and How to lower your tax bill in 2026.