Capital Gains Tax 2026: How to Pay Less

If you sell an investment, a piece of property, or a business for more than you paid, you owe capital gains tax on the profit. It is one of the most consequential taxes for anyone building wealth, and the difference between smart tax planning and no planning can be tens of thousands of dollars. Here is how capital gains tax works in 2026 and how to legally minimize what you owe.

Short-Term vs. Long-Term Capital Gains

The IRS divides capital gains into two categories based on how long you held the asset before selling:

• Short-term capital gains (held 1 year or less): Taxed at your ordinary income tax rate — the same rate as your salary. For most earners, that is 22-37%.
• Long-term capital gains (held more than 1 year): Taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income.

This is the most important tax planning distinction for investors. The difference between a 37% short-term rate and a 15% long-term rate on a $50,000 gain is $11,000 in tax. Simply holding an asset for 366 days instead of 365 can save you a fortune.

2026 Long-Term Capital Gains Thresholds

The 2026 brackets for long-term capital gains (made permanent by the OBBBA):

Single Filers

• 0% rate: Taxable income up to $48,350
• 15% rate: Taxable income $48,351 to $533,400
• 20% rate: Taxable income above $533,400

Married Filing Jointly

• 0% rate: Taxable income up to $96,700
• 15% rate: Taxable income $96,701 to $600,050
• 20% rate: Taxable income above $600,050

The 0% bracket is a huge opportunity for retirees and lower-income earners. If you are married and your total taxable income (including capital gains) is under $96,700, you pay zero federal tax on long-term gains. This is real — not a loophole, but the actual rate structure.

Check where you fall with our tax calculator.

The Net Investment Income Tax (NIIT)

High earners face an additional 3.8% surtax on net investment income — the Net Investment Income Tax. It applies when your modified adjusted gross income (MAGI) exceeds:

• Single: $200,000
• Married filing jointly: $250,000

The NIIT applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold. For a married couple with $300,000 MAGI and $100,000 in capital gains, the NIIT applies to $50,000 (the excess over $250,000), adding $1,900 in tax.

Combined with the 20% long-term rate, the maximum federal capital gains rate is effectively 23.8% for high earners.

Strategies to Reduce Capital Gains Tax

1. Hold for More Than One Year

The simplest and most impactful strategy. Converting short-term gains (ordinary income rates) to long-term gains (preferential rates) is worth planning around. If you are considering selling an appreciated asset that you have held for 10-11 months, waiting the extra month or two can save you thousands.

2. Tax-Loss Harvesting

Sell investments that have lost value to offset your gains. You can deduct capital losses against capital gains dollar-for-dollar. If your losses exceed your gains, you can deduct up to $3,000 of excess losses against ordinary income per year, and carry forward the remainder indefinitely.

Example: You sell Stock A for a $30,000 gain. You also have Stock B, which is down $12,000. Selling Stock B reduces your taxable gain to $18,000, saving you $1,800-$2,700 at the 15% rate. You can immediately reinvest in a similar (but not "substantially identical") investment to maintain your portfolio allocation.

3. Use the 0% Bracket Strategically

In years when your income is low — between jobs, taking a sabbatical, early retirement before Social Security kicks in — you can realize long-term gains at the 0% rate. A married couple could sell up to $96,700 in gains (combined with other income staying under the threshold) and pay zero federal capital gains tax.

4. Donate Appreciated Assets to Charity

If you donate stock or other appreciated assets directly to a qualified charity, you avoid capital gains tax entirely and get a charitable deduction for the full fair market value. If you have stock with a $20,000 gain, donating it avoids $3,000+ in capital gains tax and gives you a $20,000+ deduction. Much more tax-efficient than selling the stock, paying the tax, and donating cash.

5. Time Sales Across Tax Years

If you have a large gain to realize, consider splitting the sale across two calendar years. Selling half in December and half in January spreads the income across two tax years, potentially keeping you in a lower bracket in each year.

6. Qualified Opportunity Zones

Investing capital gains into Qualified Opportunity Zone (QOZ) funds allows you to defer and potentially reduce capital gains tax. If you hold the QOZ investment for 10+ years, any appreciation on the QOZ investment itself is tax-free. This is a specialized strategy best for large gains and long time horizons.

State Capital Gains Taxes

Most states tax capital gains as ordinary income. But several do not:

• No state income tax (and thus no capital gains tax): Alaska, Florida, Nevada, New Hampshire (interest and dividends only), South Dakota, Tennessee, Texas, Washington (but has a 7% capital gains surcharge on gains over $270,000), Wyoming
• High state capital gains rates: California (up to 13.3%), New York (up to 10.9%), New Jersey (up to 10.75%)

A $100,000 long-term capital gain in California versus Florida has a $13,300 state tax difference. This is why some people time large asset sales around state residency changes — though states have rules to prevent abuse.

Real Estate Capital Gains Exclusion

Homeowners get a special break: if you sell your primary residence and have lived in it for 2 of the last 5 years, you can exclude up to $250,000 in gains (single) or $500,000 (married filing jointly) from capital gains tax entirely. This is one of the most valuable tax provisions in the code.

A married couple who bought their home for $350,000 and sells it for $800,000 has a $450,000 gain — all of it excluded from federal capital gains tax. No special forms, no complicated strategies — just the standard exclusion.

Calculate Your Tax Bill

Before selling any appreciated asset, know what you will owe. Use our capital gains calculator to model different scenarios, check your overall tax picture, and plan your timing and strategy accordingly. The difference between thoughtful planning and no planning is often five figures. Plan your retirement withdrawals with capital gains in mind to keep your lifetime tax bill as low as possible.