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Capital Gains · Investing

How Capital Gains Tax Works

May 2026·7 min read·Educational only

When you sell an investment — stocks, real estate, crypto, or a business — the profit is a capital gain. How much tax you pay depends almost entirely on how long you held the asset.

The key rule: Hold an asset for more than one year and you qualify for long-term capital gains rates — typically 0%, 15%, or 20%. Sell before one year and the gain is taxed as ordinary income at your full marginal rate.

Short-Term vs Long-Term Rates

Short-term capital gains (held 12 months or less) are taxed as ordinary income — the same brackets as your W-2 wages, up to 37%.

Long-term capital gains (held more than 12 months) are taxed at preferential rates. For 2026, the approximate thresholds for single filers:

Taxable Income (Single)Long-Term Rate
$0 – $48,3500%
$48,351 – $533,40015%
Over $533,40020%

The Net Investment Income Tax (NIIT)

High earners also pay a 3.8% Net Investment Income Tax (NIIT) on investment gains. This kicks in when your Modified Adjusted Gross Income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly).

So if you're a high earner with long-term gains, your effective rate may be 15% + 3.8% = 18.8%, or 20% + 3.8% = 23.8%.

Planning Opportunities

  • Hold longer than 12 months to qualify for long-term rates
  • Tax-loss harvesting — sell losing positions to offset gains
  • Bunching or spreading gains across tax years
  • Qualified Opportunity Zone investments for deferral
  • Gifting appreciated assets to charity or family in lower brackets
Educational disclaimer: Capital gains planning strategies involve complex rules and eligibility requirements. The rates and thresholds above are educational estimates. Consult a qualified tax professional before selling any investment.

Estimate your gain

Capital Gains Tax Calculator

Enter your gain, income, and holding period to see your estimated tax — including NIIT.

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For educational purposes only. Not tax, legal, or financial advice. Tax rates and thresholds change annually. Consult a qualified tax professional before making investment decisions.