Written by the TaxPlain Editorial Team · Reviewed for accuracy · Last updated August 2026
⚠️ Educational only. TaxPlain does not provide tax, legal, or financial advice. Always consult a qualified tax professional about your specific situation.
What this is
Capital gains tax is what you owe when you sell an asset — like stock, a home, or cryptocurrency — for more than you paid for it. The profit, or "gain," gets taxed differently depending on how long you owned the asset before selling.
The single biggest factor is your holding period. Sell within a year and the profit counts as a short-term capital gain, taxed at your regular income tax rate. Hold the asset for more than a year and it becomes a long-term capital gain, which gets preferential rates of 0%, 15%, or 20% depending on your income.
That one-day-over-a-year distinction can be worth thousands of dollars, which is why it's the first thing to check before you sell anything.
Who it affects
✓ Applies to
Anyone who sells stocks, mutual funds, ETFs, cryptocurrency, real estate, or other investment property at a profit.
↑ Also applies to
Homeowners selling a house, even if part of the gain ends up excluded — and higher earners who may owe an extra surtax on top.
📅 THE ONE-YEAR LINE
Hold an asset 365 days or less and any profit is a short-term gain taxed like ordinary income. Hold it 366 days or more and it qualifies for long-term rates. The clock starts the day after you acquire the asset.
Breakdown
2026 capital gains tax rates
Short-term gains are taxed at your ordinary federal income tax bracket, which can run as high as 37%. Long-term gains get one of three preferential rates based on your taxable income and filing status. Since brackets shift based on your AGI each year, always confirm the current thresholds before filing.
0% long-term rate — applies to lower-income filers; most single filers with taxable income under roughly $49,000 qualify for 2026.
15% long-term rate — the rate most middle- and upper-middle-income taxpayers pay on long-term gains.
20% long-term rate — applies once taxable income crosses into the highest bracket, roughly $545,000+ for single filers in 2026.
Short-term gains — taxed exactly like your wages, at your marginal ordinary income rate (10% to 37%).
3.8% NIIT surtax — an additional tax that can stack on top of any of the above for higher earners; see the mistakes section below.
State taxes — most states also tax capital gains as income, on top of whatever you owe the IRS.
The home sale exclusion
Selling your primary residence
Selling a home is where most people first run into capital gains questions. The good news: if the home was your primary residence for at least two of the five years before the sale, you can exclude a large chunk of the gain from tax entirely.
Single filers — up to $250,000 of gain can be excluded.
Married filing jointly — up to $500,000 of gain can be excluded.
Gain above the exclusion — taxed as a regular long-term capital gain if you owned the home more than a year.
Second homes and rentals — don't qualify for the exclusion; the full gain is generally taxable, and reported on Schedule D.
Inherited homes — usually get a "stepped-up" basis to fair market value at death, which can shrink or eliminate the taxable gain for heirs, including widows selling shortly after a spouse's passing.
Related forms often involved
Capital gains rarely show up in isolation — they usually connect to a handful of other forms and figures on your return.
Form 8949 — where you list each individual sale before totals flow to Schedule D. See our Form 8949 guide for the box-by-box breakdown.
Schedule D — summarizes your total short-term and long-term gains and losses for the year.
Form 1099-B — your broker sends this showing proceeds from stock and investment sales; see our 1099-B guide.
Form 1040 — your capital gains ultimately land on your Form 1040 and affect your total taxable income.
Common mistakes to avoid
⚠️ MISSING THE NIIT SURTAX
If your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), an extra 3.8% Net Investment Income Tax can apply on top of your regular capital gains rate. Many filers forget this until they see the bill.
⚠️ SELLING ONE DAY TOO EARLY
Selling an asset at 364 days instead of waiting for day 366 can push the entire gain from a 15% long-term rate into a 24%+ short-term ordinary rate. Always confirm your exact purchase date before selling.
What to do right now
Pull your purchase dates and cost basis for anything you're considering selling, and check whether you're inside or outside the one-year mark. If you're selling a home, confirm how long you lived there and whether the exclusion applies. Losses elsewhere in your portfolio can also offset gains — worth reviewing before year-end using our Schedule D breakdown.
Questions to ask your tax professional
01Based on my income, which long-term capital gains bracket will I actually fall into?
02Am I close to the NIIT threshold, and would timing a sale differently help?
03Do I qualify for the full home sale exclusion, or only a partial one?
04Can I use tax-loss harvesting to offset gains I'm planning to realize this year?
05Does my state tax capital gains separately, and at what rate?
Frequently asked questions
What is the difference between short-term and long-term capital gains?
Short-term capital gains come from assets held one year or less and are taxed as ordinary income at your regular tax bracket. Long-term capital gains come from assets held more than one year and are taxed at lower rates of 0%, 15%, or 20%, depending on your taxable income.
What are the capital gains tax rates for 2026?
For 2026, long-term capital gains are taxed at 0%, 15%, or 20% depending on taxable income and filing status. Short-term capital gains are taxed at your ordinary income tax rate, which can run as high as 37%. Higher earners may also owe the 3.8% Net Investment Income Tax on top of these rates.
Do I pay capital gains tax when I sell my home?
Often not, or only partly. If you owned and lived in the home as your primary residence for at least two of the last five years, you can typically exclude up to $250,000 of gain (single) or $500,000 (married filing jointly). Gain above that exclusion, or gains on a second home or rental property, is generally taxable.
What is the Net Investment Income Tax (NIIT)?
The NIIT is an additional 3.8% tax on investment income, including capital gains, for taxpayers whose modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). It applies on top of your regular capital gains tax rate.
Can capital losses offset capital gains?
Yes. Capital losses first offset capital gains of the same type, then the other type, and up to $3,000 of any remaining loss can offset ordinary income each year, with the rest carried forward to future tax years.