When you sell an investment for more than you paid, you owe capital gains tax on the profit. How much you owe depends heavily on one factor: how long you held the investment before selling. Understanding the short-term vs. long-term distinction — and the 2026 rates that apply to each — can meaningfully change both your after-tax returns and your decisions about when to sell.
Short-term vs. long-term capital gains
If you hold an investment for one year or less before selling, any profit is a short-term capital gain, taxed at your ordinary federal income tax rate — the same brackets that apply to your salary, ranging from 10% to 37% in 2026.
If you hold an investment for more than one year, any profit is a long-term capital gain, taxed at preferential rates of 0%, 15%, or 20% depending on your total taxable income. For most middle-income investors, long-term rates are roughly half (or less) of their ordinary income rate — a powerful incentive to hold investments past the one-year mark before selling.
2026 long-term capital gains brackets
For 2026 (single filers, approximate figures indexed for inflation): the 0% rate applies to taxable income up to roughly $47,025; the 15% rate applies from there up to roughly $518,900; and the 20% rate applies above that. Married couples filing jointly have brackets roughly double these amounts.
Your capital gain is added on top of your other income to determine which bracket(s) it falls into — a gain can 'straddle' brackets, with part taxed at 15% and part at 20%, for example. High earners may also owe an additional 3.8% Net Investment Income Tax (NIIT) on top of these rates.
The Capital Gains Tax Calculator handles this bracket logic automatically — enter your other income, your gain, and your holding period to see your effective rate and tax owed.
Tax-loss harvesting
Tax-loss harvesting means deliberately selling an investment that's worth less than you paid for it, realizing a capital loss that can offset capital gains elsewhere in your portfolio — reducing your overall tax bill. If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income each year, with any remaining loss carried forward to future years indefinitely. One important rule to know: the 'wash sale' rule disallows the loss if you buy the same or a 'substantially identical' security within 30 days before or after the sale.
How dividends are taxed
Dividends fall into two categories for tax purposes. 'Qualified' dividends — generally those paid by US corporations (or qualifying foreign corporations) on shares held for more than 60 days around the dividend date — are taxed at the same preferential long-term capital gains rates (0%, 15%, or 20%). 'Ordinary' (non-qualified) dividends, which include most REIT distributions, certain bond fund payouts, and dividends on shares held for short periods, are taxed at your regular income tax rate. The Dividend Calculator can help you estimate your dividend income; how that income is taxed depends on whether it's qualified or ordinary.
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Frequently Asked Questions
What is the 2026 long-term capital gains tax rate?+
Long-term gains (assets held more than one year) are taxed at 0%, 15%, or 20% depending on your total taxable income. For single filers, the 0% bracket extends to roughly $47,025, the 15% bracket to roughly $518,900, with 20% above that. High earners may also owe the 3.8% Net Investment Income Tax.
How is short-term capital gains tax different?+
Short-term gains (assets held one year or less) are taxed at your ordinary federal income tax rate, the same brackets used for wages — from 10% up to 37% in 2026, depending on your total income.
Can I avoid capital gains tax by reinvesting?+
No — reinvesting dividends or proceeds from a sale does not avoid capital gains tax on a sale that has already occurred. However, holding an investment until death generally allows heirs to receive a 'step-up in basis,' eliminating the built-up gain for tax purposes (though estate taxes may apply separately for large estates).
What is the wash sale rule?+
If you sell an investment at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed for tax purposes (it's added to the cost basis of the new position instead). This rule prevents claiming a tax loss while maintaining the same market position.