How long-term capital gains are taxed
Long-term gains are not taxed in isolation. The tax code stacks them on top of your ordinary taxable income, meaning wages, interest, pensions and retirement withdrawals after deductions, and then asks which rate band each dollar of gain lands in. Dollars below the 0% threshold owe no federal income tax, the next slice is taxed at 15%, and anything above the 15% ceiling pays 20%.
Because the gain sits on top, it does not change the bracket rates applied to your ordinary income. What it changes is how much of the gain itself reaches the 15% or 20% band. Qualified dividends share the same bands and stack alongside the gain.
The rates apply to your net capital gain: long-term gains minus long-term losses, reduced by any net short-term loss, as explained on the capital gains page. The thresholds rise with inflation each year; the 2026 figures in the table below come from IRS Revenue Procedure 2025-32.
What counts as long-term
You must own the asset for more than one year. Start counting the day after the trade date and include the day you sell, using trade dates rather than settlement dates at both ends. Shares bought on March 10, 2025 are still short-term if sold on March 10, 2026, and long-term from March 11, 2026. Sell a day early and the whole result is a short-term capital gain, taxed at ordinary rates. A few holdings follow different rules:
- Inherited property counts as long-term no matter how briefly you have held it.
- A gift that keeps the giver’s basis also keeps the giver’s holding period.
- Mutual fund and REIT capital gain distributions are long-term regardless of how long you have owned the shares.
- Each reinvested dividend buys new shares with their own holding period, so one fund can hold short- and long-term lots at once.
When the rate can exceed 20%
The 0%, 15% and 20% bands cover most sales of stocks, bonds, funds and real estate, but not every long-term gain. Collectibles such as coins and art are taxed at up to 28%, as is the taxable part of a gain on qualified small business stock. When you sell a rental or other depreciated building, the part of the gain that reflects depreciation, called unrecaptured section 1250 gain, is taxed at up to 25%; see rental property depreciation.
Higher earners add the 3.8% net investment income tax once modified AGI exceeds $200,000 single, $250,000 joint or $125,000 married filing separately, so the top federal rate on most long-term gains is effectively 23.8%.
States add their own layer. Many tax gains like other income, and Washington levies a separate 7% tax on long-term gains from assets such as stocks and bonds above a yearly standard deduction, rising to 9.9% on taxable gains over $1 million since 2025.
Planning with the 0% bracket
The 0% band rewards years when ordinary income is low: early retirees living on savings before Social Security and required minimum distributions begin, people on a sabbatical, or anyone between jobs. A married couple with $60,000 of ordinary taxable income in 2026 could realize up to $38,900 of long-term gain at a 0% federal rate, then buy the same investments back at once to reset their cost basis higher. That is tax-gain harvesting, and because the wash sale rule applies only to losses, the immediate repurchase is allowed.
The same room is contested. A Roth conversion adds ordinary income that pushes gains out of the 0% band, so the two strategies compete for the same low-income years. And a gain taxed at 0% still raises AGI, which can shrink ACA premium tax credits or add Medicare surcharges two years later.
Illustrative numbers
A single filer adds a $30,000 long-term gain to $40,000 of taxable income (2026)
- Gain
- Net long-term capital gain plus qualified dividends for the year
- 0% threshold
- $49,450 single or married filing separately, $66,200 head of household, $98,900 married filing jointly (2026)
- Ordinary taxable income
- Taxable income other than long-term gains and qualified dividends
Gain above the 0% band is taxed at 15% until total taxable income reaches $545,500 single or $613,700 joint, then at 20%.
Ordinary taxable income, after deductions$40,000
Long-term capital gain$30,000
Room left in the 0% band ($49,450 − $40,000)$9,450 × 0% = $0
Rest of the gain, in the 15% band$20,550 × 15% = $3,082.50
Federal tax on the gain$3,082.50, about 10.3% of it
Only the part of the gain above the $49,450 line pays 15%, and the $40,000 of ordinary income is taxed exactly as it would be without the sale. Split over two years at $15,000 a year, with the same income each year, the gain would face 0% on $9,450 and 15% on $5,550 each time: $1,665 in total, saving $1,417.50.
At a glance
2026 long-term capital gains brackets, by taxable income
| Filing status | 0% rate | 15% rate | 20% rate |
|---|---|---|---|
| Single | Up to $49,450 | Over $49,450 to $545,500 | Over $545,500 |
| Married filing jointly or surviving spouse | Up to $98,900 | Over $98,900 to $613,700 | Over $613,700 |
| Married filing separately | Up to $49,450 | Over $49,450 to $306,850 | Over $306,850 |
| Head of household | Up to $66,200 | Over $66,200 to $579,600 | Over $579,600 |
| Estates and trusts | Up to $3,300 | Over $3,300 to $16,250 | Over $16,250 |
Put it in your plan
Long-term gains in MoneyWhatIf
MoneyWhatIf prices modeled brokerage gains on the long-term 0%, 15% and 20% ladder, stacked above each year’s ordinary taxable income, and adds the net investment income tax and state treatment where they apply. In a year that realizes a gain, the Taxes page draws a capital gains ladder with the gain sitting on top of the ordinary income in each rung, and its tax map shows when extra income pushes gains off their 0% rung. In Tax Planning, Step 2 compares harvesting gains up to a 0%, 15% or 20% target, after any Roth conversions from Step 1 have used their share of the room.
Common questions
Long-term gains FAQs
Is there an age when you stop paying capital gains tax?
No. Federal law has no age exemption for capital gains. Retirees often pay 0% anyway, because taxable income usually falls once paychecks stop, and turning 65 widens the room: the additional standard deduction adds $2,050 for a single filer or $1,650 per spouse in 2026, and through 2028 there is the $6,000 senior deduction, which shrinks once MAGI passes $75,000 ($150,000 joint). Social Security and required minimum distributions can refill that room, so the cheapest years are often those between retiring and the start of RMDs.
Do long-term capital gains push you into a higher tax bracket?
Not for your ordinary income. Gains are stacked above wages, pensions and other ordinary income, so the rate on those stays the same whether you sell or not. A large gain can push part of itself across the 0%, 15% or 20% lines, though, and it raises your adjusted gross income. That can make more of your Social Security taxable and shrink income-tested breaks such as the senior deduction, raising the tax on your other income indirectly.
Is the 0% long-term capital gains rate really tax-free?
At the federal level, yes: gain that fits inside the 0% band owes no federal income tax. It is not invisible, though. The gain still counts in adjusted gross income, so it can affect ACA premium credits, the taxable share of Social Security and Medicare IRMAA surcharges. Your state may also tax the gain even when the federal rate is zero.
Are qualified dividends taxed the same as long-term capital gains?
Yes. Qualified dividends are taxed at the same 0%, 15% and 20% rates, within the same brackets, stacked on top of ordinary income together with long-term gains. To qualify, you generally must hold common stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Dividends that fail the test are taxed as ordinary income.
Does inherited stock get long-term capital gains treatment?
Yes. Inherited property is treated as long-term, so a sale produces a long-term gain or loss even the week after you inherit. Its basis is generally the fair market value on the date of death, the step-up in basis, so only growth after that date is taxable. Inherited traditional IRAs and 401(k)s are different: withdrawals are taxed as ordinary income.