Capital Gains Tax Explained: Short-Term vs Long-Term

Short-term vs long-term

The dividing line is one year and a day. Sell an asset at or before one year and the gain is short-term, taxed at your ordinary income bracket (up to 37 percent). Hold longer than a year and the gain is long-term, taxed at 0, 15, or 20 percent depending on total taxable income.

The 2026 long-term brackets

• 0 percent: taxable income up to 49,450 single, 98,900 married filing jointly
• 15 percent: up to 545,500 single, 613,700 married filing jointly
• 20 percent: above those thresholds

How gains stack on income

Ordinary income fills the ordinary brackets first. Long-term gains stack on top of ordinary income and use whichever long-term bracket that stacked amount falls into. That is why a retiree with modest ordinary income can realize a meaningful gain and still stay inside the 0 percent bracket, while a high earner pays 15 or 20 percent on the same size gain.

The 3.8 percent NIIT

The Net Investment Income Tax adds 3.8 percent on top of the capital gains rate when modified AGI exceeds 200,000 dollars single or 250,000 married filing jointly. Those thresholds are fixed by statute and are not indexed for inflation, so more households cross them every year.

Worked example

A retired married couple with 60,000 dollars of ordinary taxable income realizes a 30,000 dollar long-term gain in 2026. The gain stacks on top of ordinary income to 90,000, which is still below the 98,900 married filing jointly 0 percent threshold. The federal capital gains tax is zero.