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When you sell an investment for more than you paid, the profit is called a capital gain. The IRS taxes that gain. How much you pay depends on two things: how long you held the investment and your income.
Understanding this can help you time sales to keep more of your profit.
Rates and figures as of May 2026.
Short-Term vs. Long-Term Capital Gains
The IRS splits capital gains into two categories based on how long you owned the asset.
Short-term capital gains: You held the asset for one year or less. These are taxed as ordinary income — at your regular tax bracket, which can be as high as 37% in 2026.
Long-term capital gains: You held the asset for more than one year. These are taxed at lower, preferential rates: 0%, 15%, or 20% depending on your income.
2026 Long-Term Capital Gains Tax Rates
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $47,025 | $47,026–$518,900 | Above $518,900 |
| Married filing jointly | Up to $94,050 | $94,051–$583,750 | Above $583,750 |
| Head of household | Up to $63,000 | $63,001–$551,350 | Above $551,350 |
Net Investment Income Tax (NIIT)
High earners may also owe the 3.8% Net Investment Income Tax. It applies to the lesser of your net investment income or the amount your modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000 (married filing jointly).
If you are in the 20% bracket, your effective rate on long-term gains can reach 23.8% with NIIT included.
Capital Gains on Real Estate
If you sell your primary home, you may exclude up to $250,000 in gains ($500,000 if married filing jointly). To qualify, you must have lived in the home for at least 2 of the last 5 years.
Gains above the exclusion are taxed as long-term capital gains if you owned the home more than one year.
Investment properties do not qualify for the exclusion. All gains are taxable. Depreciation recapture is taxed at a maximum rate of 25%.
Capital Losses and Tax Offset
If you sell an investment at a loss, you can use that loss to offset gains. If your losses exceed your gains, you can deduct up to $3,000 in losses against ordinary income each year. Unused losses carry forward to future years.
This strategy is called tax-loss harvesting. It is most useful in taxable brokerage accounts.
Crypto and NFTs
The IRS treats cryptocurrency as property. Every sale, trade, or use to purchase goods is a taxable event. Short-term gains are taxed as ordinary income. Long-term gains are taxed at the preferential capital gains rates.
NFTs are also treated as collectibles in most cases, which may be taxed at up to 28% — higher than the standard 20% maximum.
Strategies to Reduce Capital Gains Tax
- Hold over one year to qualify for the lower long-term rate
- Harvest losses to offset gains in the same tax year
- Max out tax-advantaged accounts — gains in a Roth IRA are never taxed
- Donate appreciated assets to charity — you avoid the capital gain and get a deduction
- Consider timing — realizing gains in a year when your income is lower drops you into a lower bracket
The Bottom Line
Hold investments for more than one year whenever possible. The difference between short-term and long-term rates is often 10–20 percentage points. On a $50,000 gain, that is $5,000–$10,000 in taxes saved just by waiting.
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