The single biggest decision in taxable investing is how long you hold a winner before selling. Hold for 365 days or less and the IRS taxes your gain at ordinary income rates (up to 37%). Hold for 366+ days and the rate drops to 0%, 15%, or 20% depending on your bracket, a difference that can be tens of thousands of dollars on a single position.

Here’s the full picture for 2026.

The two tax buckets

Short-term capital gains (STCG) apply when you sell an asset you’ve held for one year or less. Tax rate = your ordinary income marginal rate. For 2026 that’s 10%, 12%, 22%, 24%, 32%, 35%, or 37%, the same brackets that apply to your W-2 wages.

Long-term capital gains (LTCG) apply when you sell after holding for more than one year. Tax rate is 0%, 15%, or 20% depending on taxable income.

2026 LTCG bracketSingleMFJHoH
0%up to $49,450up to $98,900up to $66,200
15%$49,451–$545,500$98,901–$613,700$66,201–$579,600
20%$545,501+$613,701+$579,601+

(Tax-year 2026 figures from IRS Rev. Proc. 2025-32.)

The “one year and one day” rule

The IRS uses day-after-purchase counting. If you buy a share on January 15, 2025, your earliest LTCG sale date is January 16, 2026. Selling on January 15, 2026 is still short-term.

This is the most common mistake new investors make. The single day matters: a $100,000 gain taxed at STCG (32% bracket = $32,000) vs LTCG (15% = $15,000) is a $17,000 difference for waiting one extra day.

NIIT, the 3.8% surcharge

On top of LTCG/STCG rates, the Net Investment Income Tax adds 3.8% on investment income above:

  • $200,000 (single)
  • $250,000 (MFJ)
  • $125,000 (MFS)

So a high-income LTCG taxpayer in 2026 effectively pays 23.8% federal (20% LTCG + 3.8% NIIT). A short-term seller in the 32% bracket pays 35.8% federal (32% + 3.8%). Plus state, California adds another 13.3% at the top, making the all-in tax on STCG nearly half.

State capital gains tax

Most states tax capital gains as ordinary income at the same rate they tax wages. A few exceptions:

  • No broad individual income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY): most do not tax capital gains as ordinary income.
  • Washington State is the important exception: it has no broad individual income tax but does impose a separate capital-gains tax. Its indexed deduction and rate structure can change, so use the current Washington Department of Revenue rules for the sale year.

California is the worst state for capital gains taxation: top marginal 13.3% with no LTCG preferential rate. A California top-bracket investor selling a $1M position pays roughly:

  • 20% federal LTCG
  • 3.8% NIIT
  • 13.3% CA
  • Total: 37.1% on a long-term gain.

Run your specific situation through the Capital Gains Tax Calculator.

Strategies to lower the bill

1. Hold for 1 year + 1 day

Mathematically the single highest-impact decision. Track your purchase dates carefully. Most brokerages show a “long-term eligible” date next to every position.

2. Tax-loss harvesting

Sell losers to offset winners in the same tax year. Net capital losses up to $3,000/year can also offset ordinary income; excess losses carry forward indefinitely. See Tax-Loss Harvesting Calculator. Watch the wash-sale rule: you can’t buy “substantially identical” securities within 30 days before or after the loss sale.

3. Use the 0% bracket strategically

If you’re temporarily in a low-income year (sabbatical, between jobs, retired before Social Security starts), you may be able to realize gains inside the 0% LTCG bracket. Rebuying can reset basis upward; model the sale first because the gain itself consumes bracket room and can affect credits, subsidies, NIIT, and state tax.

4. Donate appreciated stock to charity

Donating long-term appreciated stock to a 501(c)(3) (including a Donor-Advised Fund) gives you:

  • The charitable deduction equal to fair market value
  • Zero capital gains tax on the appreciation
  • A non-cash way to fund philanthropy more efficiently than cash

See DAF Calculator.

5. Step-up basis at death

Heirs receive inherited assets at fair market value as of the date of death. Decades of appreciation evaporate from a capital gains perspective. This is the single most powerful tax-planning feature in the US code, and one reason “don’t sell, hold forever” is often the right strategy for high-basis-recovery positions.

6. Section 1031 exchange (real estate only)

Real estate investors can defer capital gains tax by exchanging into “like-kind” property. See 1031 Exchange Calculator.

Worked example

Mid-career engineer in Texas (no state tax):

  • W-2 income: $250,000
  • Sold $50,000 of NVDA in February at $50K gain
  • Held for 13 months

Tax on the $50,000 LTCG:

  • Federal LTCG (15% bracket): $7,500
  • NIIT (3.8% on $50K above $200K threshold): $1,900
  • State: $0
  • Total: $9,400 (18.8%)

If the same investor had sold one month earlier (held 11 months instead of 13), the gain would cross the 32% and 35% ordinary brackets:

  • Incremental regular federal tax: about $16,830
  • NIIT: $1,900
  • Total: about $18,730 (37.5%)

Estimated federal cost of selling one month early: about $9,330.

Common mistakes

Mixing up calendar year and holding period. Tax year = January 1 to December 31. Holding period starts the day AFTER purchase. They’re not the same.

Forgetting to add NIIT. Many online articles quote LTCG as 0/15/20% only. For high earners that’s wrong by 3.8 percentage points.

Wash-sale rule on losses. You can sell at a loss to harvest, but buying “substantially identical” securities (same stock, same ETF, often same-sector index funds with similar holdings) within 30 days kills the loss. Buy a different sector, different fund, or wait 31 days.

Holding past the long-term mark and selling at a loss. The benefit of LTCG only matters for gains. If your position is now underwater, the holding period doesn’t help, you have a loss to harvest at any time.

Selling RSU shares one month early. Specific to equity comp, RSU shares vest at FMV, and the one-year LTCG clock starts on the vest date, not the original grant date. See our RSU article.

Other countries

Capital gains rules vary dramatically:

  • United Kingdom, 10/20% standard rates, 18/24% on residential property, £3,000 annual exempt amount (2026)
  • Canada, 50% inclusion rate: only half of capital gain is added to taxable income, then taxed at marginal rate
  • Australia, 50% CGT discount for assets held >12 months
  • India, STCG 15% (equity), LTCG 10% above ₹1 lakh (equity); slab rate for short-term real estate, 20% with indexation for long-term

Country guides coming.

Primary sources