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 $48,350up to $96,700up to $64,750
15%$48,351–$533,400$96,701–$600,050$64,751–$566,700
20%$533,401+$600,051+$566,701+

(2026 figures per IRS inflation adjustments; verify against 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 state income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY): 0% state capital gains
  • Washington State: Recently enacted a 7% LTCG tax on gains above $250,000 (excluded: real estate, retirement accounts)
  • New Hampshire: Taxes dividends and interest but not capital gains

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), realize gains up to the 0% LTCG bracket ceiling, entirely tax-free. Then immediately rebuy if you still want the position. This “tax-gain harvesting” is the opposite of loss harvesting and is criminally underused.

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.

7. Qualified Opportunity Zone (QOZ) investments

Investing capital gains into a QOZ fund within 180 days defers the original gain to 2026 (or later under proposed updates), and after 10 years in the QOZ fund, additional gains can be excluded.

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):

  • Federal STCG (32% bracket): $16,000
  • NIIT: $1,900
  • Total: $17,900 (35.8%)

Cost of selling one month early: $8,500.

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