2025 and 2026 Updates: Capital Gains Tax Rates — Short and Long Term, Tax Loss Harvesting, and NIIT

When you sell a capital asset — a stock, bond, cryptocurrency, real estate, or other investment — the profit (or loss) is classified as a capital gain or loss. How much you owe in tax depends on three things: what type of asset it was, how long you held it, and your taxable income.

Capital gains are divided into short-term (held one year or less) and long-term (held more than one year). Long-term gains get significantly better tax treatment — that’s the core planning opportunity here.

How Short-Term vs. Long-Term Capital Gains Are Taxed

Short-term capital gains (assets held one year or less) are taxed at the same rate as ordinary income. Depending on your bracket, that’s anywhere from 10% to 37%.

Long-term capital gains (assets held more than one year) qualify for preferential rates: 0%, 15%, or 20%. Which rate applies depends on your total taxable income and filing status.

The one-year holding period cutoff is exact — a position held 365 days is still short-term. Day 366 flips it to long-term. That distinction can mean thousands of dollars in tax savings on a large gain.

For the full federal income tax brackets that govern short-term rates, see the 2025-2026 IRS tax brackets and income thresholds on this site.

2025 Long-Term Capital Gains Tax Rates

These apply to the 2025 tax year — returns filed in early 2026.

Source: IRS Revenue Procedure 2024-40

Example — 0% rate in practice: Sarah is single with $44,000 in taxable income. She sells stock she’s held for two years and realizes a $6,000 long-term gain. Her total taxable income after the gain is $50,000 — and $4,350 of that gain stays in the 0% bracket (up to $48,350). She owes 15% only on the remaining $1,650. Total capital gains tax: about $248.

2026 Long-Term Capital Gains Tax Rates

These apply to the 2026 tax year — returns filed in early 2027. The IRS adjusted thresholds upward by roughly 2.3% for inflation.

For a married couple, the 0% bracket now extends nearly to $99,000 in taxable income. If you’re in or near retirement and managing withdrawals carefully, this is one of the most valuable planning levers available.

Things can shift quickly — I’ll update this page as official IRS guidance is released. Subscribe here to get notified.

What the One Big Beautiful Bill (OBBB) Changed — and Didn’t

The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, permanently extended the lower ordinary income tax brackets from the 2017 Tax Cuts and Jobs Act (TCJA). It did not change capital gains rates themselves — they remain at 0%, 15%, and 20%.

But here’s why it matters indirectly: because ordinary income brackets are now permanent at lower levels, more taxpayers may find themselves in the 0% capital gains bracket than under pre-TCJA law. A higher standard deduction ($16,100 for singles, $32,200 for MFJ in 2026) also helps reduce taxable income.

The OBBB also expanded the Qualified Small Business Stock (QSBS) exclusion. For QSBS held at least five years, 100% of gains can be excluded (up from varying limits). The maximum exclusion increased from $10 million to $15 million. Worth knowing if you hold early-stage company stock.

Capital Loss Deduction and Tax-Loss Harvesting

If your capital losses exceed your capital gains in a given year, you can deduct up to $3,000 of the net loss against ordinary income ($1,500 if married filing separately). Any remaining loss carries forward indefinitely to future tax years.

This is the foundation of tax-loss harvesting — strategically selling positions at a loss to offset gains elsewhere in your portfolio. In a down year for markets, it’s one of the more practical tax moves available.

Example: Jim sold two positions this year. One had a $12,000 long-term gain, another had a $9,000 long-term loss. His net capital gain is $3,000 — and he only owes tax on that amount.

For a step-by-step approach, see the tax-loss harvesting strategy covered here previously.

One critical rule: the wash sale rule prohibits claiming a loss if you buy the same or “substantially identical” security within 30 days before or after the sale. The IRS will disallow the loss, and the disallowed amount gets added to the cost basis of the new shares instead. As of early 2026, the wash-sale rule applies to stocks and securities — crypto is still in a different category, though watch for IRS guidance on that.

3.8% Net Investment Income Tax (NIIT)

Higher-income taxpayers owe an additional 3.8% NIIT on top of their capital gains rate. This surtax applies to the lesser of: net investment income, or the amount by which your MAGI exceeds these thresholds:

Unlike capital gains brackets, these NIIT thresholds are not adjusted for inflation — they’ve been frozen since 2013. More taxpayers get pulled into NIIT territory every year without any real increase in purchasing power.

For a single filer with $220,000 in AGI that includes $40,000 in investment income, NIIT applies only to the $20,000 excess above $200,000. NIIT owed: $20,000 × 3.8% = $760.

For high earners in the 20% long-term bracket who also owe NIIT, the effective rate on gains reaches 23.8% — still well below the 37% top rate on ordinary income.

Special Capital Gains Rates: Collectibles and Depreciation

Not everything qualifies for the standard 0/15/20% treatment:

Collectibles (max 28%): Art, antiques, coins, stamps, precious metals held as investments, and similar items are taxed at a maximum rate of 28% on long-term gains. If your ordinary income rate is below 28%, the lower rate applies instead.

Depreciation recapture (max 25%): When you sell rental property or other depreciable real estate at a profit, the portion of gain attributable to previously claimed depreciation deductions is taxed at up to 25% (known as “unrecaptured Section 1250 gain”). The remaining gain above that is taxed at standard long-term rates.

Crypto: The IRS treats cryptocurrency as property, so the same short-term/long-term rules apply. One thing that changed as of 2026: brokers are now reporting crypto transactions directly to the IRS via Form 1099-DA. Accurate record-keeping is no longer optional.

Investment Cost Basis

Your cost basis is the all-in price you paid for a security, including brokerage commissions. When you have multiple lots of the same security — from separate purchases or dividend reinvestments — you can calculate cost basis two ways:

• Average-cost method: Averages the cost across all lots
• Actual-cost (specific identification) method: Lets you choose which specific shares to sell

For tax-loss harvesting, the actual-cost method usually wins. It lets you sell your highest-cost shares first, maximizing the realized loss (or minimizing the gain). Most major brokerages let you set this at the account level — worth confirming your default method, especially in taxable brokerage accounts.

Capital gain distributions from mutual funds and REITs also count as capital gains — even if you never sold a share. These show up on your 1099 at year-end and can be a surprise if you’re not watching. Dividends are different: they’re taxed as ordinary income unless they’re “qualified dividends,” which get the same preferred 0/15/20% rate as long-term gains.

For retirement planning, see how 401(k) and IRA contribution limits interact with your overall taxable income — especially relevant if you’re trying to stay in the 0% capital gains bracket.

Common Issues to Watch Out For

I get a lot of questions about capital gains that come from the same handful of misunderstandings. Here are the ones worth knowing before you file:

1. Assuming your capital gain doesn’t push you into a higher bracket. Long-term gains are “stacked on top of” ordinary income. If you have $40,000 in wages and a $20,000 long-term gain, the $20,000 is taxed at whatever rate applies after adding it to your income — not at the 0% rate automatically.

2. Forgetting about NIIT. Many investors plan around the 15% or 20% rate but forget the 3.8% NIIT on top for incomes above $200k/$250k. The effective rate on a large gain can be 18.8% or 23.8%.

3. Triggering the wash sale rule while loss harvesting. Selling a losing position and buying it back (or something substantially identical) within 30 days wipes out the tax benefit. Plan your 30-day window before repurchasing.

4. Not tracking cost basis across reinvested dividends. Every dividend reinvestment creates a new lot with its own cost basis and holding period. If you don’t track these, you may overstate your gain — and overpay taxes.

5. Treating inherited assets the same as purchased assets. Inherited property typically gets a stepped-up cost basis to fair market value at the date of death. That means if you immediately sell inherited stock, your gain (for tax purposes) may be zero or minimal, even if the original buyer paid very little for it.

Looking Ahead: 2027 Capital Gains Projections

The IRS typically releases the following year’s inflation adjustments in October or November. Based on recent COLA trends (roughly 2–3% annually), I’d project the 2027 thresholds to look something like:

• Single 0% bracket: Approximately $50,500–$51,000
• MFJ 0% bracket: Approximately $101,000–$102,000

That’s a projection, not a guarantee — I’ll update this page once the IRS releases official Rev Proc guidance.