What Are Long-Term Capital Gains?
Long-term capital gains are profits from selling assets held for more than one year. The US tax code provides preferential rates for long-term gains to encourage long-term investment. The rates are 0%, 15%, or 20%, depending on your taxable income, significantly lower than ordinary income rates of up to 37%.
This preferential treatment represents one of the most significant tax advantages available to investors. Understanding where your income falls within the long-term capital gains brackets is essential for tax planning, retirement planning, and investment strategy.
Single filers with taxable income up to $47,025 (including the gain) pay 0% on long-term capital gains. This means a retiree with $40,000 in income could realize $7,025 in long-term gains completely tax-free at the federal level.
2026 Long-Term Capital Gains Brackets
| Rate | Single | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | $0 - $47,025 | $0 - $94,050 | $0 - $63,000 |
| 15% | $47,026 - $518,900 | $94,051 - $583,750 | $63,001 - $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $551,350 |
- 1Total taxable income = $80,000 + $30,000 = $110,000
- 2At $110,000 (single): 15% LTCG rate
- 3Federal tax = $30,000 × 15% = $4,500
- 4State tax = $30,000 × 5% = $1,500
- 5NIIT: income below $200K, so $0
- 6Total tax = $4,500 + $1,500 = $6,000
- 7After-tax gain = $30,000 - $6,000 = $24,000
- 8If this were short-term (24% bracket): $7,200 + $1,500 = $8,700
Maximizing Long-Term Gains Tax Advantages
- The 15% LTCG rate covers the vast majority of investors
- High earners pay an additional 3.8% NIIT on investment income above $200K/$250K
- Collectibles (art, coins) have a special 28% maximum LTCG rate
- Real estate may be subject to depreciation recapture at 25%
- LTCG rates apply to qualified dividends as well, not just asset sales
Most states do not differentiate between short-term and long-term gains. California, for example, taxes all capital gains at ordinary income rates up to 13.3%. A $30,000 gain at 15% federal + 13.3% state = 28.3% total tax rate. Plan for state taxes in your calculations.