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.
2026 Long-Term Capital Gains Tax Rates
Long-term capital gains (on assets held more than 12 months) are taxed at preferential rates: 0%, 15%, or 20% depending on your taxable income. For 2026, the 0% rate applies to singles with taxable income up to approximately $47,025 and married filing jointly up to $94,050. The 15% rate applies to income up to $518,900 for singles and $583,750 for married filers. The 20% rate only applies to income above these thresholds. Additionally, high earners may owe the 3.8% Net Investment Income Tax (NIIT), bringing the maximum effective rate to 23.8% — still significantly lower than the highest ordinary income tax rate of 37%.
The distinction between short-term and long-term holding periods can dramatically impact your tax bill. If you sell a stock after 11 months at a $10,000 profit and are in the 22% ordinary income bracket, you owe $2,200 in federal tax. Wait one more month (12+ months), and the same profit might be taxed at just 15%, costing only $1,500 — a $700 difference on a single trade. For larger gains, this difference is even more substantial. This is why tax-efficient investing always considers holding periods and uses tax-loss harvesting to offset gains.
State Capital Gains Taxes in 2026
Nine states have no income tax on capital gains: Alaska, Florida, Nevada, New Hampshire (no wage tax either), South Dakota, Tennessee, Texas, Washington (no income tax; note: has a 7% excise tax on long-term gains over $250,000 since 2022), and Wyoming. States with high capital gains taxes include California (up to 13.3%, treating capital gains as ordinary income), New York (up to 10.9%), Oregon (up to 9.9%), and Minnesota (up to 9.85%). Always factor in your state's tax rate when calculating net-of-tax investment returns, as state taxes can add 5-13 percentage points to your effective rate.
If you have large realized capital gains, investing in a Qualified Opportunity Zone (QOZ) Fund within 180 days of the sale allows you to defer taxes on those gains until 2026 and potentially reduce them by 10-15%. Gains from the QOZ investment itself are completely excluded from tax if held for 10+ years. This is one of the most powerful legal tax deferral strategies available for large capital gains.
