Capital gains tax is the single largest tax bill most investors face — and one of the most optimizable. Understanding the difference between short-term and long-term rates can save $5,000–$30,000 on a significant asset sale.
2026 capital gains tax rates
| Holding period | Rate | Taxed as |
|---|---|---|
| Under 1 year (short-term) | 10–37% | Ordinary income — your marginal rate |
| Over 1 year (long-term, single filer) | ||
| Income ≤ $48,350 | 0% | Zero federal capital gains tax |
| Income $48,351–$533,400 | 15% | Standard long-term rate |
| Income over $533,400 | 20% | High earner rate |
| Married filing jointly — 0% threshold | 0% | Up to $96,700 taxable income |
The 0% bracket: the most underused strategy in investing
If your taxable income (after deductions) is below $48,350 (single) or $96,700 (MFJ), you pay zero federal capital gains tax on long-term gains. This creates powerful strategies:
- "Gain harvesting": Sell appreciated positions, realize gains tax-free, immediately repurchase. You reset your cost basis higher with no tax cost. Repeat annually while in the 0% bracket.
- Early retirement planning: FIRE retirees often structure income to stay within the 0% LTCG bracket — living on $50,000–$90,000 with zero federal capital gains tax.
- Low-income years: Job loss year, sabbatical, or grad school year — ideal time to sell appreciated positions.
Net Investment Income Tax (NIIT): the hidden 3.8%
High earners face an additional 3.8% NIIT on investment income (dividends, capital gains, rental income) above $200,000 (single) / $250,000 (MFJ). Effective capital gains rate at the top: 20% + 3.8% = 23.8%.
Tax-loss harvesting: the year-end strategy
Sell positions with unrealized losses before December 31. Losses offset gains dollar-for-dollar. Up to $3,000 of net losses can offset ordinary income annually. Unlimited carryforward for unused losses. Wash-sale rule: don't repurchase the same (or substantially identical) security within 30 days before/after the sale.
Selling a $50,000 gain position at 11 months (short-term, 22% bracket) vs 13 months (long-term, 15% bracket): difference = $3,500 in taxes. For high earners at 37% vs 20%: $8,500 saved by waiting 2 extra months. Set calendar reminders for every significant position's 1-year anniversary.
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