How Capital Gains Tax Works in 2026

When you sell an investment for more than you paid, the profit is a capital gain, and the IRS taxes it based on how long you held the asset. Short-term gains on assets held one year or less are taxed at your ordinary income rate, which can be as high as 37%. Long-term gains on assets held longer than one year qualify for preferential rates of 0%, 15%, or 20%, depending on your taxable income and filing status.

Your long-term rate is determined by where your total taxable income (including the gain) falls in the brackets below. Most filers land in the 15% bracket. If your investment produced a loss instead, you can deduct up to $3,000 of net capital losses against ordinary income each year and carry the rest forward.

Example: A single filer with $80,000 in ordinary income who sells stock for a $20,000 long-term gain has total taxable income of $100,000, which falls in the 15% bracket. The estimated federal tax on the gain would be $3,000.