Capital Gains Tax Explained: Short-Term vs Long-Term Rates (2026)
How capital gains tax works on stocks, real estate, and crypto — holding periods, the home sale exclusion, and tax-loss harvesting basics.
Sell an asset within a year and the gain is taxed as ordinary income; hold at least a year and one day and it qualifies for lower long-term rates of 0%, 15%, or 20%.
What you'll walk away with
Skim these first — then dig into the details below.
- 1Held under one year: short-term gains taxed at ordinary income rates.
- 2Held one year and a day or longer: long-term rates of 0%, 15%, or 20% by income.
- 3Primary home sale: up to $250,000 single or $500,000 married can be excluded.
- 4Tax-loss harvesting uses realized losses to offset realized gains in the same year.
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You owe capital gains tax when you sell an asset for more than you paid — not while it grows. That timing detail is the foundation of nearly every tax strategy for investors.
The single biggest lever is the holding period, and it is entirely up to you.
Short-term vs long-term
One extra day of holding can change the rate on the entire gain.
- Short-term (under one year): taxed at your ordinary income rate, up to the top bracket.
- Long-term (one year and a day or more): 0%, 15%, or 20% depending on taxable income.
- Higher earners may also owe the net investment income tax on top.
- The clock starts the day after purchase and ends on the trade date of the sale.
Cost basis and how gains are measured
You are taxed on the gain, not the sale price — so basis records matter.
- Basis is what you paid, including commissions and adjusted for reinvested dividends.
- Gain equals sale proceeds minus basis.
- For partial sales, specifying lots lets you choose which shares to sell.
- Inherited assets generally receive a stepped-up basis to the value at date of death.
The home sale exclusion
Your primary residence gets the most generous treatment in the code.
- Exclude up to $250,000 of gain if single, $500,000 if married filing jointly.
- You must have owned and lived in the home two of the last five years.
- The exclusion is reusable, generally no more than once every two years.
- Investment property does not qualify, though 1031 exchanges can defer gains.
How to reduce the bill
A handful of habits handle most of the opportunity.
- 1
Hold at least a year and a day whenever it is practical.
- 2
Do most of your trading inside tax-advantaged accounts, where gains are not taxed annually.
- 3
Harvest losses to offset gains, carrying excess losses forward to future years.
- 4
Watch the wash sale rule when repurchasing something substantially identical within 30 days.
- 5
Time large sales into lower-income years — see federal tax brackets.
Disclaimer: This page includes AI-assisted educational content reviewed for general accuracy. It is not personalized financial, tax, or legal advice. Verify numbers with a qualified professional and our editorial standards.
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