Capital gains tax rate
Also known as: LTCG rate, Short-term capital gains rate
Federal tax rates that apply to profits from selling assets held in a taxable account. Long-term gains (held >1 year) are taxed at preferential rates (0%, 15%, or 20% depending on income); short-term gains (≤1 year) are taxed as ordinary income at marginal brackets.
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The federal capital gains tax structure separates investment profits into two categories based on holding period. Short-term capital gains — from assets sold within a year of purchase — are taxed at the same rate as ordinary income (10% to 37% marginal brackets depending on total income). Long-term capital gains — from assets held more than one year — get preferential rates: 0% for taxpayers in the lower brackets, 15% for the middle, and 20% for top earners. The brackets for the 0/15/20 LTCG rates are indexed for inflation each year and differ by filing status; they are NOT the same brackets as ordinary income.
The 0% long-term capital gains bracket is one of the most underused provisions in the US tax code. For 2025, single filers with taxable income up to $48,350 and married couples filing jointly up to $96,700 owe zero federal tax on long-term capital gains; for 2026 those 0%-bracket ceilings rise to $49,450 single and $98,900 joint (IRS Rev. Proc. 2024-40 and 2025-32). This creates a meaningful tax-planning lever called 'gain harvesting' — early retirees with low MAGI years, household members between jobs, or anyone with temporarily low income can realize long-term gains tax-free to step up the cost basis of their portfolio, then immediately rebuy the same positions (no wash sale rule applies to gains, only to losses). The brackets are precise; verify current-year thresholds at irs.gov/taxtopics/tc409 before executing.
The Net Investment Income Tax (NIIT) of 3.8% layers on top of long-term capital gains for high earners — single filers above $200,000 MAGI, joint filers above $250,000 MAGI. The NIIT applies to the lesser of net investment income or the MAGI excess over the threshold. So a high-earning filer with significant long-term capital gains can face an effective top federal LTCG rate of 23.8% (20% LTCG + 3.8% NIIT). State capital gains taxation varies — Washington recently introduced a 7% state capital gains tax above a threshold; California taxes LTCG as ordinary income (up to 12.3%); Texas/Florida/Nevada/Wyoming/etc. impose no state capital gains tax at all.
Holding period mechanics are precise: 'more than one year' means the trade date plus one day must be after the original trade date plus one year. A purchase on January 15, 2025 must be sold on January 16, 2026 or later to qualify for long-term treatment. Selling on January 15, 2026 (exactly one year) is short-term. For inherited assets, the holding period is automatically long-term regardless of how soon after inheritance the heir sells, and the cost basis steps up to fair market value at the date of death. For gifted assets, the holding period and basis transfer from the donor — gifts do not reset the clock.
- Capital gains tax — long-term vs short-term, brackets, basis, and NIIT How US capital gains tax is computed: the holding-period line, the 0/15/20 percent long-term brackets, the 3.8 percent NIIT, basis, and the planning levers.
- Tax-loss harvesting in taxable brokerages: the mechanics How to convert paper losses in a taxable account into a permanent federal tax benefit: the wash sale rule, the $3K offset cap, and the harvest-rebuy mechanics.
- Asset allocation by age — why "120 minus age" misses what matters The classic age-based equity rules ignore household income stability, pensions, and time horizon — what to use instead for retirement allocation.
- Wash sale rule An IRS rule that disallows a tax loss on the sale of a security if the same or a 'substantially identical' security is purchased within 30 days before or after the loss sale. The disallowed loss is added to the cost basis of the replacement security.
- NIIT (Net Investment Income Tax) A 3.8% federal surtax on investment income for higher-income filers, enacted in 2013 to fund the Affordable Care Act. Applies on top of regular capital gains and dividend tax when modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). Thresholds are not indexed for inflation.
- Qualified dividend A dividend that meets specific IRS holding-period and source requirements and qualifies for the preferential long-term capital gains tax rate (0%, 15%, or 20%) instead of the higher ordinary income rate. Reported on Form 1099-DIV box 1b — the subset of total dividends in box 1a that qualified.
- AGI (Adjusted Gross Income) AGI is your total gross income for the tax year minus a specific set of statutory adjustments listed on Schedule 1 of Form 1040. It is the figure on which most tax calculations and eligibility tests downstream actually operate — not your gross income, not your taxable income.
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