Understanding capital gains taxes can help you make smarter investment decisions, minimize your tax burden, and maximize long-term growth.
What is Capital Gains Tax?
Capital gains tax applies when you sell an investment for more than you paid for it. The IRS calls these investments capital assets, which include stocks, bonds, real estate, collectibles, or cryptocurrency, all of which can appreciate in value and be sold or exchanged.
When you sell an asset for more than you paid, the profit counts as a capital gain. For example, if you buy a stock for $5,000 and sell it for $10,000, you realize a $5,000 gain.
Whereas, selling an asset for less than you paid results in a capital loss. For instance, if you sell a cryptocurrency that dropped from $6,000 to $3,000, you incur a $3,000 capital loss.
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The total capital gains you have in a year are subtracted from the total capital losses, where a $5,000 gain and $3,000 loss, create a net capital gain of $2,000 triggered in taxes.
So the amount of tax you owe depends on four main factors:
- What you sold (type of asset)
- How long you owned them (short-term vs long-term)
- Your tax bracket (overall income level)
- Your filing status (single, married, etc.)
Other factors that may apply depending on your situation include state tax, net investment income tax (NIIT) for high earners, and potentially higher taxes on certain collectibles such as coins or art.
Note: You only pay capital gains taxes when you realize them, which means you owe taxes only if you sell an asset for a profit. Investments such as stocks, cryptocurrency, or real estate can appreciate in value, but you don’t trigger taxes until you sell at a gain. But, income earned through bonds and dividend stocks are taxed in the year it was received, whether you reinvest it or not. However, assets held and sold within tax-advantaged accounts like IRAs or 401(k)s are generally exempt from these taxes over time.
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What Are Short-Term Capital Gains?
Short-term capital gains are profits you earn from selling a capital asset you’ve held for one year or less. The IRS taxes these gains as ordinary income at rates of 10%, 12%, 22%, 24%, 32%, 35%, or 37%.
What Are Long-Term Capital Gains?
Long-term capital gains are profits you earn from selling a capital asset you’ve held for at least one year. The IRS generally taxes these gains at lower rates of 0%, 15%, or 20%, with most gains staying under 15%.
» Learn more: How To Pay ZERO Taxes On Your Investments (Legally!)
2026 Capital Gains Rates
Below shows the 2026 short-term capital gains tax rates on assets sold in 2026, reported on tax returns due in April, 2027. These rates are the same as your ordinary income tax rates.
2026 short-term capital gains (taxed as ordinary income)
Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 | $0 to $12,400 |
12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 | $12,401 to $50,400 |
22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 | $50,401 to $105,700 |
24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 | $105,701 to $201,775 |
32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 | $201,776 to $256,225 |
35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 | $256,226 to $384,350 |
37% | $640,601 or more | $768,701 or more | $640,601 or more | $384,351 or more |
Source: Internal Revenue Service, “Revenue Procedure 2025-32.”
Below shows the 2026 long-term capital gains tax rates on assets sold in 2026, reported on tax returns due in April 2027. These gains are taxed with more favorable rates.
2026 long-term capital gains taxes
Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
0% | $0 to $49,450 | $0 to $98,900 | $0 to $49,450 | $0 to $66,200 |
15% | $49,451 to $545,500 | $98,901 to $613,700 | $49,451 to $306,850 | $66,201 to $579,600 |
20% | $545,501 or more | $613,701 or more | $306,851 or more | $579,601 or more |
Source: Internal Revenue Service, “Revenue Procedure 2025-32.”
How to Reduce Capital Gains
1. Hold investments longer
Holding a capital asset for more than one year lets you take advantage of the more favorable tax rates that apply to long-term capital gains.
2. Use tax-advantaged accounts
Investing in traditional IRAs or 401(k)s allow your gains to grow tax-deferred, meaning you pay capital gains taxes only when you withdraw money in retirement. However, Roth accounts are often a preferred choice for many because you pay taxes upfront, and then all future growth and withdrawals are completely tax-free.
3. Consider tax-efficient investments
Investments like high-turnover managed mutual funds or high income producing assets that trigger ordinary income are two of the most inefficient investments when it comes to tax purposes. Because of that, when it comes to investing in taxable brokerage accounts, here are a few tips we recommend at InvestLane:
- Aim for ETFs
- Aim for low expense ratios
- Aim for low dividends (If dividends, aim for qualified)
- Be aware of foreign taxes
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4. Consider tax-loss harvesting
The IRS taxes you based on your net capital gains, which is your total gains minus your losses, including both short- and long-term. Tax-loss harvesting is intentionally selling investments at a loss to offset gains already realized. Although certain rules apply and this isn’t for everyone, it can effectively lower your taxable income by reducing your net capital gains.
Note: If your losses exceed your gains, you can deduct up to $3,000 ($1,500 if filing separately) from your ordinary income each year. Any remaining losses can be carried forward to future years. For example, with $6,000 in losses and $2,000 in gains, you can deduct $3,000 this year and carry the additional $1,000 loss into next year.
5. Rebalance using dividends
As markets shift, your portfolio can drift away from its initial target allocation. Rather than selling assets, which may trigger taxes, you can use dividends to buy underperforming assets. Since dividends are taxed either way, this strategy lets you rebalance gradually and more efficiently.
6. Exclude capital gains on your home
If you sell your primary home, you can exclude up to $250,000 of capital gains from your taxes, or up to $500,000 if you are married and file jointly. To qualify, you must have lived in and owned the home for at least 2 out of the last 5 years before selling. This exclusion does not apply rental properties or any business-related real estate.
Example: If you bought a home for $300,000 and sold it for $500,000. A married couple that meets the requirements could exclude the entire $200,000 gain from taxes.
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7. Look into robo-advisors
For those seeking a hands-off approach, robo-advisors automatically manage your investments and often use tax strategies like tax-loss harvesting to help minimize your tax burden.
This can be especially useful for investors with high-tax situations or who are unsure how to handle complex tax rules themselves, and below are a few options to compare.
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