A Taxing Story: Capital Gains and Losses
Comedian Chris Rock once joked that taxpayers don’t really “pay” taxes — they simply have them taken. That’s true of income, and it’s equally true of capital gains.
A capital gain occurs when you sell an investment for more than you paid for it. The IRS splits these gains into two categories: short-term capital gains, on assets held one year or less, and long-term capital gains, on assets held longer than a year. The distinction matters, because the two are taxed very differently.
Long-Term vs. Short-Term Capital Gains Tax Rates
Short-term capital gains are taxed as ordinary income, at your regular marginal tax rate. Long-term capital gains, by contrast, get preferential treatment under a separate 0%, 15%, and 20% rate schedule.
2026 Long-Term Capital Gains Tax Brackets
| Tax Rate | Single | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $66,200 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 | $66,201 – $579,600 |
| 20% | $545,501+ | $613,701+ | $579,601+ |
These thresholds are based on total taxable income, not just capital gains — so a filer’s wages and other ordinary income count toward determining which bracket their gains fall into.
High earners should also note the Net Investment Income Tax (NIIT): an additional 3.8% federal surtax applies to investment income for taxpayers with modified adjusted gross income above $200,000 (single or head of household) or $250,000 (married filing jointly). These thresholds are fixed by statute and haven’t been adjusted for inflation since 2013, so more taxpayers are affected by it each year.
Also keep in mind: the long-term capital gains rate on collectibles and precious metals is capped separately, at a maximum of 28% — it doesn’t follow the standard 0/15/20% schedule.
Rules for Capital Losses
Capital losses can be used to offset capital gains dollar-for-dollar. If your losses exceed your gains for the year, you can use up to $3,000 of the excess to offset other taxable income (such as wages). Any remaining losses beyond that $3,000 aren’t lost — they can be carried forward into future tax years and applied against gains until they’re fully used up. Under current law, this carryforward benefit ends only at death.
A Final Note on Complexity
Not every capital gain or loss is a simple purchase-price-vs-sale-price calculation. Special rules can apply to real estate, business interests, inherited assets, and more. Because tax rules change frequently and individual situations vary, it’s worth consulting a qualified tax professional before making decisions based on this information.
Sources: IRS Revenue Procedure 2025-32; tax bracket data current as of 2026.
This material is for general informational purposes only and is not intended as tax or legal advice. It may not be relied upon for the purpose of avoiding any federal tax penalties. Please consult a qualified tax or legal professional regarding your individual situation. This content should not be considered a solicitation for the purchase or sale of any security.
