What are Long-Term Capital Gains?

A long-term capital gain is the profit on an asset you held for more than one year before selling. The distinction matters for one reason: long-term gains are taxed at their own preferential rates of 0%, 15%, or 20%, rather than at the ordinary income rates that apply to short-term capital gains.

For a high earner that difference is roughly half the tax bill on the same profit, and claiming it requires nothing beyond holding the asset longer.

Long-Term Capital Gains Tax Rates for 2026

The rate depends on your total taxable income and filing status, not on the size of the gain alone.

The 3.8% net investment income tax (NIIT) applies to the lesser of your net investment income or the amount your modified adjusted gross income (MAGI) exceeds $200,000 single, $250,000 married filing jointly, or $125,000 filing separately, bringing the top federal rate to 23.8% where it applies in full. And most states tax the gain as ordinary income with no preferential rate, so a California resident can face a combined rate above 37% on a gain the federal table shows at 20%.

The gain itself counts toward the income that determines your bracket, which means a large sale can push part of its own gain from 15% into 20%.

The Holding Period

The clock starts the day after you acquire the asset. The gain is long-term only if you sell after the one-year anniversary of the acquisition date; selling on the anniversary itself is short-term. Counting days is unreliable because leap years shift the total, so the anniversary date is the test.

A few cases are not obvious:

• Inherited assets are automatically long-term regardless of how briefly you held them, and they receive a step-up in basis to fair market value at the date of death.
• Gifted assets usually carry over the giver’s holding period along with their basis, so a gift of long-held stock is long-term in your hands immediately. The exception is a gift that had fallen below the giver’s basis by the date of the gift, where a later sale at a loss uses the gift-date value and a new holding period.
• Reinvested dividends each start their own holding period. Shares bought through a reinvestment plan within the last year are short-term even if you have owned the position for a decade.
• Employee stock follows the rules of the specific plan, and the clock generally starts at vesting or exercise rather than at grant.

What Else Gets These Rates

Long-term capital gains rates are not limited to asset sales. Qualified dividends are taxed on the same 0/15/20 schedule, provided the shares were held more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.

Some things are excluded. Collectibles, including gold and art, are capped at 28%. Depreciation recapture on real estate is taxed at up to 25%. And gains inside a retirement account get no preferential treatment at all, since withdrawals from a traditional account are ordinary income regardless of how the gain was generated.

The 0% Bracket

If your taxable income sits below the 0% threshold, long-term gains are taxed at nothing federally.

A married couple with $95,000 of taxable income can realize roughly $3,900 of long-term gain and owe no federal tax on it. Repeated annually, selling appreciated shares and immediately repurchasing them resets cost basis higher at no federal capital gains cost. The gain still counts as income elsewhere, so state tax, Affordable Care Act subsidies, and later Medicare premiums can all be affected. The wash sale rule blocks this for losses, not gains, so the repurchase is permitted.

The window is widest in the years between retiring and claiming Social Security, when earned income has stopped and required distributions have not started. Those years usually have to be shared with Roth conversions, and you can compare gain harvesting against Roth conversions in ProjectionLab’s tax optimizer to see which uses them better.

The two strategies compete for the same bracket space, so filling it with one means giving up the other. Which is worth more depends on the size of your traditional balances against your embedded gains.

Frequently Asked Questions

How do I know if my gain is long-term? Check the acquisition date on your broker’s statement and count from the following day. Your 1099-B separates long-term from short-term, and for stock acquired on or after January 1, 2011 the broker reports the basis to the IRS as well.

Do long-term capital losses offset long-term gains? Yes, and the netting has an order. Long-term losses first offset long-term gains, short-term losses offset short-term gains, and then any remaining net loss of one type offsets the other. Up to $3,000 of what is left can offset ordinary income ($1,500 if married filing separately), with the rest carried forward.

Does the 0% rate mean I owe nothing at all? Federally, on the gain, yes. State tax may still apply, and the gain still counts as income for purposes that matter elsewhere, including Affordable Care Act (ACA) premium subsidies and the income calculation behind Medicare premium surcharges.

Is it worth holding an asset I want to sell just to reach one year? Often, though not always. Compare the tax saved against the risk of holding. On a $20,000 gain for someone in the 32% bracket, waiting saves about $3,400, which is a meaningful return for a short wait unless the position itself is deteriorating.