Capital gains tax explained: how much you actually pay in 2026

Capital gains tax sounds intimidating, but the core idea is simple. When you sell something for more than you paid — a stock, an ETF, crypto, a second property — the profit is a capital gain, and part of it is taxable. The part the government takes can range from nothing at all to more than a third of your profit, and the single biggest factor you control is the calendar.

What counts as a capital gain

A capital gain is the profit from selling a capital asset: stocks, bonds, mutual funds and ETFs, cryptocurrency, real estate (other than your main home, which has its own rules), and collectibles. The gain is only "realized" — and only taxable — when you actually sell. While you hold it, an unrealized gain on paper triggers no tax.

The math is the same every time:

Sale price − cost basis = capital gain (or loss)

Short-term vs long-term: the rule that changes everything

The tax code splits gains into two buckets based purely on your holding period — the time between when you bought and when you sold.

• Short-term gain — you held the asset for one year or less. Taxed at your ordinary income tax rate (the same brackets as your wages: 10% to 37%).
• Long-term gain — you held the asset for more than one year. Taxed at the preferential 0%, 15% or 20% long-term rates.

The difference is enormous. A high earner in the 37% bracket who sells a stock after eleven months pays nearly double the tax of someone who simply waited past the one-year mark and qualified for the 20% long-term rate. The holding clock starts the day after you buy, so "a year and a day" is the magic threshold.

How much is capital gains tax? The 2024 long-term brackets

Long-term rates are tied to your total taxable income, not a flat percentage. These are the 2024 federal thresholds (a useful baseline — they are indexed and shift slightly each year, so confirm the current figures before you file):

Long-term rate	Single filer taxable income	Married filing jointly
0%	Up to $47,025	Up to $94,050
15%	$47,026 – $518,900	$94,051 – $583,750
20%	Over $518,900	Over $583,750

2024 federal thresholds, shown as a reference point. Brackets are inflation-adjusted annually and your state may tax gains separately. Always check the current-year IRS figures.

Short-term gains do not get their own table — they are simply stacked on top of your other income and taxed at whatever ordinary bracket they fall into. On top of all this, high earners may owe an extra 3.8% Net Investment Income Tax (NIIT) once income passes certain limits, and most states tax gains too.

Cost basis: the number that decides your bill

Your cost basis is what you paid for the asset, including purchase commissions and certain fees. It is subtracted from the sale price to get your gain — so a higher, accurate basis means a smaller taxable gain. This is why record-keeping matters: lost paperwork can leave you overpaying tax on phantom profit.

A few basis details worth knowing:

• Reinvested dividends add to your basis — they were already taxed once, so they shouldn't be taxed again on sale.
• Inherited assets usually get a "stepped-up" basis to the value at the date of death, often wiping out decades of gains.
• Lot selection — when you own shares bought at different prices, you can often choose which lots to sell to manage the gain.

Worked examples

Numbers make this concrete. Each example below assumes a single filer and ignores state tax and NIIT for simplicity.

Scenario	Bought	Sold	Gain	Holding	Rate	Tax
Quick flip	$10,000	$13,000	$3,000	8 months	Ordinary 24%	$720
Patient sale	$10,000	$13,000	$3,000	14 months	Long-term 15%	$450
Low-income year	$10,000	$13,000	$3,000	14 months	Long-term 0%	$0
Offset by loss	$10,000	$13,000	$3,000	14 months	15% on $0*	$0

*Assumes a $3,000 realized loss elsewhere offsetting the gain. Illustrative only — your actual result depends on total income, filing status, state tax and the current brackets.

Notice that the exact same $3,000 profit costs $720, $450 or $0 depending only on timing and planning. That spread is the whole point of understanding this tax.

Four legal ways to reduce capital gains tax

1. Hold for more than a year

The simplest lever. Crossing from short-term to long-term can roughly halve your rate. If you are close to the one-year mark and don't urgently need the cash, waiting a few extra weeks is often the highest-return "trade" you can make.

2. Harvest losses to offset gains

If some investments are down, selling them realizes a capital loss that offsets your gains dollar-for-dollar. Net losses beyond your gains can offset up to $3,000 of ordinary income per year, with the remainder carried forward. Watch the wash-sale rule: buying back the same or a substantially identical security within 30 days disallows the loss.

3. Use tax-advantaged accounts

Gains realized inside a Roth IRA, traditional IRA or 401(k) are not taxed when you sell within the account. A Roth in particular lets investments grow and be withdrawn tax-free in retirement, so capital gains tax never enters the picture. If you are weighing account types, our Roth vs traditional IRA calculator compares the long-run after-tax outcome.

4. Time sales for lower-income years

Because long-term rates step down with income, a year when your earnings dip — a sabbatical, a career break, early retirement before pensions start — can be the ideal time to realize gains at the 0% or 15% rate. Spreading large sales across two tax years can also keep you out of the 20% band and below the NIIT threshold.

How gains interact with the rest of your pay

Short-term gains stack on top of your salary, which can quietly push part of your income into a higher bracket and shrink the 0% long-term band available to you. If you want to see how a bonus, raise or side income changes your take-home and your effective rate first, run the numbers through our paycheck calculator before you sell — it helps you picture the bracket you'll actually be sitting in.

Frequently asked questions

How much is capital gains tax?

It depends on the holding period. Long-term gains (held over a year) are taxed at 0%, 15% or 20% based on income; short-term gains are taxed at your ordinary rate. High earners may also owe a 3.8% net investment income tax.

What is the difference between short-term and long-term gains?

Short-term means held one year or less and taxed as ordinary income. Long-term means held more than a year and taxed at the lower 0/15/20% rates. Holding past the one-year mark can roughly halve the tax.

What is cost basis?

Cost basis is what you paid for an asset including commissions; your taxable gain is sale price minus basis. Accurate records keep your reported gain — and your tax — as low as legitimately possible.

Can I reduce capital gains tax legally?

Yes — hold longer than a year, harvest losses, use Roth/IRA/401(k) accounts, and time sales for lower-income years. Confirm the specifics with a CPA for your case.

Do I pay capital gains tax in a Roth IRA?

No. Sales inside a Roth IRA aren't taxed, and qualified withdrawals are tax-free, so capital gains tax doesn't apply within the account.