Capital Gains Tax Guide for 2026: What You’ll Owe and How To Pay Less

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Capital gains tax is the tax you owe when you sell an asset for more than you paid for it. Only the profit is taxed — not the full sale price — and the rate you pay depends mainly on how long you owned the asset and your income level.

Capital gains tax commonly applies to profits from investments like stocks, real estate, cryptocurrency, and collectibles, and understanding how it works before you sell can help you avoid paying more than necessary.

What Is Capital Gains Tax?

Capital gains tax applies when you sell an asset for more than you paid for it. The profit you make — not the full sale price — is what’s taxed.

Common examples of taxable capital gains include:

• Selling stocks or other investments at a profit
• Selling a second home or investment property
• Cashing out cryptocurrency
• Selling valuable collectibles, such as art, coins, or antiques

How much you owe depends on two main factors:

• Your income level
• How long you owned the asset before selling it

According to the Internal Revenue Service, more than 25 million tax returns reported capital gains in the most recent tax year. Many taxpayers ended up paying more than necessary simply because they didn’t plan ahead — making it especially important to understand how capital gains are taxed before you sell.

How Short-Term and Long-Term Capital Gains Are Taxed

The IRS separates capital gains into two buckets:

• Short-term gains: Profits from selling an asset you held for a year or less. These are taxed at your regular income tax rate — up to 37%.
• Long-term gains: Profits from assets held for more than a year. These get taxed at lower rates — 0%, 15% or 20%, depending on your income.

Holding an asset for over a year can cut your capital gains tax rate in half or more if you qualify for long-term rates.

Long-Term Capital Gains Tax Rates for 2026

Here’s what you’ll owe on long-term capital gains based on your income and filing status:

Most taxpayers fall into the 15% capital gains tax bracket, making it the most common rate paid on long-term investment profits.

Short-Term Capital Gains Tax Rates for 2026

If you sell an asset within one year of buying it, any profit is treated as short-term capital gains and taxed as ordinary income.

That means your gain could be taxed at rates ranging from 10% to 37%, depending on your total taxable income.

Here’s How That Plays Out

If you earned $85,000 in 2025 and sold a crypto asset after holding it for six months, the gain would be taxed at 22%, which matches your federal income tax bracket.

What Kinds of Investments Are Subject to Capital Gains Tax?

Capital gains tax doesn’t apply to every investment the same way. Whether — and how much — you owe depends on the type of asset you sell and where it’s held. Some investments trigger capital gains tax the moment you sell, trade, or spend them, while others offer built-in tax advantages or exclusions.

Understanding which investments are subject to capital gains tax can help you plan sales strategically and avoid unexpected tax bills.

Real Estate (Primary or Investment Property)

• Sell a primary home? You can exclude up to $250,000 (single) or $500,000 (married) in gains if you’ve lived in the home for at least two of the last five years.
• Investment properties? You’ll owe capital gains unless you use a 1031 exchange to defer the tax.

Stocks, Bonds, Mutual Funds, ETFs

• Selling assets in non-retirement accounts (like a brokerage) triggers capital gains tax.
• Capital gains don’t apply to profits in 401(k)s or IRAs — more on that below.

Cryptocurrency

• Selling, spending or exchanging crypto is a taxable event.
• Crypto is treated as property — even converting Bitcoin to Ethereum or using it to buy something triggers capital gains tax.

A 2023 Coinbase report found that over 21% of crypto users didn’t realize crypto transactions could be taxable, showing how easily investors can make IRS-reporting mistakes.

Collectibles (Art, Coins, Antiques)

• Taxed at a maximum 28% rate for long-term gains, higher than for stocks or property.

Retirement Accounts

• No capital gains tax applies inside IRAs or 401(k)s.
• With traditional accounts, you’ll pay ordinary income tax when you withdraw.
• With Roth IRAs, qualified withdrawals are tax-free, including investment gains.

How To Calculate Capital Gains (Step-by-Step)

Here’s how to figure out what you owe:

• Determine your cost basis: Start with what you paid for the asset, including fees and commissions.
• Calculate your gain or loss: Subtract your cost basis from the sale price.
• Classify the gain: Determine whether it’s short-term or long-term based on how long you held the asset.
• Report each transaction: List every sale on Form 8949.
• Summarize your totals: Transfer the totals to Schedule D.
• File with your return: Submit Schedule D along with Form 1040.

If you inherit an asset, your cost basis usually gets “stepped up” to the asset’s value at the time of inheritance, potentially reducing or eliminating capital gains tax.

Capital Gains Tax vs. Ordinary Income Tax

How To Avoid or Lower Capital Gains Tax

You don’t have to pay more than you should. Here are smart ways to lower your capital gains tax in 2026:

• Hold investments longer than one year: Long-term capital gains are taxed at lower rates than short-term gains.
• Use tax-loss harvesting: Sell underperforming investments to offset capital gains and reduce your taxable profit.
• Take advantage of retirement accounts: Investments held in Roth IRAs and 401(k)s aren’t subject to capital gains tax.
• Donate appreciated assets: Gifting stocks or other assets directly to charity can help you avoid capital gains tax while still qualifying for a charitable deduction.
• Time your sales strategically: Selling assets in years when your income is lower can reduce the capital gains tax rate you owe.
• Use the home sale exclusion: If you’re selling your primary residence, you may be able to exclude up to $250,000 in gains ($500,000 if married filing jointly).

Bottom Line: How to Minimize Capital Gains Tax

Capital gains tax affects most investors at some point, but with the right planning, it doesn’t have to take a big bite out of your returns.

What to remember:

• Hold assets for more than one year whenever possible to qualify for lower long-term capital gains tax rates.
• Use tax-smart strategies like the home sale exclusion, Roth IRAs, and tax-loss harvesting to reduce what you owe.
• Keep accurate records, including your cost basis and transaction details, to avoid errors or surprises at tax time.

Capital gains tax is easier to manage when you plan ahead. Understanding the rules and timing your moves carefully can help you keep more of your investment profits.

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