Taxes are not the most exciting topic, but understanding how your investments are taxed can literally save you thousands of dollars. And with 2026 bringing some important numbers to know, now is the time to get familiar with the rules so you can make smarter decisions before December 31.
What Are Capital Gains Taxes?
When you sell an investment for more than you paid for it, the profit is called a capital gain. The government taxes that gain, but how much you pay depends on two things: how long you held the investment and how much money you make.
Short term capital gains apply when you sell an investment you have held for one year or less. These gains are taxed as ordinary income, meaning they are added to your regular income and taxed at your normal tax bracket rate. This can be as high as 37% for high earners.
Long term capital gains apply when you sell an investment you have held for more than one year. These are taxed at a much lower rate, which is one of the biggest reasons financial experts recommend holding investments for at least a year before selling.
The 2026 Long Term Capital Gains Tax Rates
For 2026, the long term capital gains tax rates are:
0% if your taxable income is up to 8,350 for single filers or 6,700 for married filing jointly. This is a powerful bracket that many people do not realize they qualify for.
15% if your taxable income is between 8,350 and 33,400 for single filers, or between 6,700 and 00,050 for married filing jointly. This is where most investors land.
20% if your taxable income exceeds those thresholds. There is also an additional 3.8% Net Investment Income Tax (NIIT) that applies to higher earners, bringing the effective rate to 23.8% at the top.
How to Use These Rates to Your Advantage
Hold investments for more than a year. The difference between short term and long term rates can be dramatic. If you are in the 22% income tax bracket and you sell a stock after 11 months, you pay 22% on the gain. Wait one more month and you might pay just 15%. That is real money.
Harvest losses to offset gains. If you have investments that have lost value, selling them can generate a tax loss that offsets your gains, reducing your overall tax bill. This is called tax loss harvesting, and it is one of the most underused strategies for everyday investors.
Be strategic about the 0% bracket. If your income is low enough to fall in the 0% long term capital gains bracket, this is a golden opportunity to sell appreciated investments tax free and then buy them back. This resets your cost basis at a higher level, reducing future taxes.
Consider your account types. Gains in a Roth IRA are never taxed. Gains in a traditional IRA are taxed as ordinary income when withdrawn. Gains in a regular brokerage account are subject to capital gains rates. Where you hold your investments matters as much as what you hold.
The Bottom Line
Understanding capital gains taxes is not about being a tax expert. It is about making intentional decisions that keep more of your investment returns in your pocket. A little planning now can save you a significant amount come tax time. You earned those gains. Make sure you get to keep as much of them as possible.