Investors who sell an investment at a profit in a taxable account incur a capital gain that they must report on their tax returns. For investments held longer than one year, the long-term capital gains tax applies. In both the 2025 and 2026 tax years, federal tax laws impose three different rates on long-term capital gains based on income. The major tax changes enacted through the One Big Beautiful Bill Act earlier in 2025 had no impact on long-term capital gains taxes, and the changes to the income thresholds for long-term capital gains tax rates are the result of inflation-related adjustments.
Note: Tax rates are always subject to change. There have been numerous occasions when the U.S. Congress and state lawmaking bodies have made changes to tax laws in the middle of a year or even retroactively to a previous year. Be sure to check the latest sources at the IRS and your state tax department for the most up-to-date information.
What is a capital gain?
A capital gain is the increase in value between what you paid for a capital asset and what you received when you sold it, subject to adjustments in certain cases. Most of the things you own count as capital assets, including investments, real estate, and personal property.
What is capital gains tax?
The federal government imposes taxes on capital gains for assets held in taxable accounts, like a brokerage account. Sales of assets inside tax-deferred accounts, such as IRAs and employer-sponsored retirement plans like 401(k)s, don't generate capital gains tax.
Capital gains tax: Short-term vs. long-term
Federal tax laws break down capital gains into two categories based on how long the owner held the asset. Short-term capital gains tax applies to sales of assets held for one year or less. For assets held longer than a year before sale, the federal government imposes long-term capital gains tax.
What is the long-term capital gains tax rate?
Long-term capital gains tax at the federal level is taxed at three different rates: 0%, 15%, and 20%. The tax rate applied to each taxpayer depends on the amount of long-term capital gains and other gross income, as well as the taxpayer's filing status.
Long-term capital gains tax rates for 2026
These are the rates and income brackets governing federal taxes on long-term capital gains for assets sold during the 2026 tax year and reported on the 2026 tax returns due in April 2027.
Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
0% | $0 to $49,450 | $0 to $98,900 | $0 to $49,450 | $0 to $66,200 |
15% | $49,450 to $545,500 | $98,900 to $613,700 | $98,900 to $306,850 | $66,200 to $579,600 |
20% | Over $545,500 | Over $613,700 | Over $306,850 | Over $579,600 |
Long-term capital gains tax rates for 2025
These are the rates and income brackets governing federal taxes on long-term capital gains for assets sold during the 2025 tax year and reported on the 2025 tax returns due in April 2026.
Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
0% | $0 to $48,350 | $0 to $96,700 | $0 to $48,350 | $0 to $64,750 |
15% | $48,350 to $533,400 | $96,700 to $600,500 | $48,350 to $300,000 | $64,750 to $566,700 |
20% | Over $533,400 | Over $600,500 | Over $300,000 | Over $566,700 |
What is the short-term capital gains tax rate?
Federal tax law taxes short-term capital gains at the same rates that apply to ordinary income. Ordinary income includes wages, salaries, bonuses, interest, and rental income. For the 2025 and 2026 tax years, there are six ordinary income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your taxable income determines which bracket you fall into and, therefore, what rates of tax you'll pay.
Do you pay state taxes on capital gains?
Different states have different tax rules. Some don't have state income taxes at all. Others impose a tax on capital gains in the same way they do on other types of income, while still others have different rates for certain types of capital gains than for other types of income.
Below you'll find a quick summary of state-level capital gains tax rates for 2025.
Capital gains tax rates by state for 2025
The table below includes 2025 state-level capital gains taxes. States with no capital gains tax are listed in the next section.
State | Special Capital Gains Rate? | Capital Gains Tax Rates |
|---|---|---|
Alabama | No | 2% to 5% |
Arizona | Yes | 1.875% long-term, 2.5% short-term |
Arkansas | Yes | 0% to 1.95% long-term, 0% to 3.9% short-term |
California | No | 1% to 12.3% |
Colorado | No | 4.4% |
Connecticut | No | 2% to 6.99% |
Delaware | No | 0% to 6.6% |
Georgia | No | 5.19% |
Hawaii | Yes | 7.25% |
Idaho | No | 5.3% |
Illinois | No | 4.95% |
Indiana | No | 3% |
Iowa | No | 3.8% |
Kansas | No | 5.2% to 5.58% |
Kentucky | No | 4% |
Louisiana | No | 3% |
Maine | No | 5.8% to 7.15% |
Maryland | Yes | 2% to 8.5% |
Massachusetts | Yes | 5% long-term, 8.5% short-term |
Michigan | No | 4.25% |
Minnesota | No | 5.35% to 9.85% |
Mississippi | No | 0% to 4.4% |
Montana | Yes | 3% to 4.1% |
Nebraska | No | 2.46% to 5.2% |
New Jersey | No | 1.4% to 10.75% |
New Mexico | Yes (Deduction Of 40% Of Capital Gains Income Up To $2,500) | 1.5% to 5.9% |
New York | No | 4% to 10.9% |
North Carolina | No | 4.25% |
North Dakota | Yes | 0% to 1.5% |
Ohio | No | 0% to 3.125% |
Oklahoma | Yes (Exemption for certain Oklahoma property with longer holding periods) | 0% to 4.75% |
Oregon | No | 4.75% to 9.9% |
Pennsylvania | No | 3.07% |
Rhode Island | No | 3.75% to 5.99% |
South Carolina | Yes | 0% to 3.36% long-term, 0% to 6% short-term, |
Utah | No | 4.5% |
Vermont | Yes (Exclusion of $5,000 or 40% of capital gains up to $350,000 for certain property) | 3.35% to 8.75% |
Virginia | No | 2% to 5.75% |
Washington | Yes (Tax imposed only on capital gains above threshold amounts) | 0% to 9.9% |
West Virginia | No | 2.22% to 4.82% |
Wisconsin | Yes | 1.4% to 5.355% long-term, 3.5% to 7.65% short-term |
States with no capital gains tax
Alaska, Florida, Missouri, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming do not impose a state income tax on capital gains.
States with the highest capital gains taxes for high-income earners
Top rates for capital gains include California at up to 12.3%, New York at up to 10.9%, New Jersey at up to 10.75%, Oregon and Washington at up to 9.9%, and Minnesota at up to 9.85%.
Expected state capital gains tax rate changes for 2026
States are constantly looking at their tax laws to provide incentives for people and businesses to locate there. But even though we won't know with 100% certainty what state income tax rates will be on capital gains in 2026 until later in the year, here's what we do know is changing:
- Mississippi is set to decrease its top income tax rate to 4% in 2026.
- Nebraska has been phasing in income tax cuts over several years, and the top rate in 2026 will fall to 4.55%.
- North Carolina is completing a multi-year scheduled reduction in its income tax rates with a cut to 3.99% in 2026.
- Ohio's top tax income rate is set to fall to 2.75% in 2026.
- Oklahoma's 2026 top income tax rate is falling to 4.5%, along with a simpler set of tax brackets.
How does capital gains tax work?
Taxpayers are generally allowed to offset capital gains with capital losses on investments that they sell at a loss. The net amount of capital gains is subject to tax.
Special tax worksheets from the IRS are available to work through the different tax rates and brackets for ordinary income and capital gains. Tax software typically handles the necessary computations automatically.
How to avoid capital gains tax
Here are five ways you may be able to avoid or reduce capital gains tax.
- Just don't sell. Capital gains tax isn't due on an asset that has risen in value until and unless you sell it. This is a major benefit of long-term stock investing.
- Wait longer than a year before selling. There will be times when you may have no choice but to sell an investment, or when selling will be the right move despite capital gains tax. In those situations, ensuring that you have a holding period longer than one year will get you the benefit of lower taxes on your investment returns.
- Use tax-deferred accounts like IRAs and 401(k)s. Many special accounts, such as retirement and health savings accounts, allow the sale of assets within the account with no immediate tax impact. You won't owe capital gains tax on such sales.
- Offset gains with losses. As mentioned above, the IRS and state tax authorities allow taxpayers to take any capital losses and use them to reduce their capital gains for the same year. If the losses exceed the gains, you'll owe no capital gains tax. If the gains exceed the losses, you'll still pay less than you would have without the losses.
- Take advantage of special rules. The home sale exclusion lets qualifying homeowners exclude as much as $500,000 in long-term capital gains from the sale of their primary residence. Also, the stepped-up basis rules allow heirs of a deceased person to sell an inherited asset using the date-of-death value as the starting point rather than its value when the deceased person bought the asset.
Tax terms for investors
1099-B Form | Dividend income | Reinvesting capital gains | Capital gains tax | Cost basis | Net investment income | Realized gain | Realized loss | Tax loss harvesting
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