Every time you sell a stock, ETF, or other investment at a profit, the IRS may want a share of your gains—and how much you owe can vary dramatically depending on one simple factor: how long you held the asset. Getting capital gains tax right isn't just about filing season; it shapes when you buy, when you sell, and how you structure your portfolio year-round. This guide walks through the 2025 and 2026 capital gains tax rates, explains the crucial difference between short-term and long-term treatment, and covers legitimate strategies to lower your bill—from tax-loss harvesting to smart holding-period planning.

Key Takeaways

• Capital gains tax applies when you sell a capital asset—such as stocks, bonds, real estate, or cryptocurrency—for more than its adjusted cost basis (IRS Topic No. 409).

• Short-term capital gains (assets held one year or less) are taxed as ordinary income at rates up to 37%.

• Long-term capital gains (assets held more than one year) are taxed at 0%, 15%, or 20%, depending on taxable income and filing status.

• High earners may owe an additional 3.8% Net Investment Income Tax (NIIT) on top of standard capital gains tax rates.

• Capital losses can offset capital gains dollar-for-dollar, and up to $3,000 of net losses can offset ordinary income each year, with any excess carried forward.

• This article contains sponsored references to Webull, a US brokerage platform; see disclosure above.

Capital gains tax is one of the most common tax questions long-term investors and active traders ask, and the answer depends heavily on two factors: how long you held the asset and your overall taxable income. Below, we walk through exactly how the IRS defines and calculates capital gains, current rate tables for 2025 and 2026, and practical steps for managing your tax liability throughout the year.

Part 1. What Is Capital Gains Tax and How Does It Work?

Capital gains tax is a federal tax on the profit realized from selling a capital asset. According to the IRS, almost everything you own and use for personal or investment purposes—including a home, household furnishings, stocks, or bonds—qualifies as a capital asset (IRS Topic No. 409). When you sell that asset, the difference between your adjusted cost basis and the sale price determines whether you have a capital gain or a capital loss.

1.1 Capital Gain vs. Capital Loss: Definitions

• Capital gain: The profit you realize when you sell a capital asset for more than your adjusted cost basis. Cost basis typically includes the original purchase price plus commissions or fees paid at the time of purchase (Charles Schwab).

• Capital loss: The amount by which the sale price of an asset falls short of its adjusted cost basis. Losses from the sale of personal-use property are not tax deductible, but losses on investment assets generally are (IRS Topic No. 409).

• Realized vs. unrealized gains: A gain is "unrealized" as long as you continue to hold the asset—no tax is owed on paper gains. The gain becomes "realized," and therefore taxable, only in the year you actually sell the asset (Vanguard).

1.2 What Assets Are Subject to Capital Gains Tax?

Capital gains tax can apply to a wide range of assets, including:

• Individual stocks and exchange-traded funds (ETFs)

• Bonds and mutual funds

• Cryptocurrency and NFTs (treated as "property" by the IRS)

• Real estate, including investment property

• Collectibles such as coins, art, and precious metals

• Other personal-use valuables like jewelry

Investors who actively trade stocks or ETFs through an online brokerage account, such as Webull, will most commonly encounter capital gains tax on realized stock and options transactions reported at year-end on Form 1099-B.

1.3 When Do You Owe Capital Gains Tax?

You owe capital gains tax for the tax year in which the gain is realized—meaning the year you actually sell or otherwise dispose of the asset (Investopedia). If you have a taxable capital gain, you may also be required to make estimated tax payments throughout the year rather than waiting until the annual filing deadline (IRS Topic No. 409).

Part 2. Short-Term vs. Long-Term Capital Gains Tax Rates (2025–2026)

The single biggest factor influencing your capital gains tax bill is your holding period. The IRS draws a clear line at the one-year mark.

2.1 Short-Term Capital Gains: Held One Year or Less

A short-term capital gain or loss results from selling an asset you held for one year or less. Net short-term capital gains are taxed as ordinary income at your regular graduated federal tax rates—currently ranging from 10% up to 37% (IRS Topic No. 409; Forbes Advisor).

2026 Short-Term Capital Gains Tax Rates (Ordinary Income Brackets)

2.2 Long-Term Capital Gains: Held More Than One Year

A long-term capital gain or loss applies to assets held for more than one year. A lower long-term capital gains tax rate may apply if your net long-term capital gain exceeds your net short-term capital loss for the year (IRS Topic No. 409). Most taxpayers pay no more than 15% on long-term gains (NerdWallet).

2025 Long-Term Capital Gains Tax Rates

2026 Long-Term Capital Gains Tax Rates

Sources: IRS Topic No. 409; Investopedia; Forbes Advisor; NerdWallet

2.3 Special Capital Gains Tax Rates Above 20%

Certain assets are taxed at higher long-term capital gains rates than the standard 0%/15%/20% brackets:

1. 28% rate — Net capital gains from selling collectibles such as coins, art, antiques, and precious metals (IRS Topic No. 409; Charles Schwab).

2. 28% rate — Taxable gain from selling Section 1202 qualified small business stock (QSBS) above the exclusion amount (IRS Topic No. 409; Carta).

3. 25% rate — Unrecaptured Section 1250 gain from selling depreciated real property (IRS Topic No. 409; Investopedia).

4. Section 1256 contracts (futures, options on futures, broad-based index options) receive blended treatment: 60% of gains taxed at long-term rates and 40% at ordinary income rates, regardless of actual holding period.

Part 3. Net Investment Income Tax (NIIT) and Capital Losses

Beyond standard capital gains tax rates, two additional rules can significantly affect your total tax bill: the Net Investment Income Tax for high earners, and the treatment of capital losses.

3.1 The 3.8% Net Investment Income Tax (NIIT)

Individuals with significant investment income may also be subject to the Net Investment Income Tax in addition to standard capital gains tax rates (IRS Topic No. 409). The NIIT adds 3.8% on investment income—including capital gains, dividends, interest, and rental income—once modified adjusted gross income (MAGI) exceeds:

(Investopedia; Vanguard; Charles Schwab). Unlike the capital gains tax brackets, these NIIT thresholds are not indexed for inflation (Tax Policy Center).

3.2 Capital Loss Deduction Rules

If your capital losses exceed your capital gains for the year, you can deduct the excess against ordinary income—but the deduction is capped. The deductible amount is limited to the lesser of $3,000 ($1,500 if married filing separately) or your total net loss (IRS Topic No. 409; NerdWallet). Any remaining net capital loss beyond that limit carries forward to future tax years indefinitely.

How losses offset gains, step by step:

1. Separate all sales into short-term and long-term categories.

2. Net short-term gains against short-term losses, and long-term gains against long-term losses, separately.

3. If one category shows a net loss and the other a net gain, combine them to find your overall net capital gain or loss.

4. If the result is a net loss, deduct up to $3,000 ($1,500 married filing separately) against ordinary income.

5. Carry forward any remaining loss to next year's tax return (Charles Schwab; NerdWallet).

3.3 Wash Sale Rule Considerations

Investors using tax-loss harvesting should be aware of the wash sale rule: repurchasing the same or a substantially identical investment within 30 days of selling it at a loss can disallow the loss for tax purposes. Brokerage tax documents, including those generated through platforms like Webull, typically flag wash sale adjustments on Form 1099-B to help investors report accurately.

Part 4. Reporting, Exclusions, and Special Situations

Capital gains tax isn't limited to stock sales—real estate, inherited assets, and retirement accounts each follow distinct rules.

4.1 How to Report Capital Gains

Capital gains and losses are generally reported on Schedule D (Form 1040), supported by details from Form 8949 (Charles Schwab; Investopedia). Brokerages issue Form 1099-B for individual security sales and Form 1099-DIV for fund distributions that include capital gains (Vanguard). Many self-directed investors download these forms directly from their brokerage account—for example, Webull provides consolidated 1099 tax documents through its app and web platform for eligible account holders.

4.2 The Primary Residence Exclusion

Homeowners selling a primary residence may exclude a portion of the gain from capital gains tax:

• Single filers: up to $250,000 excluded

• Married filing jointly: up to $500,000 excluded

To qualify, you generally must have owned and lived in the home for at least two of the five years preceding the sale (Investopedia; Charles Schwab; NerdWallet).

4.3 Inherited and Gifted Assets

Inherited assets: Cost basis is "stepped up" to the fair market value on the date of the original owner's death. This means appreciation that occurred before death is generally not subject to capital gains tax, and the asset is treated as long-term regardless of how long the heir actually holds it.

Gifted assets: The recipient generally assumes the original owner's cost basis and holding period, sometimes called "carryover basis" (Charles Schwab).

4.4 Tax-Advantaged Accounts

Capital gains taxes generally do not apply to buy-and-sell activity that occurs inside tax-advantaged accounts such as traditional IRAs, Roth IRAs, 401(k)s, and 529 college savings plans (Charles Schwab). Traditional account withdrawals are typically taxed as ordinary income, while qualified Roth IRA and Roth 401(k) withdrawals made after age 59½ and after the account has been open at least five years are generally tax-free (Investopedia). Investors who want to trade actively without triggering annual capital gains events on each transaction sometimes use an IRA offered through a brokerage; Webull, for instance, offers traditional, Roth, and rollover IRA account types alongside its standard taxable brokerage accounts.

Part 5. Strategies to Reduce or Manage Capital Gains Tax

While capital gains tax cannot be eliminated for realized profits in a taxable account, several widely used, IRS-recognized strategies can help manage the amount owed.

5.1 Practical Steps for Managing Capital Gains Tax

1. Hold assets longer than one year whenever consistent with your investment goals, to qualify for the lower long-term capital gains tax rates instead of ordinary income rates (Investopedia; Forbes Advisor).

2. Use tax-loss harvesting by selling underperforming positions to realize losses that offset realized gains elsewhere in your portfolio (NerdWallet; Vanguard).

3. Track your cost basis carefully, including reinvested dividends and fees, since a higher basis reduces your taxable gain (Investopedia).

4. Choose your cost-basis method deliberately—options include FIFO, LIFO, specific share identification, or average cost for mutual funds (Investopedia).

5. Use tax-advantaged retirement accounts for buy-and-hold or actively managed strategies where you want to avoid annual capital gains tax events (Charles Schwab; NerdWallet).

6. Manage income thresholds by considering whether spreading a large sale across two tax years could keep you in a lower capital gains bracket (Forbes Advisor).

7. Avoid wash sales by waiting more than 30 days before repurchasing a security you sold at a loss (Investopedia).

5.2 Pros and Cons of Common Capital Gains Tax Strategies

Tax-loss harvesting

• Pros: Directly reduces current-year taxable gains; unused losses carry forward indefinitely.

• Cons: Requires monitoring the wash sale rule; selling at a loss means realizing that loss permanently unless the position is later repurchased after 30 days.

Holding period extension (buy and hold past one year)

• Pros: Access to substantially lower long-term rates (0%/15%/20% vs. up to 37%).

• Cons: Market risk continues while holding; not suitable if the investment thesis has changed.

Using tax-advantaged accounts

• Pros: No annual capital gains tax drag inside the account; Roth accounts can offer tax-free qualified withdrawals.

• Cons: Contribution limits apply; early withdrawals from retirement accounts may trigger penalties.

5.3 Choosing a Brokerage That Supports Tax-Efficient Investing

Because holding periods and cost-basis tracking are central to managing capital gains tax, the brokerage platform you use can meaningfully affect how easily you monitor your tax exposure throughout the year. The following section contains Webull's features relevant to capital gains tax planning:

• Real-time position tracking that shows unrealized gains and losses on open positions, helping investors see potential tax impact before selling.

• Consolidated 1099 tax forms delivered through the Webull app and web platform, covering 1099-B, 1099-DIV, and related statements for eligible taxable brokerage accounts.

• Multiple account types, including individual taxable brokerage accounts and IRAs (traditional, Roth, and rollover), allowing investors to separate tax-deferred or tax-free activity from taxable trading.

• Commission-free trading on US-listed stocks and ETFs, which can simplify cost-basis calculations since trading commissions do not need to be added back into basis on every transaction.

• Order history and transaction records accessible directly in-platform, which may help investors and their tax preparers reconcile realized short-term and long-term gains at year-end.

Other well-known US brokerages, including Charles Schwab and Vanguard, similarly provide 1099 tax documents and cost-basis reporting tools; account holders should compare specific reporting features, account minimums, and available account types across platforms based on their individual needs. All capital gains tax rules described in this guide apply uniformly under IRS regulations regardless of which registered brokerage an investor uses.

5.4 Platform Safety and Regulatory Oversight

When selecting any US brokerage for taxable or tax-advantaged investing, it's worth confirming basic regulatory safeguards. Brokerages operating in the United States are typically registered with the Securities and Exchange Commission (SEC), are members of the Financial Industry Regulatory Authority (FINRA), and provide Securities Investor Protection Corporation (SIPC) coverage, which protects customer securities and cash up to certain limits in the event of brokerage insolvency (this does not protect against investment losses from market movements). Investors should verify a firm's specific registrations directly through FINRA BrokerCheck or the SEC's investment adviser search tools before opening an account.

Frequently Asked Questions

1. What is the capital gains tax rate for 2025?

For 2025, long-term capital gains are taxed at 0%, 15%, or 20% depending on taxable income and filing status, while short-term capital gains are taxed as ordinary income at rates up to 37% (IRS Topic No. 409; Forbes Advisor).

1. How do I avoid paying capital gains tax on stocks?

You cannot legally avoid capital gains tax on a profitable sale in a taxable account, but you can reduce it by holding assets more than one year to qualify for long-term rates, using tax-loss harvesting to offset gains, or trading inside tax-advantaged accounts like IRAs (Charles Schwab; NerdWallet).

1. Is capital gains tax based on income?

Yes. Long-term capital gains tax brackets (0%, 15%, 20%) are based on your total taxable income and filing status, and short-term capital gains are taxed at your ordinary marginal income tax rate (IRS Topic No. 409; Carta).

1. Do I pay capital gains tax if I reinvest the money?

Reinvesting proceeds from a sale does not eliminate or defer capital gains tax; the gain is taxable in the year of the sale regardless of what you do with the proceeds afterward (Charles Schwab).

1. What is the Net Investment Income Tax and who pays it?

The NIIT is an additional 3.8% tax on investment income, including capital gains, for individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly) (IRS Topic No. 409; Vanguard).

1. How much capital loss can I deduct in one year?

You can deduct up to $3,000 in net capital losses against ordinary income per year ($1,500 if married filing separately); any excess loss carries forward to future tax years (IRS Topic No. 409; NerdWallet).

1. Do capital gains taxes apply inside a Roth IRA or 401(k)?

No. Trades made within tax-advantaged accounts such as Roth IRAs, traditional IRAs, and 401(k)s are not subject to capital gains tax while funds remain in the account; different tax rules apply upon withdrawal (Charles Schwab; Investopedia).

1. What happens to capital gains tax on inherited stock?

Inherited assets typically receive a "step-up" in cost basis to the fair market value on the date of the original owner's death, and are treated as long-term holdings regardless of how long the heir has actually owned them (Charles Schwab; Tax Policy Center).

The Bottom Line

Capital gains tax depends primarily on your holding period and income level, with long-term rates (0%–20%) generally far more favorable than short-term ordinary income rates. Reviewing your cost basis, holding periods, and available deductions before year-end can help you plan more effectively.

Disclamer

Securities trading is offered to self-directed customers by Webull Financial LLC, member SIPC, FINRA. All investments involve risk, including the possible loss of principal. You should consider your investment objectives carefully before investing. This is not a recommendation, investment advice, or a solicitation for the purchase or sale of a security. Additional info: webull.com/disclosures

Disclosure

Webull Financial LLC, Member SIPC, FINRA. Investing involves risk. More info at webull.com/policy