2026 tax year · IRS Rev. Proc. 2025-32
Capital gains tax calculator
Estimate long-term capital gains tax across the 0%, 15% and 20% rates plus the 3.8% NIIT, and find your 0% gain-harvesting headroom. Every formula is on the methodology page.
Household and ordinary income
Graduated-rate states are not included.
Wages, pension, interest, IRA withdrawals. The standard deduction is applied for you; age 65+ deductions are not.
Capital gains
Original purchase amount plus reinvested distributions.
Gross sale value before tax.
Moves the sale proceeds above your basis.
Held one year or less. Taxed as ordinary income.
Loss carryforward
From last year's Schedule D carryover worksheet. Each nets against its own kind of gain first; up to $3,000 of what's left offsets ordinary income.
Inflation and holding period
Splits the gain into real growth and inflation.
Years between purchase and sale.
Total Tax on Gains
$668
Effective rate of 2.7% across federal, state & NIIT.
0% LTCG Harvesting Room
$0
$0 left at 0%.
Net after-tax proceeds
$44,333
Saved $2,683 vs short-term ordinary rates.
Inflation-adjusted gain
$22,372
$2,628 is phantom inflationary gain ($70 tax drag).
Income & Capital Gains Stacking Hierarchy
Visualizing how ordinary income and capital gains fill statutory tax tiers under 2026 IRS schedules.
How the stacking works
Ordinary income (wages, interest, non-qualified distributions) absorbs the standard deduction first. Long-term capital gains and qualified dividends stack on top of ordinary taxable income, which decides how much of them falls in the 0%, 15%, or 20% bracket.
2026 federal capital gains tax brackets & rates
Unlike ordinary income (which is taxed in graduated brackets ranging from 10% to 37%), assets held for more than one year qualify for preferential federal long-term capital gains rates of 0%, 15%, or 20%. Brackets apply to your taxable income (after subtracting the standard or itemized deduction).
| Filing Status | 0% Rate | 15% Rate | 20% Rate | Standard Deduction |
|---|---|---|---|---|
| Single | $0 – $49,450 | $49,451 – $545,500 | Over $545,500 | $16,100 |
| Married Filing Jointly | $0 – $98,900 | $98,901 – $613,700 | Over $613,700 | $32,200 |
| Head of Household | $0 – $66,200 | $66,201 – $579,600 | Over $579,600 | $24,150 |
| Married Filing Separately | $0 – $49,450 | $49,451 – $306,850 | Over $306,850 | $16,100 |
*Source: IRS Revenue Procedure 2025-32 for tax year 2026. Brackets apply to taxable income after standard or itemized deductions.
Short-term vs. long-term capital gains
The IRS taxes capital gains according to your holding period—the exact duration between the asset purchase date and sale execution:
Short-Term Gains
Held one year or lessTaxed as ordinary income at marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, or 37%. Does not qualify for preferential rate caps.
Long-Term Gains
Held more than one yearTaxed at preferential federal rates of 0%, 15%, or 20%. Significant tax savings for disciplined long-term buy-and-hold investors.
The ordinary income stacking hierarchy
A common misconception is that capital gains are evaluated in isolation. In reality, the IRS applies a strict statutory stacking order:
- Standard Deduction First: The standard deduction ($16,100 for Single, $32,200 for MFJ) is applied against ordinary income first. If ordinary income is lower than the deduction, the remainder offsets capital gains.
- Ordinary Income Baseline: Any remaining ordinary income (wages, interest, pensions, taxable Roth conversions) occupies the bottom tax tiers.
- Capital Gains Stack on Top: Long-term capital gains and qualified dividends stack on top of ordinary taxable income. If your ordinary taxable income already reaches $49,450, every single dollar of capital gains is immediately pushed into the 15% bracket.
- Net Investment Income Tax (NIIT 3.8%): If total MAGI exceeds $200,000 (Single) or $250,000 (MFJ), an additional 3.8% surtax applies under IRC §1411.
Stacking In Action: Example
A single filer with $35,000 ordinary wages and $40,000 long-term capital gains:
- Wages ($35,000) minus Standard Deduction ($16,100) = $18,900 ordinary taxable income.
- 0% LTCG bracket headroom remaining: $49,450 − $18,900 = $30,550 taxed at 0%.
- Remaining gains: $9,450 taxed at 15%.
Capital losses and the $3,000 annual deduction (IRC §1211)
If you sell investments at a loss, the IRS permits you to use capital losses to offset taxable capital gains under statutory netting rules:
- • Step 1 (Netting): Short-term losses offset short-term gains; long-term losses offset long-term gains. If net losses remain in one category, they offset net gains in the other.
- • Step 2 ($3,000 Ordinary Income Offset): If total capital losses exceed total capital gains, you can deduct up to $3,000 per year ($1,500 for married filing separately) directly against your ordinary income.
- • Step 3 (Indefinite Carryforward): Unused net losses never expire. Under IRC §1212, they carry forward indefinitely to future tax years.
State capital gains taxes: 3 distinct models
State income taxes significantly influence your net investment return. States fall into three general taxation categories:
1. States Taxing Gains as Ordinary Income (Most States)
Most states do not offer preferential capital gains rates; gains are taxed at ordinary state income tax rates (ranging from ~3% to 13.3% in California, 10.9% in New York, and 10.75% in New Jersey).
2. States with No Capital Gains Tax (9 States)
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming levy zero state personal income tax on capital gains.
3. Washington State Capital Gains Excise Tax
Washington levies no personal income tax but imposes a standalone excise on long-term capital gains: 7% above an annually indexed deduction ($278,000 for 2025; the 2026 figure is not yet published), and 9.9% on taxable gains over $1 million from 2025. Real estate and retirement accounts are exempt, and short-term gains are not subject to it.
Tax-gain harvesting: The 0% opportunity
During early retirement or gap years when ordinary income is low, early retirees can execute tax-gain harvesting. By selling appreciated assets up to the 0% bracket ceiling, you lock in capital gains at $0 federal tax and immediately repurchase the shares.
Because IRC §1091 (the wash sale rule) applies only to capital losses, there is no 30-day waiting period when harvesting gains. You can buy the exact same investment back in the same minute, permanently raising your cost basis to market value.
The hidden inflation tax on nominal gains
Capital gains taxes are assessed on nominal dollar gains rather than real purchasing power gains. If you purchase an asset for $50,000 and sell it 10 years later for $80,000 during a period with 30% cumulative inflation, $15,000 of your $30,000 gain is purely illusory—it represents zero gain in purchasing power.
Nevertheless, the IRS taxes the entire $30,000 nominal gain. This creates a phantom tax drag that increases the effective tax rate on your true economic return.
Common questions
How are long-term capital gains taxed in 2026?
Assets held for more than one year (IRC § 1222) qualify for preferential long-term capital gains rates of 0%, 15%, or 20%. Under Rev. Proc. 2025-32, for 2026 single filers pay 0% on taxable income up to $49,450, 15% from $49,450 to $545,500, and 20% above $545,500. Married couples filing jointly pay 0% up to $98,900, 15% up to $613,700, and 20% above that threshold.
What is the difference between short-term and long-term capital gains?
Short-term capital gains apply to assets held for one year or less and are taxed as ordinary income at standard federal rates ranging from 10% to 37%. Long-term capital gains apply to assets held longer than one year and receive preferential tax brackets of 0%, 15%, or 20%. Neither type of capital gain is subject to FICA payroll taxes (Social Security and Medicare).
How does ordinary income affect capital gains tax brackets?
Ordinary income (wages, pensions, taxable IRA distributions) absorbs the standard deduction first and sits at the base of the tax stack. Long-term capital gains stack ON TOP of ordinary taxable income. As a result, having higher ordinary income pushes your capital gains into higher rate tiers (15% or 20%).
Can capital gains push ordinary income into a higher tax bracket?
No. Capital gains stack on top of ordinary income, meaning capital gains cannot push your ordinary income into higher ordinary tax brackets. However, ordinary income pushes capital gains into higher capital gains tiers, and capital gains increase your Adjusted Gross Income (AGI), which can trigger the 3.8% Net Investment Income Tax (NIIT), reduce ACA premium tax credits, or increase Medicare IRMAA surcharges.
What is the Net Investment Income Tax (NIIT 3.8%)?
Under IRC §1411, a 3.8% surtax applies to the lesser of net investment income (including capital gains and dividends) or modified adjusted gross income (MAGI) above statutory thresholds: $200,000 for single filers and heads of household, $250,000 for married couples filing jointly, and $125,000 for married filing separately. These thresholds are not indexed for inflation.
What is tax-gain harvesting, and does the wash sale rule apply?
Tax-gain harvesting involves intentionally selling appreciated assets at a gain during low-income years to utilize the 0% federal capital gains bracket. Crucially, the IRS wash sale rule (IRC §1091) applies exclusively to capital losses; you can immediately buy back the identical security after harvesting gains, permanently stepping up your cost basis to market value for free.
How do capital loss carryforwards work under IRC §1211?
Capital losses offset capital gains dollar-for-dollar without limit. If your total capital losses exceed total capital gains, you can deduct up to $3,000 of excess losses ($1,500 if married filing separately) against ordinary income per year. Any remaining unused losses carry forward indefinitely to future tax years.
Does the standard deduction offset capital gains?
Yes. The standard deduction is applied against ordinary income first. If your standard deduction exceeds your ordinary income, the remaining unused standard deduction directly reduces your long-term capital gains before brackets are applied.
How does inflation impact capital gains taxes?
The IRS taxes nominal capital gains without adjusting for inflation. Over multi-year holding periods, a significant portion of price appreciation simply offsets currency depreciation. This results in a "phantom inflation tax," where investors pay real taxes on nominal returns that provided zero increase in purchasing power.
How do state capital gains taxes apply?
Most states tax capital gains as ordinary income at their regular state tax rates (e.g. flat rate states like Illinois at 4.95% or graduated states like California up to 13.3%). Eight states levy no state personal income tax on gains (AK, FL, NH, NV, SD, TN, TX, WY). Washington levies no general income tax but taxes long-term capital gains above an annually indexed deduction ($278,000 for 2025) at 7%, and at 9.9% on taxable gains over $1 million.