Long-Term Capital Gains
Tax Glossary Term
Definition
Long-term capital gains are profits from selling capital assets held for more than one year. They receive preferential tax treatment with rates of 0.0%, 15.0%, or 20.0%, depending on your taxable income and filing status — significantly lower than the ordinary income rates of 10.0% to 37.0% that apply to short-term gains. For 2026, a single filer pays 0.0% on long-term gains if their total taxable income (including the gains) stays below approximately $49,450, 15.0% on gains in the range up to about $545,500, and 20.0% on gains above that threshold. These breakpoints are different from the ordinary income brackets. High-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT) on top of the capital gains rate if their MAGI exceeds $200,000 (single) or $250,000 (MFJ), bringing the maximum effective rate to 23.8%. The 0.0% bracket is particularly valuable for tax planning. Retirees or individuals in lower-income years can sell appreciated assets and pay zero federal tax on the gains. This strategy is sometimes called 'tax-gain harvesting.' Long-term capital gains are reported on Schedule D and Form 8949, which track your cost basis, sale proceeds, and holding period. Mutual fund distributions labeled as 'long-term capital gains' also qualify for the preferential rates, even if you did not sell the fund shares yourself.
Example
Single filer, $40,000 salary + $8,000 long-term gain:
Total taxable income: $48,000 (after standard deduction)
Long-term gain falls within the 0.0% bracket threshold
Tax on $8,000 gain: $0
(Same gain as short-term would cost $960 at 12.0%)