What is Capital gains tax?

Capital gains tax is what you pay on the profit when you sell an investment or property for more than you paid. The taxable gain is calculated as the sale price minus the asset's adjusted cost basis. Capital gains tax is only assessed on realized gains; value appreciation is not taxed while the asset is held. The tax rate depends on how long the asset was held.

Short-term capital gains (assets held for one year or less) are taxed as ordinary income, up to the maximum federal rate of 37%. Long-term capital gains (assets held for more than one year) are taxed at preferential rates of 0%, 15%, or 20% based on the taxpayer's taxable income and filing status. For the 2026 tax year, the 0% long-term capital gains bracket extends up to $49,450 of taxable income for single filers and $98,900 for married couples filing jointly.

High-income earners may also be subject to an additional 3.8% <a href="/articles/high-income-fica-additional-medicare-niit-math" class="text-blue-600 dark:text-blue-400 hover:text-blue-700 dark:hover:text-blue-300 hover:underline font-semibold transition-colors duration-200">Net Investment Income Tax</a> (NIIT) on top of their capital gains rates. In real estate, the IRS allows homeowners to exclude up to $250,000 (single) or $500,000 (married joint) of capital gains on the sale of a primary residence, provided they meet ownership and occupancy requirements.