When you sell an investment for more than you paid, the profit is a capital gain — and the IRS wants a share of it. But how much you owe depends heavily on one factor: how long you held the investment before selling. The tax code draws a sharp line at one year, and crossing it can dramatically reduce the taxes you owe on the same dollar amount of profit.
The One-Year Rule
- Held 12 months or less: Short-term capital gain — taxed as ordinary income at your regular bracket rate
- Held more than 12 months: Long-term capital gain — taxed at preferential lower rates (0%, 15%, or 20%)
The one-year threshold is a hard line. Selling one day before the anniversary date costs you the preferential long-term rate. For large gains, that one day can be worth thousands of dollars in additional taxes.
Short-Term Capital Gains Rates (2026)
Short-term gains are added to your ordinary income and taxed at your regular federal rate — the same as wages:
| Taxable Income (Single) | Short-Term Rate |
|---|---|
| Up to $11,925 | 10% |
| $11,926 – $48,475 | 12% |
| $48,476 – $103,350 | 22% |
| $103,351 – $197,300 | 24% |
| $197,301 – $250,525 | 32% |
| $250,526 – $626,350 | 35% |
| Over $626,350 | 37% |
Long-Term Capital Gains Rates (2026)
| Rate | Single (Taxable Income) | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 | Up to $64,750 |
| 15% | $48,351 – $533,400 | $96,701 – $600,050 | $64,751 – $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $566,700 |
These thresholds apply to taxable income including the gain. A married couple with $80,000 in wages and the $32,200 standard deduction has $47,800 in taxable income from wages. They can realize up to $48,900 more in long-term gains ($96,700 − $47,800) and pay zero federal capital gains tax.
Side-by-Side Example: The Cost of Selling Early
You bought $50,000 of stock now worth $80,000 — a $30,000 gain. You're a single filer with $70,000 in other taxable income (22% bracket).
| Sell After 11 Months (Short-Term) | Sell After 13 Months (Long-Term) | |
|---|---|---|
| Gain amount | $30,000 | $30,000 |
| Tax rate | 22% | 15% |
| Federal tax on gain | $6,600 | $4,500 |
| Tax saved by waiting 2 months | — | $2,100 |
Net Investment Income Tax (NIIT)
High-income investors face an additional 3.8% NIIT on top of capital gains rates. It applies if MAGI exceeds $200,000 (single) or $250,000 (married jointly). These thresholds are not inflation-adjusted — more taxpayers get caught each year. At the top, high earners effectively face a 23.8% federal rate on long-term gains.
Capital Loss Harvesting
Capital losses offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 against ordinary income per year, with remaining losses carrying forward indefinitely. Tax-loss harvesting — selling underperformers to generate losses that offset gains — is a legitimate strategy. Watch the wash-sale rule: you can't repurchase a substantially identical investment within 30 days of the sale.
Special Cases
Cryptocurrency: Treated as property. Every sale, trade, or use triggers a gain or loss. Short vs. long-term rules apply identically to crypto as to stocks.
Primary home sales: Exclude up to $250,000 of gain (single) or $500,000 (married) if you've owned and lived in the home for at least two of the past five years.
Inherited assets: Receive a stepped-up basis to fair market value at the date of death — effectively eliminating all gain accrued during the original owner's lifetime.
Planning Strategies
- Hold investments for more than one year whenever feasible
- Harvest losses to offset gains in taxable accounts
- Use IRAs and 401(k)s for high-growth investments — gains grow tax-deferred or tax-free
- Time large sales in lower-income years when the 0% rate may apply
- Donate appreciated assets to charity — avoid gains tax entirely and deduct the full fair market value
Use our Capital Gains Tax Calculator to estimate what you'll owe. For your full federal tax picture, try our Income Tax Calculator.