Long-term capital gain

Long-term capital gain (LTCG) treatment applies to capital assets held more than 12 months before sale. LTCG is taxed at preferential federal rates compared to ordinary income.

2026 LTCG rates

• 0% for taxable income up to ~$48,350 single / ~$96,700 MFJ
• 15% for taxable income between those and ~$533,400 single / ~$600,050 MFJ
• 20% above those thresholds

Add the 3.8% Net Investment Income Tax (NIIT) for MAGI above $200K single / $250K MFJ. So the top federal effective rate on LTCG is 23.8% vs 40.8% for ordinary income (37% + 3.8% NIIT) — a 17 percentage point spread.

State treatment

Most states tax LTCG at the same rate as ordinary income. California in particular treats all capital gains as ordinary income, taxed up to 13.3%. So the combined federal+state top rate on LTCG can exceed 37% in California.

Planning levers

• Hold to long-term: simple but often forgotten. Selling at 11.5 months can cost 17 percentage points.
• Loss harvesting: realized losses offset gains dollar-for-dollar
• Charitable giving with appreciated securities: avoids the gain entirely + deduction at FMV
• QSBS Section 1202: may eliminate up to $10M of gain entirely
• Step-up at death: heirs receive basis equal to FMV at death; lifetime appreciation escapes income tax

Section 1250 + collectibles

Some assets have special LTCG treatment:

• Real estate gain attributable to depreciation recapture (Section 1250) is taxed at 25%
• Collectibles + qualified small business stock retained beyond Section 1202 caps: 28%