Quick Answer:
Long-term capital gains, on assets held more than a year, are taxed at 0%, 15%, or 20% depending on your taxable income. In 2026 a married couple pays 0% until taxable income passes $98,900. Short-term gains, held a year or less, are taxed as ordinary income. Gains stack on top of your other income to set the rate.
Key takeaways:
– Long-term gains get preferential rates of 0%, 15%, or 20%; short-term gains are taxed as ordinary income.
– In 2026, a married couple pays 0% on long-term gains until taxable income tops $98,900($49,450 for singles).
– Gains stack on top of your ordinary income, so a big year of withdrawals can push your gains into a higher rate.
– Low-income years, especially before RMDs begin, are a chance to sell appreciated assets at 0% and reset your cost basis.
Capital gains get the friendliest tax treatment of any income in retirement, and a low-income year can let you realize some of them at no federal tax at all. But the rules have a twist that trips people up: your gains are taxed based on your total income, not just the gains themselves. Here’s how it works.
How are long-term capital gains taxed in 2026?
Long-term capital gains are taxed at 0%, 15%, or 20%, and which rate you pay depends on your taxable income. A long-term gain is the profit on an investment you held longer than a year in a taxable account. These preferential rates are much lower than ordinary income rates, which is what makes taxable-account investing tax-efficient.
Here are the 2026 breakpoints, per the IRS.
| Long-Term Gains Rate | Married Filing Jointly (Taxable Income) |
Single (Taxable Income) |
|---|---|---|
| 0% | Up to $98,900 | Up to $49,450 |
| 15% | $98,901 to $613,700 | $49,451 to $545,500 |
| 20% | Over $613,700 | Over $545,500 |
The headline for retirees is that 0% bracket. A married couple can have a meaningful amount of income and still pay nothing in federal tax on their long-term gains, which opens a real planning opportunity in low-income years.
How are short-term capital gains taxed?
Short-term capital gains are taxed as ordinary income, at the same rates as an IRA withdrawal or a paycheck. A short-term gain is the profit on an asset you held a year or less. There’s no preferential treatment, so a quick trade that produces a gain is taxed far more heavily than the same gain on an asset held just over a year.
The lesson is that holding period matters enormously. Crossing the 1-year mark can cut the tax on a gain by more than half for many retirees. Where capital gains fit in the broader tax picture is covered in how are you taxed in retirement.
What is the 0% capital gains bracket opportunity?
The 0% bracket lets you sell appreciated investments and pay no federal tax on the gain, as long as your total taxable income stays under the threshold. In a low-income year, a retiree can realize long-term gains up to the top of the 0% band, pay nothing on them, and then rebuy the same investment to reset the cost basis higher. That lowers the taxable gain on a future sale.
The window is usually widest in the gap years between retiring and starting required withdrawals, when income is lowest. This is called gain harvesting, and it’s the mirror image of tax-loss harvesting. It won’t fit every year, and it competes with Roth conversions for the same low-bracket space, but in the right year it’s close to free money. Just remember to check your full-year income first, since one large withdrawal can close the window.
How does income stacking affect your capital gains rate?
Your gains stack on top of your ordinary income, and that order decides which capital gains rate you pay. The tax code first counts your ordinary income, such as IRA withdrawals, pension, and the taxable part of Social Security, and then places your capital gains on top of it. Your gains fill whatever room is left in the 0% band, and anything above spills into the 15% rate.
This is the twist that surprises people. A large IRA withdrawal doesn’t just get taxed on its own, it also uses up your 0% capital gains room and can push your gains from 0% into 15%. So a “free” gain-harvesting plan can be undone by stacking too much ordinary income in the same year. Planning the 2 together is what makes the strategy work.
What is the net investment income tax?
The net investment income tax, or NIIT, is an extra 3.8% surtax on investment income for higher-income taxpayers. Per IRS Topic 559, it applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds $250,000 for a married couple, or $200,000 for a single filer. These thresholds are set by statute and are not adjusted for inflation.
For most retirees the NIIT never comes into play, but a high-income year, from a large Roth conversion, a business sale, or a big capital gain, can trigger it. When you’re planning a large transaction, it’s worth checking whether it pushes you over the NIIT line, because that 3.8% stacks on top of your regular capital gains rate.