IN THIS POST
- Long-Term Capital Gains Tax Rates 2026
- Short-Term Capital Gains Tax Rates
- Net Investment Income Tax (NIIT) Surcharge
- Qualified Dividends & Tax Treatment
- Tax-Loss Harvesting Strategies
- 1031 Exchanges for Real Estate Investors
- Texas Investor Advantage: No State Capital Gains Tax
- FAQs
Long-Term Capital Gains Tax Rates 2026
Long-term capital gains—profits from assets held longer than one year—receive preferential tax treatment compared to ordinary income. In 2026, these gains are taxed at rates of 0%, 15%, or 20% depending on your income level and filing status.
Single Filers:
- 0% rate: $0 to $49,450 of long-term capital gains
- 15% rate: $49,451 to $545,500 of long-term capital gains
- 20% rate: Over $545,500 of long-term capital gains
Married Filing Jointly:
- 0% rate: $0 to $98,900 of long-term capital gains
- 15% rate: $98,901 to $609,350 of long-term capital gains
- 20% rate: Over $609,350 of long-term capital gains
Head of Household:
- 0% rate: $0 to $66,450 of long-term capital gains
- 15% rate: $66,451 to $577,450 of long-term capital gains
- 20% rate: Over $577,450 of long-term capital gains
These preferential rates are significantly lower than ordinary income tax rates (10-37%) and apply to most investment income for typical investors. The 0% bracket is particularly valuable—it allows qualifying individuals to realize up to $98,900 (MFJ) or $49,450 (single) in long-term capital gains completely tax-free.
Planning insight: Many retirees with moderate income can strategically realize long-term gains in the 0% and 15% brackets while deferring additional gains to future years. This layering strategy maximizes the use of the preferential rate brackets.
Short-Term Capital Gains Tax Rates
Short-term capital gains—profits from assets held one year or less—are taxed as ordinary income at your marginal tax rate, ranging from 10% to 37% in 2026.
Single Filers (2026 brackets):
- 10%: $0 to $11,600
- 12%: $11,601 to $47,150
- 22%: $47,151 to $100,525
- 24%: $100,526 to $191,950
- 32%: $191,951 to $243,725
- 35%: $243,726 to $609,350
- 37%: Over $609,350
Married Filing Jointly:
- 10%: $0 to $23,200
- 12%: $23,201 to $94,300
- 22%: $94,301 to $201,050
- 24%: $201,051 to $383,900
- 32%: $383,901 to $487,450
- 35%: $487,451 to $731,200
- 37%: Over $731,200
Short-term capital gains receive no preferential treatment and are taxed at whatever rate applies to your ordinary income. This significant tax burden makes the holding period crucial. An investor in the 37% bracket on short-term gains will see 37 cents per dollar go to federal taxes alone—compared to 20% (at most) on long-term gains.
Tax planning principle: Investors should be intentional about holding periods. Holding an investment for one additional day to convert it from short-term to long-term can save thousands in taxes for high-income individuals.
Net Investment Income Tax (NIIT) Surcharge
High-income investors face an additional 3.8% Net Investment Income Tax (NIIT) on top of regular capital gains taxes. This applies when investment income exceeds certain thresholds.
NIIT applies when:
- Single filers earn over $200,000 in Modified Adjusted Gross Income (MAGI)
- Married filing jointly earn over $250,000 in MAGI
- Married filing separately earn over $125,000 in MAGI
Taxable investment income includes:
- Capital gains (long-term and short-term)
- Qualified and ordinary dividends
- Interest income
- Rental income
- Royalties
- Annuity income
Example of combined tax on long-term capital gains:
- Single filer with $100,000 long-term capital gain and $300,000 MAGI
- Regular capital gains tax: 15% = $15,000
- Net Investment Income Tax (3.8% of $100,000): $3,800
- Total federal tax: $18,800 (18.8% effective rate)
This surcharge significantly impacts high-net-worth individuals and successful entrepreneurs. The combination of 20% long-term capital gains tax + 3.8% NIIT can reach 23.8% federal tax before state taxes apply.
Qualified Dividends & Tax Treatment
Qualified dividends receive the same preferential tax treatment as long-term capital gains, not ordinary income. This applies to dividends from U.S. corporations and certain qualified foreign corporations held for specific periods.
Requirements for dividend to be “qualified”:
- Paid by a domestic U.S. corporation or qualified foreign corporation
- Held for more than 60 days during the 121-day period surrounding the ex-dividend date
- Not subject to dividend wash-sale rules
- Not paid on certain preferred stock
Ordinary (non-qualified) dividends from bonds, certain REITs, and foreign stocks are taxed at regular income rates (up to 37%).
Planning strategy: Investors receiving ordinary dividend income (such as bond interest) in high tax brackets may benefit from tax-efficient bond fund structures or switching to municipal bonds that provide tax-free income.
At TaxLogix, our CFP professionals help Frisco investors structure their portfolios to maximize qualified dividend treatment while maintaining appropriate diversification and risk management.
Tax-Loss Harvesting Strategies
Tax-loss harvesting is a sophisticated investment tax strategy where investors intentionally sell securities at a loss to offset capital gains and reduce taxable income. When done properly, it can significantly reduce annual tax liability without changing your overall portfolio allocation.
How tax-loss harvesting works:
- Identify losses: Review your portfolio for positions trading below cost basis
- Sell at loss: Sell the security at a realized loss (e.g., sell stock purchased at $10,000, now worth $8,500)
- Claim deduction: Use the $1,500 loss to offset capital gains
- Rebalance: Immediately purchase a similar (but not identical) security to maintain your target allocation
- Repeat: Harvest losses throughout the year to offset gains
Key tax rules:
- Wash-sale rule: You cannot repurchase substantially identical security within 30 days before or after the loss sale (61-day window total). Violating this rule cancels the loss deduction.
- Loss carryforward: Unused losses can carry forward indefinitely to offset future gains
- Excess deductions: If losses exceed gains, you can deduct up to $3,000 against ordinary income; remaining losses carry forward
- Long-term vs. short-term: Net short-term losses are subtracted from short-term gains first; net long-term losses offset long-term gains
Tax-loss harvesting examples:
- Scenario 1: You harvest $15,000 in losses against $15,000 in gains = $0 taxable gain = $2,250 to $5,550 in taxes saved (depending on bracket)
- Scenario 2: You harvest $50,000 in losses against $30,000 in gains, offset $20,000 against income = $7,500 tax savings at 37.5% effective rate
The TaxLogix investment team can coordinate with your financial advisor to implement systematic tax-loss harvesting strategies throughout the year.
1031 Exchanges for Real Estate Investors
Section 1031 exchanges allow real estate investors to defer capital gains taxes indefinitely by exchanging real property for like-kind property. This powerful tool enables portfolio evolution without immediate tax consequences.
1031 Exchange basics:
- Tax deferral: Entire gain (including depreciation recapture) deferred if requirements met
- Property types: Commercial, residential, raw land—all real property qualifies
- Like-kind requirement: Must exchange real property for real property (cannot exchange real estate for equipment, stocks, or other assets)
- Strict timelines:
- 45 days to identify replacement property
- 180 days to close replacement property
- Both periods measured from closing date of relinquished property
Depreciation recapture caveat: While the 1031 exchange defers ordinary gains, you cannot defer “depreciation recapture”—previously claimed depreciation is taxed at 25% even in a valid 1031 exchange.
Qualified intermediary requirement: You cannot touch the proceeds from selling the old property. A qualified intermediary must hold funds between sale and purchase. If you touch the money, the exchange fails and all gains become taxable immediately.
Example:
- Sell Frisco commercial building for $500,000 (purchased 10 years ago for $300,000)
- $200,000 gain deferred through valid 1031 exchange
- Purchase replacement property within 180-day window
- Gain remains deferred, no capital gains tax due this year
Real estate investors in the Frisco area benefit from robust commercial and residential real estate markets, making 1031 exchanges an attractive strategy for portfolio repositioning. The TaxLogix team can coordinate with your real estate advisor and CPA to ensure 1031 compliance.
Texas Investor Advantage: No State Capital Gains Tax
Frisco, Texas residents enjoy a significant tax advantage: Texas has no state income tax and no state capital gains tax. This is one of the most valuable tax benefits available to investors.
Texas tax advantage illustrated:
A single filer with $200,000 in long-term capital gains:
- Federal tax only (in Texas): $30,000 (15% rate)
- Federal + California state capital gains tax (if California resident): $30,000 + $13,300 = $43,300
- Federal + New York tax (if New York resident): $30,000 + $8,850 = $38,850
- Texas resident saves: $8,850 to $13,300 compared to high-income-tax states
This advantage compounds over decades. A Frisco investor realizing $1 million in long-term capital gains avoids approximately $100,000-$130,000 in state capital gains taxes compared to California or New York residents.
Additional Texas benefits:
- No state income tax on wages
- No state inheritance tax
- No state estate tax
- No state franchise tax on most business structures
- No conflict between state and federal capital gains treatment
2026 Capital Gains FAQ
What’s the difference between long-term and short-term capital gains?
Long-term capital gains result from selling assets held longer than one year and are taxed at preferential rates (0%, 15%, or 20%). Short-term capital gains from assets held one year or less are taxed as ordinary income (10%-37%). The difference can mean 10-37% tax savings for the same profit.
Do I owe capital gains tax if I sell a stock at a loss?
No, you realize a capital loss, not a gain. Capital losses offset capital gains dollar-for-dollar. If losses exceed gains, you can deduct up to $3,000 against ordinary income, with excess losses carrying forward indefinitely.
Is the 3.8% Net Investment Income Tax on top of capital gains tax?
Yes. For high-income taxpayers, the NIIT is an additional tax applied to investment income. A long-term capital gain subject to the 20% rate and 3.8% NIIT results in a 23.8% combined federal rate.
Can I avoid capital gains tax by holding stock in my brokerage account?
No. Holding the stock doesn’t avoid tax—the tax is due when you sell it (or receive dividend income). However, holding for longer than one year converts the gain to long-term status, reducing the tax rate significantly.
What is a wash sale and why does it matter?
A wash sale occurs when you sell a security at a loss and repurchase substantially identical security within 30 days before or after the sale. The wash-sale rule cancels the loss deduction for tax purposes. To harvest losses legitimately, wait 31 days or purchase a different security.