Q: What is the long-term capital gains tax rate, and how can it help me?
A: A capital gain generally occurs when you sell a capital asset such as a stock, mutual fund or investment property for more than you paid for it.
To encourage long-term investing, Congress created special tax rates for many long-term capital gains. As a result, taxpayers who hold certain investments for more than one year may qualify for federal tax rates that are significantly lower than those that apply normally to wages and other ordinary income.
Apart from business investments, here are some of the most common situations in which the long-term capital gains tax rates may apply:
Stocks and mutual funds. Selling investments you’ve owned for more than one year may qualify for the lower long-term capital gains tax rates.
Investment real estate. Selling investment property after holding it for more than one year may qualify for long-term capital gains treatment, although other tax rules may also apply.
The tax savings can be substantial.
As a very rough rule of thumb, many taxpayers who qualify for the long-term capital gains rates pay about 10 percentage points less in federal tax than they would if the same income were taxed as ordinary income. Even more surprising, many married couples filing jointly with taxable income of roughly $100,000 or less in 2026 may qualify for a zero-percent federal long-term capital gains tax rate, depending on their overall taxable income and filing status.
The bottom line: Before selling an investment that has increased in value, check how long you’ve owned it. Simply waiting until you’ve held it for more than one year may qualify you for the lower long-term capital gains tax rates and reduce your federal tax bill significantly.
Send questions about your taxes to Vincent Hicks, a CPA based in Cambridge who has more than 20 years of experience, at vincent@hickscpasolutions.com. You can call Hicks at (859) 553-0788.
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