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Tax Planning

Ordinary Income vs. Capital Gains: 2026 Rates and Rules

Ordinary income is taxed at 10% to 37%. Long-term capital gains on assets held over a year are taxed at 0%, 15%, or 20% in 2026, plus 3.8% NIIT.

Ordinary Income vs. Capital Gains: 2026 Rates and Rules

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What is the difference between ordinary income and capital gains?

  • Ordinary income, such as wages, bonuses, interest, and short-term gains, is taxed at graduated rates from 10% to 37%.
  • Long-term capital gains, from assets held more than one year, are taxed at 0%, 15%, or 20%.
  • Short-term gains, from assets held one year or less, are taxed as ordinary income.
  • High earners may also owe the 3.8% net investment income tax on gains.
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Full Guide

What is the difference between ordinary income and capital gains?

  • Ordinary income, such as wages, bonuses, interest, and short-term gains, is taxed at graduated rates from 10% to 37%.
  • Long-term capital gains, from assets held more than one year, are taxed at 0%, 15%, or 20%.
  • Short-term gains, from assets held one year or less, are taxed as ordinary income.
  • High earners may also owe the 3.8% net investment income tax on gains.

What are the 2026 capital gains brackets?

  • The 0% rate applies to taxable income up to $49,450 single or $98,900 married filing jointly.
  • The 15% rate applies up to $545,500 single or $613,700 joint.
  • The 20% rate applies above those amounts.
  • Gains stack on top of ordinary income, so ordinary income fills the lower brackets first.

What are the 2026 ordinary income brackets?

  • The seven rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
  • For single filers, the 37% rate starts above $640,600 of taxable income.
  • For joint filers, the 37% rate starts above $768,700.
  • The 2025 tax law made these rate brackets permanent, with annual inflation adjustments.

How are gains and losses netted?

  • Short-term gains and losses are netted together, and long-term gains and losses are netted together.
  • A net loss in one group then offsets a net gain in the other.
  • Net capital losses offset up to $3,000 of ordinary income a year ($1,500 married filing separately).
  • Unused losses carry forward indefinitely and keep their short- or long-term character.

Which gains are taxed at special rates?

  • Gains on collectibles such as art, coins, and precious-metal holdings are taxed at up to 28%.
  • Unrecaptured Section 1250 gain from real estate depreciation is taxed at up to 25%.
  • Recapture on depreciable personal property under Section 1245 is taxed as ordinary income.
  • Qualified small business stock under Section 1202 can exclude some or all gain if its requirements are met.

What levers affect whether income is ordinary or capital?

  • Holding an asset more than one year before selling changes short-term gain into long-term gain.
  • Specific-lot identification lets an investor choose which shares, and which basis, to sell.
  • Harvested losses offset gains, but the wash sale rule disallows a loss if substantially identical securities are bought within 30 days before or after.
  • Inherited assets generally receive a basis equal to fair market value at death, which removes gain that built up during the decedent's life.

Key takeaways

  • Short-term gains are taxed like wages; long-term gains get 0%, 15%, or 20% rates.
  • For 2026, the 15% rate runs to $545,500 single and $613,700 joint.
  • Collectibles, real estate recapture, and QSBS have their own rules.
  • Confirm how specific sales are taxed with a CPA before transacting.
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