Capital Gains Tax Rates 2026: The $1M+ Investor's Planning Guide

For $1M–$5M investors, capital gains tax is often the largest single federal tax bill of the year — and the most controllable one. Unlike wages, investment gains can often be timed, offset, donated, deferred, or structured to minimize the rate you pay. The federal rate on long-term gains ranges from 0% to 23.8% in 2026, depending entirely on your income level and how you manage your positions.

This guide covers exactly what you owe at each income level, what the 3.8% Net Investment Income Tax adds on top, and the eight strategies that move the needle for investors at this asset level.

2026 Long-Term Capital Gains Rates

Long-term capital gains — from assets held more than one year — are taxed at preferential rates based on your total taxable income. The capital gains stack on top of your ordinary income when determining which rate applies.¹

Rate	Single — Taxable Income Up To	Married Filing Jointly — Up To
0%	$49,450	$98,900
15%	$49,451 – $545,500	$98,901 – $613,700
20%	Above $545,500	Above $613,700

These thresholds are after deductions. A married couple with $150,000 in wages minus the $32,200 MFJ standard deduction shows $117,800 in taxable ordinary income — leaving $0 in the 0% zone, but placing the first $495,900 of capital gains in the 15% bracket before the 20% rate kicks in.

For most $1M–$5M investors with professional income or significant RMDs, nearly all capital gains fall in the 15% bracket. The 20% rate only applies to the portion of gains that, combined with ordinary income, exceeds $545,500 (single) or $613,700 (MFJ).

The NIIT Overlay: 3.8% Extra at Higher Incomes

On top of the 0/15/20% rates, the Net Investment Income Tax (NIIT) adds 3.8% on investment income — including capital gains — when your modified adjusted gross income (MAGI) exceeds the threshold.³

Filing Status	NIIT Kicks In Above	Max Combined LTCG Rate (20% + 3.8%)
Single	$200,000	23.8%
Married Filing Jointly	$250,000	23.8%

Unlike the LTCG brackets, the NIIT thresholds are not inflation-adjusted — they have been frozen at $200K/$250K since 2013. As a result, more households cross them each year. If your MAGI exceeds the threshold, the NIIT applies to the lesser of your net investment income or the amount by which your MAGI exceeds the threshold.

Most $1M–$5M investors with professional income or substantial portfolios will pay the NIIT on their gains. An investor with $280,000 in combined income and $100,000 in capital gains pays 3.8% NIIT on $30,000 (the excess over $250,000) — $1,140. But an investor with $400,000 in income and the same $100,000 gain pays 3.8% NIIT on $100,000 (the gain is the binding constraint) — $3,800.

Combined 15% + NIIT = 18.8%. Combined 20% + NIIT = 23.8%. These are the effective federal rates for most millionaire investors.

Short-Term Capital Gains: Ordinary Income Rates

Gains on assets held one year or less are taxed as ordinary income — at the same rates as wages, up to 37% for income above $640,600 (single) or $768,700 (MFJ) in 2026, plus the 3.8% NIIT if your MAGI exceeds the threshold.²

The maximum combined federal rate on short-term gains is 40.8% — nearly double the 23.8% on long-term gains. For any position that can be converted from short-term to long-term by holding one more day, that conversion is nearly always worth executing.

The rate spread matters. Converting a $200,000 short-term gain (37% + 3.8% = 40.8%) to a long-term gain (23.8%) saves $34,000 in federal tax — by doing nothing for one additional day, if that moves the holding period past one year. The strategy cost is near-zero; the tax saving is real.

Capital Gains Tax Calculator — 2026

Your Federal Capital Gains Tax

Rate Bucket	Gain Amount	Tax
0% rate	—	$0
15% rate	—	—
20% rate	—	—
NIIT 3.8%	—	—
Total federal tax on LTCG	—	—

8 Strategies to Reduce Your Capital Gains Tax in 2026

1. Hold at Least One Year: Convert Ordinary Income to LTCG

The single highest-leverage move for active investors: ensure any taxable position you intend to sell is held more than 12 months before execution. A $200,000 gain taxed as a short-term gain (37% + 3.8% = 40.8%) costs $81,600. The same gain held an additional day to qualify as long-term (18.8%) costs $37,600 — a $44,000 difference for waiting. For any position near the one-year mark, the calendar math is essential.

2. Tax-Gain Harvesting: Sell Winners at 0% in Low-Income Years

If your taxable income will be unusually low this year — early retirement before RMDs or Social Security begin, a career gap, or a part-time year — you may have room to sell appreciated holdings at the 0% federal LTCG rate and immediately repurchase them at a higher cost basis. The IRS has no wash-sale rule for gains (only for losses). A married couple with $68,700 in taxable ordinary income has $30,200 in 0% bracket room in 2026 — and resetting that basis permanently reduces the future tax bill.

3. Tax-Loss Harvesting: Offset Gains Dollar for Dollar

Losses in your taxable portfolio can offset capital gains dollar for dollar (long-term losses against long-term gains first, then short-term against short-term). Excess losses beyond gains reduce ordinary income by up to $3,000/year, with the remainder carrying forward indefinitely. In a year with $80,000 in realized gains, harvesting $80,000 in losses eliminates the entire tax bill — while maintaining the same portfolio exposure via substitute securities.

4. Donate Appreciated Stock Directly: Skip Recognition Entirely

Donating appreciated stock directly to a charity or donor-advised fund eliminates capital gains recognition entirely on the donated shares. You get a fair-market-value deduction; the charity sells at its cost basis of zero with no tax consequence (charities are tax-exempt). For a $100,000 position with $80,000 in embedded gains, donating directly saves $15,040–$19,040 (18.8–23.8%) vs. selling and donating cash — and you still get the same charitable deduction. This is typically the highest-after-tax-value way to give, at any bracket.

5. Roth Conversions: Clear Bracket Space Before Gains Compound

Roth conversions compete with capital gains for the same bracket real estate. In years when you have flexibility over how much to convert, modeling the interaction can save tens of thousands. Converting $50,000 from a traditional IRA today at 24% (ordinary income) frees future withdrawals from taxation — and may avoid larger ordinary income (RMDs) later that would push capital gains into the 20% + NIIT zone. The goal is reducing future taxable income to keep gains in lower-rate brackets.

6. Asset Location: Keep Gains Inside Tax-Advantaged Accounts

Gains realized inside a 401(k) or IRA are invisible to capital gains tax — they compound at full value and are taxed only at distribution (ordinary income from traditional, tax-free from Roth). Moving high-turnover assets (actively managed funds, rebalanced target-date funds) into tax-advantaged accounts, and holding low-turnover index funds in taxable accounts, reduces realized gains year over year. The drag from misallocation compounds: bonds generating ordinary income in taxable when they should be in IRAs, growth stocks inside a Roth where gains permanently escape tax.

7. 1031 Exchange: Defer Real Estate Gains Indefinitely

Under IRC §1031, selling an investment property and reinvesting proceeds into a like-kind property within the required timeline defers all capital gains and depreciation recapture — indefinitely, if you continue exchanging. The §1250 depreciation recapture that would be taxed at 25% in an outright sale, and the LTCG that would be taxed at 15–20%, are both deferred. If you eventually pass the property to heirs, IRC §1014 step-up in basis can eliminate the deferred gain entirely.

8. Borrow Against the Portfolio Instead of Selling

A pledged asset line (SBLOC) or margin account lets you borrow cash against your taxable portfolio at 5–7% without triggering a capital gain. For positions with large embedded gains — appreciated stock, a long-held ETF — the after-tax cost of borrowing can be lower than the after-tax cost of selling. At 5% interest on $200,000, the annual carrying cost is $10,000. Selling $200,000 with an 80% gain recognition triggers $30,160 in federal tax (at 18.8%). If you need the cash for 1–3 years and expect rates to stay manageable, borrowing wins. Warning: margin calls in volatile markets can force the very sale you were trying to avoid.

Reducing the NIIT Specifically

Because the NIIT threshold is frozen and un-indexed, it catches more investors each year. The 3.8% applies to net investment income — capital gains, dividends, interest, and passive activity income — when MAGI exceeds $200K/$250K. Strategies to reduce it:

Qualified charitable distributions (QCDs) for investors over 70½ reduce MAGI (and therefore NIIT exposure) without touching itemized deductions. The 2026 QCD limit is $111,000 per person. QCDs satisfy RMDs dollar for dollar and reduce the MAGI that pulls investment income into NIIT territory.
Keep passive income inside retirement accounts. Rental income, dividends from REITs, and bond interest inside a 401(k) or IRA do not appear in NIIT MAGI. Placing these assets in tax-advantaged accounts while holding equities (lower ordinary income in taxable) in the taxable account reduces NIIT exposure.
Material participation in real estate. Under the passive activity rules, losses from rental activities can offset gains from other passive activities — but only if your net rental position is a loss. Achieving real estate professional status (750+ hours, more than any other profession) allows rental losses to offset any ordinary income, also reducing MAGI.

State Capital Gains Tax: The Layer Most Calculators Skip

The federal rates above are just one layer. Most states tax capital gains as ordinary income at their marginal rate — California at up to 13.3%, New York + NYC at 14.78% combined, New Jersey at 10.75%. Adding state tax to the 23.8% federal maximum puts effective top rates at 33–38% in high-tax states, even on long-term gains. For large realizations — selling a business, concentrated position, or rental property — state tax residence planning can dwarf the federal planning impact.

Putting it together. A fee-only advisor managing a $2M taxable portfolio for a couple in California generates significantly more after-tax value from capital gains management than from investment selection alone. Direct indexing harvests 0.5–2% of portfolio value in annual losses, systematically. Strategic gain timing, bracket management, and charitable integration can add another 0.5–1%. The combined tax alpha often exceeds the advisor's fee — making tax planning the clearest return on a fee-only relationship at this asset level.

Sources

IRS Rev. Proc. 2025-67 — 2026 inflation-adjusted amounts including LTCG rate thresholds (0%: $49,450 single/$98,900 MFJ; 20%: $545,500 single/$613,700 MFJ) and standard deduction ($16,100 single/$32,200 MFJ). Values confirmed June 2026.
IRS Rev. Proc. 2025-32 — 2026 ordinary income tax brackets, including the 37% bracket above $640,600 (single) / $768,700 (MFJ). Used to confirm STCG effective rates for the rate-comparison analysis.
IRC §1411 — Net Investment Income Tax — statutory authority for the 3.8% NIIT. Thresholds fixed at $200,000 (single) and $250,000 (MFJ) since 2013; not adjusted for inflation.
IRS Topic 409: Capital Gains and Losses — holding period requirements for LTCG qualification (more than 1 year), collectibles exception (28%), §1250 depreciation recapture (25%), and stacking rules.
Tax Foundation — 2026 Federal Tax Brackets — cross-reference for 2026 LTCG bracket thresholds and ordinary income brackets. Consistent with IRS Rev. Proc. 2025-67 values. Verified June 2026.

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