How Can I Manage Capital Gains Taxes in 2026?

One of the simplest steps is to consider holding assets more than one year. In 2026, long-term gains top out at 20% federally plus a 3.8% surtax, while short-term gains can reach 40.8% (IRS). High earners can then use timing, the home sale exclusion, Section 1202, charitable gifts, and step-up in basis to lower or defer the bill.

By Jordan L. Cohne, RICP®, TPCP® | Founder and Managing Partner, Clarity Wealth Advisors | Published October 12, 2026

What Is Capital Gains Tax, and How Is It Different From Income Tax?

Capital gains tax is the tax on profit when you sell an asset for more than you paid. The profit is your sale price minus your cost basis, which is generally what you paid plus improvements.

Ordinary income tax applies to wages, bonuses, interest, IRA withdrawals, and business income, at federal rates from 10% to 37%. Long-term capital gains have their own, lower rate schedule of 0%, 15%, and 20%. You also only owe the tax when you sell, so you control the timing in a way you cannot with a paycheck.

What Is the Difference Between Short-Term and Long-Term Capital Gains Rates?

The difference is how long you hold the asset before selling. Assets held one year or less create short-term gains, taxed like your paycheck at up to 37%. Hold more than one year, and gains are taxed at 0%, 15%, or 20% (IRS Topic 409).

High earners also pay the 3.8% Net Investment Income Tax once modified adjusted gross income passes $250,000 for married couples ($200,000 if single). That makes the top federal rate 23.8% on long-term gains and 40.8% on short-term gains.

Can My Salary Push My Capital Gains Into a Higher Tax Bracket?

Yes, but it does not work the other way. When the IRS figures your tax, ordinary income fills the brackets first, and long-term gains stack on top. The more you earn from wages or IRA withdrawals, the higher the starting point for your gains, so more of them land in the 15% or 20% tier.

Your gains, however, do not raise the rate on your salary. For example (illustrative), a married couple with $500,000 of taxable wages who sells stock for a $200,000 long-term gain pays 15% on the first $113,700 of gain and 20% on the remaining $86,300. Their wages are taxed exactly as they would be without the sale. Keep in mind that a large gain still raises your total income, which can affect the 3.8% surtax, deductions, and Medicare premiums.

How Does Massachusetts Tax Capital Gains, and When Does the Millionaires Tax Apply?

Most states tax capital gains as regular income, with no special long-term rate. Massachusetts is different: it taxes long-term gains at 5%, the same as wages, and short-term gains at a higher 8.5% (Massachusetts Department of Revenue).

The Massachusetts millionaires tax, officially the 4% surtax, adds 4% on taxable income above $1,107,750 in 2026. It counts all income, including gains, so a family that normally earns far less can owe it in the year they sell a business, a rental, or a home with gain above the federal exclusion. Married couples filing jointly share one threshold, which makes timing even more important.

Spreading a sale across tax years, using an installment sale, or pairing the sale with charitable gifts can potentially keep more income under the line, so model a large sale before you sign.

How Is Selling My Home Taxed Differently From Selling an Investment Property?

Your primary home gets a large tax break that rental and investment property does not. Under Section 121 of the tax code, married couples can exclude up to $500,000 of gain ($250,000 if single) when they sell a home they owned and lived in for at least 2 of the last 5 years (IRS Publication 523). You can generally use this exclusion once every two years, and only gain above it is taxed.

Investment property has no exclusion, and it carries an extra layer of tax. Over the years you own a rental, you deduct depreciation, a yearly write off for wear and tear. When you sell, the gain tied to that depreciation is taxed at up to 25%, and the rest at normal capital gains rates, plus the 3.8% surtax for high earners (IRS Topic 409). In Massachusetts, the full gain also counts toward the millionaires tax threshold.

How Can I Work Towards Lowering or Deferring Capital Gains Tax on a Large Sale?

Beyond timing, the most common tools are losses and giving. Tax loss harvesting means selling losing investments to offset gains, and unused losses carry forward.

Gifts can help too. Donating appreciated stock held over a year to a charity or donor advised fund generally avoids the gain.

Startup or private company shares may qualify under Section 1202. For stock issued after July 4, 2025, the exclusion is 50% after three years, 75% after four, and 100% after five, up to $15 million per company. Strict rules apply.

Considerations For Handling a Concentrated Stock Position or RSUs?

A concentrated position means one stock makes up a large share of your wealth. Many executives build one through restricted stock units (RSUs), which are company shares paid as compensation. RSUs are taxed as ordinary income when they vest, and that vest date value becomes your cost basis, the starting point for figuring any later gain.

Selling soon after vesting often creates little added gain, while holding turns your pay into a bet on one company. Ways to mitigate that risk include a planned selling schedule, gifting shares to charity or family, and, for larger holdings, exchange funds that pool shares from many investors, or utilization of tax-loss harvesting strategies to create losses to offset gains from concentrated stock sales. 

What Is the Buy, Borrow, Die Strategy?

Buy, borrow, die means avoiding a sale for life. You buy assets that grow, borrow against them for cash, and keep them until death. Your heirs then receive a step-up in basis, which resets the cost basis to the value at death and can erase the built-in gain (Internal Revenue Code Section 1014).

It carries real risks: loans charge interest, and a market drop can force a sale. It also does not avoid estate tax, and Massachusetts taxes estates over $2 million. Learn more in our tax planning page.