A couple on $120,000 can owe $0 on $40,000 of long-term gains
The 2026 0% capital gains band runs to $98,900 of taxable income for married couples. Gains stack on top of wages, so wages decide how much fits.
- What happened
- For tax year 2026, IRS Revenue Procedure 2025-32 (announced October 9, 2025) sets the top of the 0% long-term capital gains band at $98,900 of taxable income for married couples filing jointly, $66,200 for heads of household and $49,450 for single filers. The 20% rate starts above $613,700, $579,600 and $545,500 respectively.
- Why
- The thresholds are measured against total taxable income, and long-term gains are counted after ordinary income. Wages fill the bands first; gains take whatever room is left.
- The numbers that matter
- $98,900Top of the 0% band, married filing jointly, 2026 taxable income$32,200Standard deduction, married filing jointly, 20263.8%Net investment income tax above $250,000 MAGI (joint) or $200,000 (single)$3,000Annual limit on net capital losses deducted against other income
- Why it matters
- The same $40,000 long-term gain costs a married couple $0, $2,835 or $6,000 in federal capital gains tax depending on whether their wages are $80,000, $110,000 or $140,000.
- What happens nextas we saw it on 7 Oct 2026
- These figures apply to taxable years beginning in 2026. As of October 4, 2026, the IRS page listing inflation-adjusted items by tax year runs through tax year 2026; the 2026 figures were published on October 9, 2025.
A married couple can have up to $98,900 of taxable income, gains included, before any long-term gain is taxed at 15%.
| Married filing jointly | 98 |
|---|---|
| Head of household | 66 |
| Single | 49 |
A married couple with $80,000 of wages and $40,000 of long-term capital gains in 2026 owes no federal capital gains tax on those gains. Not a reduced rate: zero. Give the same couple $140,000 of wages and the identical $40,000 gain is taxed at 15%, or $6,000. Nothing about the investment changed. What changed is where the gain sits in the household's income.
The figures below come from the IRS's own documents: Revenue Procedure 2025-32, which sets the 2026 thresholds; the IRS news release that announced it; the IRS pages on the net investment income tax; and Tax Topic 409 on capital gains and losses. The worked examples are our arithmetic, with every input shown.
The 2026 thresholds
Section 4.03 of Revenue Procedure 2025-32 gives, “for taxable years beginning in 2026,” a maximum zero rate amount of $98,900 for married couples filing jointly, $66,200 for heads of household and $49,450 for single filers. The maximum 15% rate amounts are $613,700, $579,600 and $545,500. The IRS announced the procedure in news release IR-2025-103 on October 9, 2025.
IRS Tax Topic 409 states that a 20% rate “applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.” The same page notes exceptions: gains on collectibles such as coins or art, and the taxable part of gains on section 1202 qualified small business stock, are taxed at a maximum of 28%; unrecaptured section 1250 gain on real property at a maximum of 25%.
| Filing status | 0% rate up to | 15% rate up to | Standard deduction | NIIT threshold (MAGI) |
|---|---|---|---|---|
| Married filing jointly | $98,900 | $613,700 | $32,200 | $250,000 |
| Head of household | $66,200 | $579,600 | $24,150 | $200,000 |
| Single | $49,450 | $545,500 | $16,100 | $200,000 |
| Married filing separately | $49,450 | $306,850 | $16,100 | $125,000 |
These bands are indexed. Against the 2025 figures printed on Tax Topic 409, the joint 0% ceiling rose from $96,700 to $98,900 and the single ceiling from $48,350 to $49,450, increases of 2.3% each by our calculation. The net investment income tax thresholds, covered below, do not move at all.
Short-term and long-term
Tax Topic 409: “Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.” Net short-term gains “are subject to taxation as ordinary income at graduated tax rates.” The 0%, 15% and 20% bands apply only to long-term gains.
So a short-term gain is taxed as if it were extra salary. For 2026 the ordinary rates published in IR-2025-103 run from 10% to 37%, with the 24% band for single filers covering taxable income over $105,700 and the 32% band starting above $201,775. The holding period decides which schedule a gain is taxed under.
The stacking rule
The thresholds are tests of total taxable income: Tax Topic 409 says the 0% rate applies “if your taxable income is less than or equal to” the ceiling, and the 20% rate “to the extent that” taxable income exceeds the 15% ceiling. In the computation the IRS prescribes, the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, ordinary income is placed first and long-term gains are layered on top of it. Only the slice of gains that falls below a ceiling gets that ceiling's rate.
A useful picture is a column of income. Wages, interest and short-term gains fill it from the bottom, after the standard deduction has come off. Long-term gains go on top. The column is then read against the 0%, 15% and 20% marks. Whatever part of the gains sits below $98,900 for a joint return is taxed at 0%; the part between $98,900 and $613,700 at 15%; the part above at 20%.
Assumptions: married filing jointly, tax year 2026, no income other than these two items, the standard deduction and no other deductions or credits.
Total income $80,000 + $40,000 = $120,000. Less the $32,200 standard deduction: taxable income $87,800.
Ordinary part: $87,800 − $40,000 = $47,800. Room left under the $98,900 zero-rate ceiling: $98,900 − $47,800 = $51,100.
The $40,000 of gains fits inside $51,100, so $40,000 is taxed at 0% and $0 at 15%. Capital gains tax: $0.
The $47,800 of ordinary income is taxed under the joint schedule: 10% of $24,800 ($2,480) plus 12% of $23,000 ($2,760), or $5,240.
The couple has $11,100 of unused room in the 0% band ($51,100 − $40,000). Had their long-term gains been $60,000 instead, $51,100 would have been taxed at 0% and the remaining $8,900 at 15%, for $1,335. Change the wages instead of the gains and the effect is sharper.
| Wages | Taxable income | Ordinary part | Gain at 0% | Gain at 15% | Tax on the gain |
|---|---|---|---|---|---|
| $80,000 | $87,800 | $47,800 | $40,000 | $0 | $0 |
| $110,000 | $117,800 | $77,800 | $21,100 | $18,900 | $2,835 |
| $140,000 | $147,800 | $107,800 | $0 | $40,000 | $6,000 |
At $140,000 of wages the ordinary part alone, $107,800, is already above the $98,900 ceiling, so none of the gain reaches the 0% band. Between $91,100 and $131,100 of wages, each extra dollar of wages moves one dollar of the gain from 0% to 15%; below $91,100 the whole gain fits in the 0% band, and above $131,100 none of it does.
The 3.8% that is not indexed
The IRS describes “a 3.8 percent Net Investment Income Tax” on “the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount.” The thresholds are $250,000 for married filing jointly, $200,000 for single or head of household and $125,000 for married filing separately. Gains from the sale of stocks, bonds and mutual funds count as net investment income. The IRS adds: “these threshold amounts are not indexed for inflation.” The tax took effect on January 1, 2013.
That last sentence matters for anyone comparing years. The capital gains bands move with prices; the NIIT line stays at the same dollar amount, so a household whose income merely keeps pace with inflation moves closer to it in real terms each year.
Assumptions: single, tax year 2026, $150,000 of wages and $100,000 of long-term gains, modified adjusted gross income equal to the $250,000 total, standard deduction only.
Taxable income: $250,000 − $16,100 = $233,900. Ordinary part: $233,900 − $100,000 = $133,900, already above the $49,450 zero-rate ceiling. The gains run from $133,900 to $233,900, below the $545,500 ceiling for 15%, so all $100,000 is taxed at 15%: $15,000.
NIIT: MAGI exceeds $200,000 by $50,000; net investment income is $100,000. The lesser is $50,000. 3.8% × $50,000 = $1,900.
Federal tax attributable to the gains: $15,000 + $1,900 = $16,900, or 16.9% of the gain.
Ordinary tax on the $133,900: $1,240 + $4,560 + $12,166 + $6,768 = $24,734.
Only half the gain is exposed to the 3.8%, because the tax is charged on the lesser of the two amounts. The IRS's own example works the same way: a single filer with $180,000 of wages and $90,000 of investment income exceeds the threshold by $70,000 and owes $2,660, which is 3.8% of $70,000.
Taxed as ordinary income, the full $233,900 under the 2026 single schedule produces $51,304 of tax: the bands up to $201,775 come to $41,024 and the $32,125 above it at 32% adds $10,280. Subtract the $24,734 on the wages alone and the $100,000 gain costs $26,570 instead of $15,000, a difference of $11,570. The $1,900 NIIT is the same either way, since short-term gains are investment income too.
Losses and the $3,000 limit
Tax Topic 409: when capital losses exceed capital gains, “the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss. If your net capital loss is more than this limit, you can carry the loss forward to later years.”
The cap applies to the excess of losses over gains, not to losses in total. A loss that offsets a gain in the same year is not limited by it.
What it means for your money
The mechanism comes down to three pieces of arithmetic. First, the rate on a long-term gain depends on the household's other taxable income, not on the size of the gain. Second, the standard deduction comes off before the bands are measured, so a joint return with $32,200 of deduction and $98,900 of 0% room can have up to $131,100 of gross income, gains included, with every dollar of long-term gain taxed at 0%, whatever the split between wages and gains. Third, the holding period separates the 15% schedule from the ordinary one, and the gap in the single example was $11,570 on a $100,000 gain.
These are federal figures only. State income tax, other deductions, credits and the alternative minimum tax are outside the examples, and any of them can change the result. The arithmetic in each claim block can be redone with the thresholds in the table above. For how inflation erodes the value of fixed dollar lines over time, see compound growth and our piece on inflation and your savings.
Sources
- Revenue Procedure 2025-32 (2026 adjusted items, sections 4.03 and 4.14)Internal Revenue Service · Oct 4, 2026 · Primary source
- IRS releases tax inflation adjustments for tax year 2026 (Revenue Procedure 2025-32)Internal Revenue Service · Oct 9, 2025 · Primary source
- Topic no. 409, Capital gains and lossesInternal Revenue Service · Oct 4, 2026 · Primary source
- Net Investment Income TaxInternal Revenue Service · Oct 4, 2026 · Primary source
- Questions and Answers on the Net Investment Income TaxInternal Revenue Service · Oct 4, 2026 · Primary source
- 1040 (2025) Instructions (Line 16, Qualified Dividends and Capital Gain Tax Worksheet)Internal Revenue Service · Oct 4, 2026 · Primary source
- Inflation-adjusted tax items by tax yearInternal Revenue Service · Oct 4, 2026 · Primary source
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