The Internal Revenue Service (IRS) has officially released its inflation-adjusted figures for the 2026 tax year, which include updated income thresholds for long-term capital gains tax brackets. These annual adjustments account for changes in the cost of living and will affect how investors are taxed on profits from assets held for more than one year.
The changes are part of a broader update affecting dozens of tax provisions, including federal income tax brackets and the standard deduction. For 2026, the income limits for the 0% long-term capital gains rate will be higher, providing potential tax savings for many individuals and couples.
Key Takeaways
- The IRS has increased the income thresholds for long-term capital gains tax brackets for the 2026 tax year.
- Single filers with taxable income of $49,450 or less will qualify for the 0% capital gains rate.
- Married couples filing jointly will qualify for the 0% rate with a taxable income of $98,900 or less.
- The standard deduction for 2026 will rise to $16,100 for single filers and $32,200 for married couples filing jointly.
- These adjustments are routine annual changes made by the IRS to account for inflation.
Understanding the 2026 Capital Gains Adjustments
The most significant change for many investors is the adjustment to the 0% tax bracket for long-term capital gains. These gains are profits from the sale of assets, such as stocks, bonds, or real estate, that have been owned for more than one full year.
Starting in 2026, an individual taxpayer can have a taxable income up to $49,450 and pay no federal tax on their long-term capital gains. This is an increase from previous years, reflecting the impact of inflation on wages and investment returns.
For married couples who file their taxes jointly, the threshold for the 0% rate has been raised to $98,900 in taxable income. This adjustment allows more households to realize investment profits without incurring a federal tax liability on those gains.
What Are Long-Term Capital Gains?
Long-term capital gains are profits from selling an asset that you have held for more than one year. They are taxed at preferential rates of 0%, 15%, or 20%, which are typically lower than the rates for ordinary income. In contrast, short-term capital gains, from assets held for one year or less, are taxed at the same rates as your regular income.
How Capital Gains Tax Is Calculated
The amount of tax you pay on capital gains depends on your taxable income, not just your total income. Understanding this calculation is crucial for effective tax planning.
Your taxable income is determined by first calculating your Adjusted Gross Income (AGI). From your AGI, you subtract either the standard deduction or your itemized deductions, whichever is greater.
The Role of the Standard Deduction
The IRS also announced an increase in the standard deduction for 2026. This is a fixed dollar amount that taxpayers can subtract from their AGI if they choose not to itemize deductions like mortgage interest, state and local taxes, or charitable contributions.
For the 2026 tax year, the new standard deduction amounts are:
- $16,100 for single individuals and married individuals filing separately.
- $32,200 for married couples filing jointly.
- $24,150 for heads of household.
This increase means that taxpayers can earn more income before they have to start paying taxes, which also affects the calculation for capital gains.
2026 Capital Gains Brackets at a Glance (0% Rate)
To qualify for the 0% long-term capital gains tax rate in 2026, your taxable income must be at or below:
- Single Filers: $49,450
- Married Filing Jointly: $98,900
- Head of Household: $66,250 (Estimated based on standard adjustments)
Broader Context of IRS Inflation Adjustments
The updated capital gains brackets were not released in isolation. They are part of a comprehensive annual update that the IRS performs to adjust for inflation as measured by the Chained Consumer Price Index. According to the agency, this process prevents "bracket creep," where inflation pushes taxpayers into higher tax brackets even if their real purchasing power has not increased.
Dozens of other tax provisions were also adjusted for 2026. These include:
- Federal Income Tax Brackets: The income thresholds for all seven federal income tax rates were widened.
- Estate and Gift Tax Exemption: The amount that can be passed to heirs without being subject to federal estate tax was increased.
- Earned Income Tax Credit (EITC): Eligibility and the maximum credit amount for low-to-moderate-income working individuals and couples were raised.
These systematic adjustments ensure that the tax code remains aligned with current economic conditions, providing predictability for taxpayers and financial planners.
Implications for Investors and Taxpayers
The higher income thresholds for the 0% capital gains rate have several practical implications for investors, particularly those in lower to middle-income brackets or those in retirement.
Retirees, for example, often have lower taxable income and may rely on selling investments to cover living expenses. The expanded 0% bracket allows them to sell more assets without triggering a tax bill, preserving more of their capital.
For younger investors or those in a lower-income year, the new brackets provide an opportunity for tax-gain harvesting. This strategy involves selling appreciated assets to realize gains tax-free, and then immediately repurchasing them to reset the cost basis to a higher value. This can reduce future tax liability when the assets are sold again.
"These annual inflation adjustments are a critical feature of our tax system. They provide essential relief to taxpayers by ensuring that they are not penalized by the effects of inflation on their income and investments."
Financial planning is essential to take full advantage of these changes. Taxpayers should carefully manage their income and the timing of asset sales to ensure their taxable income falls within the desired capital gains bracket. For example, contributing to tax-deferred retirement accounts like a 401(k) or a traditional IRA can lower AGI, which in turn lowers taxable income and could help an investor qualify for the 0% rate.
Ultimately, the 2026 adjustments provide more breathing room for taxpayers. By raising the income limits for tax brackets and increasing the standard deduction, the IRS is ensuring that the tax system does not unduly burden individuals whose nominal income has risen simply to keep pace with inflation.
