Long-term capital gains (assets held over 1 year) and qualified dividends are taxed at preferential rates: 0%, 15%, or 20%. But your ordinary income fills the lower LTCG brackets first — see how both taxes combine in your situation.
Long-term capital gains (assets held > 1 year) and qualified dividends are taxed at preferential rates: 0%, 15%, or 20%.
Short-term gains (assets held ≤ 1 year) are taxed as ordinary income — the same as your salary. Holding investments longer than a year can dramatically lower your tax bill.
If your total taxable income (ordinary + gains) stays below $48,350.00 (single, 2026), your long-term gains and qualified dividends are taxed at 0%.
Early retirees, gap-year takers, and low-income years can harvest gains tax-free by staying in this bracket — a powerful strategy.
Ordinary income fills the LTCG brackets first. Once taxable ordinary income exceeds $48,350.00, every dollar of gains is taxed at 15%. Above $533,400.00, it's 20%.
This means the same $20,000.00 gain can cost $0.00, $3,000.00, or $4,000.00 in federal taxes depending entirely on your ordinary income level.