IRS Unveils 2026 Capital Gains Thresholds as Lawmakers Eye Bipartisan Overhaul

Key facts

• 2026 long-term capital gains rates remain 0%, 15%, and 20% with adjusted income thresholds.
• Married filing jointly: 0% rate applies up to $98,900; head of household up to $66,200; single filers up to $49,450.
• For 2025, the 0% bracket caps are $96,700 (joint) and $48,350 (single).
• Trump's 'big beautiful bill' raised the 2025 standard deduction to $31,500 for joint filers and $15,750 for singles.
• A 3.8% surcharge on higher earners can push the top capital gains rate to 23.8%.
• Homeowners hold $34.7 trillion in equity; NAR estimates 29 million homes (1 in 3) exceed the $250,000/$500,000 exclusion.
• The capital gains exclusion for primary residences, set in 1997, is not inflation-adjusted.
• Bipartisan talks at NAR's advocacy week aim to update the tax scheme to encourage home sales.

New Inflation-Adjusted Brackets Raise 0% Ceiling for 2026

The Internal Revenue Service has released updated long-term capital gains tax thresholds for 2026, adjusting income brackets upward to reflect inflation. The tax rates themselves remain unchanged at 0%, 15%, and 20%, but the income levels at which each rate applies have shifted, potentially lowering tax bills for investors who sell assets held longer than one year. For married couples filing jointly, the 0% rate now applies to taxable income up to $98,900, up from $96,700 in 2025. Head-of-household filers can earn up to $66,200 before exiting the 0% bracket, while single filers and those married filing separately face a cap of $49,450. These brackets will apply to tax returns filed in early 2027. Short-term capital gains — from assets held one year or less — continue to be taxed at ordinary income rates, which are generally higher. The IRS also reminded taxpayers that a 3.8% net investment income surcharge applies to higher earners, potentially raising the top effective rate on long-term gains to 23.8%.

Trump's Tax Package Expands 0% Bracket Eligibility for 2025

For the current tax year, the 0% long-term capital gains rate applies to single filers with taxable income of $48,350 or less and married couples filing jointly earning $96,700 or less. But President Donald Trump's recently enacted tax legislation, dubbed the 'big beautiful bill,' has widened the gap between gross income and taxable income by increasing the standard deduction. The standard deduction for 2025 rose to $15,750 for single filers and $31,500 for married couples filing jointly, up from $15,000 and $30,000, respectively. Certified financial planner Tommy Lucas of Moisand Fitzgerald Tamayo in Orlando, Florida, noted that many investors overlook the difference between gross earnings and taxable income. For example, a married couple earning $120,000 can subtract the $31,500 standard deduction, leaving taxable income of $88,500 — well below the $96,700 threshold, allowing them to harvest gains tax-free. Andrew Herzog, a certified financial planner and associate wealth manager at The Watchman Group in Plano, Texas, estimated that roughly half of his clients are aware of the 0% bracket and understand how to use it. The provision offers a strategic opportunity to take profits without triggering a tax bill, particularly with the stock market near record highs.

Bipartisan Push to Overhaul Home-Sale Exclusion Gains Momentum

At the National Association of Realtors advocacy week in Washington, D.C., lawmakers and government officials signaled progress on updating the capital gains tax treatment of primary residence sales. The current exclusion, set by Congress in 1997, allows single sellers to exclude up to $250,000 in profit and married couples filing jointly up to $500,000 — but the limits have never been adjusted for inflation. Shannon McGahn, NAR's chief advocacy officer, told attendees that roughly one-third of all homes that could be on the market are subject to the tax, effectively locking owners in place. "It's great to see that there's bipartisan support," she said, noting that the effort crosses party lines even as broader housing bills remain stalled. Frank Cassidy, commissioner of the Federal Housing Administration, said the market needs both deregulation and pro-transaction policy. The FHA, which oversees the Department of Housing and Urban Development's $2 trillion mortgage insurance portfolio, takes direction from Congress on any changes to the cap. "The more transactions we can have going on in the private sector, and the more we can incentivize the supply side, is what will really have long-term effects," Cassidy said.

Staggering $34.7 Trillion in Home Equity Trapped by Outdated Rules

American homeowners are sitting on a record $34.7 trillion in equity, built during a decade of rising home prices and historically low interest rates. But the 1997 capital gains exclusion, which has not been indexed for inflation, means that longer-tenured homeowners and those in fast-appreciating markets face outsized tax bills when they sell. Last year, NAR estimated that 29 million homeowners — one in three — have accumulated more home equity than the exclusion covers. The organization projects that share will grow to 56% by 2030 if the law remains unchanged. The tax burden discourages sales, reducing housing inventory and exacerbating affordability challenges. McGahn emphasized that the current scheme "is locking people in," as sellers weigh the tax hit against the benefits of moving. The bipartisan discussions aim to update the exclusion to reflect modern home values and encourage more transactions, which could help ease supply constraints.

What Comes Next: Legislative Path and Investor Strategies

While the IRS's annual inflation adjustments provide some relief for investors, the broader capital gains framework — particularly for home sales — requires congressional action. The bipartisan talks at NAR's event suggest momentum, but no specific bill has been introduced. Cassidy noted that the FHA awaits direction from lawmakers, leaving the timeline uncertain. For investors, the 2025 and 2026 thresholds offer clear planning opportunities. Financial advisors recommend realizing gains within the 0% bracket when possible, especially given the expanded standard deduction this year. The 3.8% surcharge remains a consideration for high earners, who may face a combined rate of 23.8% on long-term gains. As the stock market hovers near highs and home equity continues to climb, the interplay between inflation-adjusted brackets and potential legislative changes will shape tax strategies for millions of Americans. The outcome of the bipartisan effort could unlock a wave of home sales, but for now, investors and homeowners must navigate a system that many experts consider outdated.

The bottom line

• The IRS raised 2026 capital gains thresholds for inflation, with the 0% bracket now reaching $98,900 for joint filers.
• Trump's 2025 tax bill increased the standard deduction, expanding eligibility for the 0% capital gains rate.
• A bipartisan effort is underway to update the 1997 home-sale exclusion, which is not inflation-adjusted and affects one-third of homeowners.
• Homeowners hold $34.7 trillion in equity; NAR projects 56% will exceed the exclusion by 2030 if unchanged.
• Short-term gains remain taxed as ordinary income; the 3.8% surcharge can push the top long-term rate to 23.8%.
• Investors can harvest gains tax-free within the 0% bracket, a strategy many overlook.