Investing is one of the best ways to build long-term wealth, but it also comes with tax obligations. Many investors wonder: how much tax do you pay on investments in the U.S.?
Beyond knowing when to file and pay your taxes, understanding how the 2026 tax brackets in the U.S. work will help you better plan your investments and legally minimize your tax burden.
In this article, we explain how capital gains, dividends, and other investment income are taxed, along with key strategies to optimize your tax situation using investment accounts you can open from the palm of your hand with the Finhabits app.
How Do Tax Brackets Work in the U.S.?
The U.S. tax system is progressive: as your income increases, a larger portion is taxed at higher rates. This also applies to investment income, though with specific rules depending on the type of income:
- Ordinary income: taxed according to the IRS’s general tax brackets (10%–37%).
- Capital gains: divided into short-term and long-term, with different rates.
- Dividends: can be ordinary or qualified, depending on the asset and holding period.
If you’re new to investing and want to understand the fundamentals first, check out our 5 essential tips for beginner investors.
Investment Taxes: Capital Gains
Capital gains are generated when you sell an asset for more than you paid for it. The IRS distinguishes between:
Short-term capital gains
- Assets held for less than one year
- Taxed as ordinary income according to your tax bracket (10%–37%)
Long-term capital gains
- Assets held for more than one year
- Taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income
Estimated 2026 Tax Brackets for Long-Term Capital Gains (based on inflation adjustments published by the IRS in previous years)
| Taxable Income (Single) | Taxable Income (Married Filing Jointly) | Rate |
|---|---|---|
| Up to $49,450 | Up to $98,900 | 0% |
| $49,451 – $545,500 | $98,901 – $613,700 | 15% |
| Over $545,500 | Over $613,700 | 20% |
If your taxable income stays within the 0% threshold, you can realize long-term capital gains without paying federal taxes on those gains.
Understanding how and when to sell an investment is just as important as knowing how to get started. If you’re still taking your first steps, here’s our guide on how to start investing in the stock market in 2026 — from the basics to execution.
Taxes on Dividends
Dividends are also subject to taxes, but the treatment depends on their classification:
Ordinary dividends
- Taxed as regular income
- Includes dividends from REITs and certain stocks or funds
Qualified dividends
- Subject to the same preferential rates as long-term capital gains
- Require that the stock was held for at least 60 days within the 121-day period around the ex-dividend date
Example: If a married couple filing jointly has a total taxable income of $85,000 (including qualified dividends), those dividends could be taxed at 0% instead of their ordinary income tax rate.
Strategies to Minimize Investment Taxes
Planning with intention can make a big difference in your bottom line. Key strategies include:
Hold investments long-term Waiting at least one year before selling an asset allows you to access preferential rates, typically lower than ordinary income tax rates. A long-term investing approach built on automation, diversification, and time can help you stay consistent while benefiting from favorable tax treatment.
Use tax-advantaged accounts Tax-advantaged accounts are essential tools:
- Roth IRA and Roth 401(k): Tax-free growth and withdrawals in retirement
- Traditional IRA and 401(k): Reduce taxable income today and defer taxes until retirement
- 401(k) Rollover: Consolidate accounts from previous employers without losing the tax benefit
Not sure which account is right for you? Compare Roth vs Traditional IRA to find the best fit for your situation. Also, make sure you’re aware of the 2026 contribution limits for 401(k) and IRA accounts to maximize your tax-advantaged space.
Tax-loss harvesting You can sell investments at a loss to offset capital gains. If losses exceed gains, you can deduct up to $3,000 per year against ordinary income and carry the excess forward to future years.
Take advantage of the 0% bracket In lower-income years, strategically realizing gains can help you rebalance your portfolio without generating federal taxes.
Additional Taxes for High-Income Investors
Net Investment Income Tax (NIIT)
- Additional 3.8% tax
- Applies if your MAGI exceeds:
- $200,000 (single)
- $250,000 (married filing jointly)
- These thresholds are not adjusted for inflation
Alternative Minimum Tax (AMT) The AMT is a parallel system designed to ensure that certain high-income taxpayers pay a minimum amount of taxes, even when utilizing multiple deductions. Its application depends on income level and the types of deductions claimed.
Conclusion
Understanding how investment taxes work in the U.S. allows you to make more informed decisions and better protect your returns.
Holding investments long-term, using tax-advantaged accounts, and strategically planning when to realize gains can generate significant savings over time. Make sure you also know when taxes are due in 2026 and review our complete tax season 2026 guide for investors to stay ahead of key deadlines.
If you need additional support, consult with a tax professional. And if you want to start investing with intention, Finhabits offers you simple and accessible tools to build your financial future starting today. Explore our retirement planning options and open your account in minutes.
Sources:
- IRS – Topic No. 409, Capital Gains and Losses
- IRS – Instructions for Schedule D – Capital Gains and Losses
- IRS – Investment income and expenses
- IRS – Retirement plans
- IRS – Capital Losses
- IRS – Net Investment Income Tax
IRS – Alternative Minimum Tax - IRS – Inflation Adjustments
Disclaimer: This material is provided for informational purposes only and is not intended to offer investment, legal, or tax advice. All images and figures are for illustrative purposes. Investment advisory services are offered by Finhabits Advisors LLC, an SEC-registered investment advisor. Registration does not imply a certain level of skill or training. Past performance does not guarantee future results or returns. All investments involve risk and may result in loss of capital. Securities are offered by Apex Clearing Corporation, a member of FINRA and SIPC. Securities in your APEX account are protected up to $500,000, which includes a $250,000 limit on cash. Visit SIPC.org for more details.
Projections are for educational and illustrative purposes only. They are based on the assumptions indicated and may change if those assumptions change. They do not predict or reflect the actual performance of any Finhabits portfolio, and do not consider economic, market, or personal factors that may affect the actual results of an investment.
For tax questions, consult a tax professional and review the most up-to-date official information on the IRS website (irs.gov).
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