Trust Capital Gains Tax: 2026 Rates and Who Pays

Quick Answer

For 2026, long-term capital gains in an estate or non-grantor trust are taxed at 0% up to $3,300 of taxable income, 15% up to $16,250, and 20% above that (Rev. Proc. 2025-32). Short-term gains are taxed at the ordinary trust brackets. Because Form 1041 includes in distributable net income only the gains attributable to income under the trust instrument or state law, most trusts keep their capital gains and pay the tax themselves.

Trusts get the same 0%, 15%, and 20% capital gain rates as individuals, but on a much smaller scale. A trust hits the top 20% rate at a level of income an individual would barely notice.

The bigger question for most trustees is not the rate but who pays it: the trust, or the beneficiaries.

The 2026 breakpoints

Rev. Proc. 2025-32 sets the 2026 capital gain breakpoints for estates and trusts at a maximum zero-rate amount of $3,300 and a maximum 15% rate amount of $16,250. Long-term gains and qualified dividends falling above $16,250 of taxable income are taxed at 20%. For comparison, the 2025 Form 1041 instructions put the start of the 20% rate at $15,900.

Short-term gains get no special rate. They are taxed like interest, at the 2026 ordinary trust brackets: 10% up to $3,300, 24% up to $11,700, 35% up to $16,000, and 37% above $16,000.

The 3.8% net investment income tax also applies to a trust’s undistributed investment income above the start of the top bracket — $16,000 for 2026 — so retained gains can face 23.8% at modest levels.

Why gains usually stay with the trust

A trust deducts what it distributes only up to distributable net income (DNI), and Schedule B decides whether capital gains are part of DNI. Line 3 includes capital gains, whether or not distributed, only when they are "attributable to income under the governing instrument or local law."

Most trust instruments and state principal-and-income laws treat capital gains as principal (corpus). Those gains stay out of DNI, cannot be carried out to the beneficiaries, and are taxed to the trust. The beneficiaries receive the money eventually as principal, which is not income to them.

When gains do pass to beneficiaries

If the governing instrument or local law attributes gains to income, Schedule B includes them in DNI, and the instructions are explicit: if all capital gains are attributable to income, include 100% of them, even where the trustee distributed only part.

Gains that are carried out keep their character. The beneficiary’s Schedule K-1 reports net short-term and net long-term capital gain in boxes 3 and 4a, which go on the beneficiary’s own Schedule D, taxed at the beneficiary’s individual rates, which are usually far lower than the trust’s.

Estates use the same rules

A decedent’s estate uses the same capital gain breakpoints as a trust. Whether a given year’s gains stay with the estate or pass to the beneficiaries follows the same Schedule B test: only gains attributable to income under the will or local law are part of DNI.

Frequently asked questions

What is the capital gains rate for a trust in 2026?⌄
0% on long-term gains up to $3,300 of taxable income, 15% up to $16,250, and 20% above $16,250. Short-term gains are taxed at the ordinary trust brackets, up to 37%.
Can a trustee distribute capital gains to avoid the trust rate?⌄
Only if the gains are part of DNI, which depends on the governing instrument and state law. Simply writing a check does not move gains allocated to principal onto the beneficiaries’ returns.
Do grantor trusts pay their own capital gains tax?⌄
No. A grantor trust’s gains are reported by the grantor on their own return, at individual rates.
Does the 3.8% NIIT apply to trust capital gains?⌄
Yes, on undistributed net investment income above the dollar amount where the top trust bracket begins, $16,000 for 2026.
Where are a trust’s capital gains reported?⌄
On Schedule D (Form 1041), with the result carried to Form 1041. Gains carried out to beneficiaries appear on their Schedules K-1.

Related guides

More in Estates, Trusts & Form 1041

Official sources

Tax rules, rates and deadlines change — verify current requirements against the IRS sources above before acting. This guide is general information, not tax or legal advice.

Sold assets in the trust this year?

TaxFilingCenter e-files Form 1041 online with guided entry for capital gains and beneficiary K-1s, and an IRS acknowledgment when the return is accepted.

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