Money you make in a taxable brokerage account is taxed at federal rates from 0% to 37%, and the rate that applies to any given dollar depends on three things: how long you held the investment, whether the income is a capital gain or a dividend, and your total taxable income for the year. There is no single set of brokerage account tax rates. Short-term profits are taxed like wages, long-term profits get preferential rates, dividends split into two categories with very different treatment, and a 3.8% surtax can stack on top for higher earners.
Short-Term Gains Are Taxed Like Your Paycheck
Sell an investment you held for one year or less and the profit is a short-term capital gain. The IRS taxes it at the same progressive rates that apply to your salary, piling the gain on top of what you already earned that year.
For the 2026 tax year, the ordinary income brackets for a single filer are:
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% above $640,600
Married couples filing jointly get wider brackets. The 10% bracket covers income up to $24,800, the 12% bracket stretches to $100,800, and the 37% rate starts above $768,700.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Because the brackets are progressive, only the income inside each range is taxed at that range’s rate. A single filer with $80,000 in total income doesn’t pay 22% on all of it; the first $12,400 is taxed at 10%, the next slice at 12%, and only the portion above $50,400 hits 22%.
The holding period matters more than most people realize. If you already earn $180,000 from a job, a $20,000 short-term gain lands entirely in the 24% bracket. The same $20,000 held one more day past the one-year mark qualifies for a 15% long-term rate, cutting the federal tax on that trade by roughly $1,800.
Long-Term Gains Get Preferential Rates
Investments held for more than one year qualify for long-term capital gains treatment, which uses a separate rate structure of 0%, 15%, and 20% tied to your total taxable income.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
For the 2026 tax year, the thresholds are:
- 0% rate: taxable income up to $49,450 for single filers, $98,900 for married couples filing jointly, or $66,200 for heads of household
- 15% rate: taxable income from $49,451 to $545,500 for single filers, $98,901 to $613,700 for joint filers, or $66,201 to $579,600 for heads of household
- 20% rate: taxable income above those 15% ceilings
These figures come from IRS Revenue Procedure 2025-32 and adjust annually for inflation.3Internal Revenue Service. Rev. Proc. 2025-32 The 0% band is worth planning around. In a year when your income drops, you can sell long-term holdings and owe no federal tax on the gain, up to those thresholds.
The holding period must exceed one full year. Buy shares on March 1, 2026 and you need to hold through at least March 2, 2027 to qualify. Selling on March 1 the following year makes the position exactly one year old, which is still short-term. Miss the cutoff by a single day and the entire gain is taxed at ordinary rates.
How Dividends Are Taxed
Dividends fall into two categories with very different consequences. Ordinary dividends are taxed at your regular income rate, the same as short-term gains. Qualified dividends get the same 0%, 15%, or 20% rates as long-term capital gains.4Legal Information Institute. 26 USC 1(h)(11) – Dividends Taxed as Net Capital Gain
To qualify for the lower rates, you must hold the stock for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. Those are calendar days, not trading days. Buy right before a dividend and sell shortly after and the payment is taxed at your ordinary rate. The rule exists to stop investors from jumping in and out purely to collect dividends at the preferential rate.
Some payouts never qualify no matter how long you hold. Distributions from real estate investment trusts and certain foreign corporations are generally taxed as ordinary income. Your brokerage will send a Form 1099-DIV each January breaking down which dividends were ordinary and which were qualified.5Internal Revenue Service. About Form 1099-DIV, Dividends and Distributions Check it against your own records. A misclassified payment can mean overpayment or an IRS notice.
The 3.8% Surtax on Investment Income
Higher-income investors owe an additional 3.8% Net Investment Income Tax on top of the capital gains and dividend rates already described. It kicks in when your modified adjusted gross income exceeds $200,000 for a single filer or $250,000 for a married couple filing jointly.6Office of the Law Revision Counsel. 26 US Code 1411 – Imposition of Tax
The surtax applies to the lesser of your net investment income or the amount by which your modified AGI exceeds the threshold. A single filer with $220,000 in modified AGI and $50,000 of investment income pays 3.8% on $20,000, not on the full $50,000. Investment income for this purpose includes capital gains, dividends, interest, rental income, and royalties. The thresholds are not indexed to inflation, so more households cross them each year. Use Form 8960 to calculate what you owe.7Internal Revenue Service. Instructions for Form 8960
The practical effect: a top-bracket investor selling a long-term holding can face a combined federal rate of 23.8% (20% plus 3.8%), and short-term gains at the top rate can hit 40.8% (37% plus 3.8%).
Cost Basis Changes the Tax You Owe
The tax on a sale is a function of the difference between what you paid and what you sold for. That purchase price is your cost basis, and when you’ve bought the same security at different prices over time, the method you use to identify which shares you’re selling can change the bill substantially.
Most brokerages default to first-in, first-out, which assumes the oldest shares go first. In a rising market, those oldest shares tend to have the lowest cost basis and the largest taxable gain. Specific identification lets you designate the highest-cost lots for sale instead, shrinking the reportable gain. Some brokerages also offer a high-cost method that automates the selection.
Mutual funds and certain ETFs allow an average cost method, which produces a single per-share basis by dividing your total investment by the number of shares. It’s simpler but removes the flexibility to cherry-pick lots. You can typically change your default method in your brokerage’s account settings, but once shares are sold under a particular method for a given security, retroactive changes are restricted.
Using Losses to Offset Gains
Losses in a brokerage account cut your tax bill. When you sell at a loss, the loss offsets capital gains dollar for dollar. If losses exceed gains for the year, you can deduct up to $3,000 of the net loss against ordinary income ($1,500 if married filing separately).8Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Unused losses carry forward indefinitely.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The wash sale rule is where people get tripped up. You can’t sell a stock at a loss, claim the deduction, and repurchase the same or a “substantially identical” security within 30 days before or after the sale.9Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities That leaves a 61-day window during which you need to stay out of the same investment. The disallowed loss isn’t erased; it gets added to the basis of the replacement shares, deferring the benefit rather than granting it now. The rule also reaches purchases in other accounts you own, including an IRA, where the consequences can be worse.
Paying the Tax During the Year
Brokerage income has no automatic withholding. Realize a large gain or collect substantial dividends and you may owe quarterly estimated tax payments to the IRS, generally due April 15, June 15, September 15, and January 15 of the following year.10Internal Revenue Service. Pay As You Go, So You Won’t Owe: A Guide to Withholding and Estimated Taxes
The IRS charges an underpayment penalty if you don’t pay enough as the year goes on. You avoid it by meeting one of two safe harbors: pay at least 90% of the current year’s total tax, or pay 100% of last year’s tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the second safe harbor rises to 110%.11Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
If you also collect a W-2 paycheck, raising your payroll withholding is sometimes easier than mailing quarterly checks. The IRS treats withheld tax as paid evenly through the year, which is useful if you sell a big position in December and can’t reach back to hit earlier quarterly deadlines.
State Taxes Sit on Top of All of This
Federal rates are only part of the bill. Most states tax capital gains as ordinary income, adding another layer to everything above. A handful of states have no personal income tax, so residents there owe nothing at the state level on brokerage profits. Combined federal and state rates for high earners in high-tax states can exceed 50% on short-term gains.
Most states don’t offer a separate preferential rate for long-term gains the way the federal government does. A few provide partial exclusions or credits, but as a general rule your state treats capital gains the same as wages. Check your state tax agency for the specifics that apply to you, because the gap between a no-income-tax state and one with a top rate above 10% can meaningfully change when and how you sell.