Profit from selling shares is taxed federally at rates between 0% and 37%, and the capital gains tax on US stocks turns almost entirely on one question: did you hold the stock for more than a year? Sell within a year, and the gain is taxed at ordinary income rates that reach 37%. Hold longer, and you drop into the preferential long-term rates of 0%, 15%, or 20%, with an additional 3.8% surtax possible for high earners.
The One-Year Holding Period
Federal tax law draws a hard line between short-term and long-term gains. Stock held for one year or less produces a short-term gain when sold at a profit; stock held for more than one year produces a long-term gain.1Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses Your holding period starts the day after you buy and runs through the day you sell. Buy on January 1 and sell on January 1 of the following year, and you’ve held for exactly one year, which still counts as short-term. You’d need to wait until at least January 2 to cross into long-term territory.
The gap between the two treatments is large. On a $50,000 gain, the difference can easily reach $5,000 or more in federal tax. Investors close to the twelve-month mark and not under pressure to sell often find it worth waiting the extra day.
Short-Term Capital Gains Rates
Short-term gains stack on top of your other income and are taxed at the same brackets as wages.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, the federal brackets for a single filer (with married-filing-jointly figures in parentheses) are:3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on taxable income up to $12,400 ($24,800)
- 12% on $12,401 to $50,400 ($24,801 to $100,800)
- 22% on $50,401 to $105,700 ($100,801 to $211,400)
- 24% on $105,701 to $201,775 ($211,401 to $403,550)
- 32% on $201,776 to $256,225 ($403,551 to $512,450)
- 35% on $256,226 to $640,600 ($512,451 to $768,700)
- 37% on income over $640,600 (over $768,700)
If your salary already places you in the 24% bracket and you take a $20,000 short-term gain, most or all of it is taxed at 24% or higher. Active traders who cycle in and out of positions almost always pay at these ordinary rates.
Long-Term Capital Gains Rates for 2026
Hold longer than a year and the profit qualifies for one of three preferential rates: 0%, 15%, or 20%. The rate is set by your total taxable income and filing status, not by the size of the gain alone. For 2026:4Internal Revenue Service. Revenue Procedure 2025-32
- 0% up to $49,450 single, $98,900 married filing jointly, $66,200 head of household
- 15% from those thresholds up to $545,500 single, $613,700 married filing jointly, $579,600 head of household
- 20% above those upper figures
Because thresholds depend on total taxable income, your wages and other earnings determine which rate hits the gain. A single filer with $40,000 in taxable wage income who sells for a $15,000 long-term gain would see the first $9,450 taxed at 0% (the amount that keeps total income under $49,450) and the remaining $5,550 taxed at 15%.
The 3.8% Net Investment Income Tax
High earners owe an additional 3.8% surtax on investment income, stock gains included. This Net Investment Income Tax applies once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.5Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax The 3.8% applies to the lesser of your net investment income or the amount by which your income exceeds the threshold.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax At the top long-term bracket, the combined federal rate reaches 23.8%. These NIIT thresholds have never been adjusted for inflation, so more taxpayers cross them each year.
Calculating the Gain
Your taxable gain is the sale price minus your cost basis. Basis is what you paid for the shares, including brokerage commissions and transaction fees.7Internal Revenue Service. Topic No. 703, Basis of Assets Buy 100 shares at $50 each with a $5 commission, and your basis is $5,005. Sell later for $8,000 net of a $5 commission, and your gain is $2,990.
Corporate actions during the holding period change the math. A two-for-one split doubles your share count and halves the per-share basis; a $50-per-share basis becomes $25 across twice as many shares. Total basis stays the same, but tracking the adjustment matters when you sell.
Choosing Which Shares to Sell
When you’ve bought the same stock at different prices, the lot you sell changes the tax. Specifically identify the shares at the time of sale and you can pick the lot with the highest basis (smaller gain) or the one held longest (long-term treatment). Fail to identify, and the IRS treats the oldest shares as sold first under first-in, first-out.8Internal Revenue Service. Stocks (Options, Splits, Traders) 1 Most brokerages let you select specific lots through their online platform, and many investors overlook it.
Inherited and Gifted Stock
Inherited stock gets a stepped-up basis equal to fair market value on the date of the original owner’s death.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired from a Decedent Shares your parent bought for $10,000 that were worth $100,000 at death give you a $100,000 basis, and any gain you recognize is treated as long-term no matter how soon you sell.
Gifted stock works differently. You take on the donor’s original basis and holding period.10Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust One wrinkle: if the stock’s market value at the time of the gift was below the donor’s basis and you later sell at a loss, your basis for calculating the loss is the gift-date value, not the donor’s original cost.
Offsetting Gains with Losses
Losses reduce taxable gains dollar for dollar. Short-term losses first offset short-term gains, and long-term losses first offset long-term gains; a net loss in one category then offsets the net gain in the other.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
If total losses exceed total gains for the year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately). Any remaining loss carries forward to future years indefinitely.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses Someone with a $25,000 loss and no gains would deduct $3,000 this year and carry $22,000 forward, which at $3,000 per year takes more than seven years to burn through without future gains to absorb it.
This creates real planning room. Selling a losing position to offset a winner, commonly called tax-loss harvesting, can meaningfully reduce the annual bill.
The Wash Sale Rule
There’s a catch. Sell a stock at a loss and buy the same stock (or a substantially identical security) within 30 days before or after the sale, and the IRS disallows the loss.11Office of the Law Revision Counsel. 26 USC 1091 – Loss from Wash Sales of Stock or Securities The window runs in both directions, creating a 61-day blackout. The disallowed amount is added to the basis of the replacement shares, so the benefit is deferred rather than lost.
The rule reaches purchases your spouse makes as well. Buying a different stock in the same industry does not trigger it; the rule targets only the same or substantially identical security.
Stocks Held in Retirement Accounts
Capital gains tax does not apply to trades inside 401(k)s or traditional IRAs. You can buy and sell freely within these accounts without triggering any gain. The trade-off is that withdrawals from traditional accounts are taxed as ordinary income regardless of how the underlying earnings arose. Roth accounts remove even that: qualified withdrawals in retirement are tax-free, so stock gains inside a Roth are never taxed.
Estimated Tax After a Large Sale
Sell for a big gain without enough withholding elsewhere to cover it, and you may owe estimated taxes during the year. The IRS expects quarterly estimated payments when you’ll owe at least $1,000 after withholding and refundable credits. You can avoid an underpayment penalty by paying at least 90% of your current-year tax or 100% of your prior-year tax (110% if prior-year AGI exceeded $150,000).12Internal Revenue Service. 2026 Form 1040-ES For a midyear windfall, you can annualize the income and make an increased payment for that quarter rather than spreading the liability evenly.13Internal Revenue Service. Estimated Tax Investors who sell a concentrated position often get caught here because W-2 withholding doesn’t come close to covering the extra tax.
State Tax on Stock Gains
Federal tax is only part of the picture. Most states tax capital gains as ordinary income, adding roughly 1% to over 13% depending on where you live. Nine states impose no income tax at all, though one of them does tax capital gains above a threshold for high earners. A few other states offer reduced rates or deductions for long-term gains. Because state rules vary widely, check your own state before estimating a total bill.
Reporting Stock Sales to the IRS
Your brokerage sends Form 1099-B after year-end, listing proceeds from each sale along with acquisition date, sale date, and cost basis where the broker has it.14Internal Revenue Service. Instructions for Form 1099-B Check it carefully. Brokers sometimes lack basis for shares transferred from another firm, inherited stock, or shares held before basis reporting became mandatory.
The 1099-B data transfers to Form 8949, which lists each sale individually with columns for description, dates acquired and sold, proceeds, basis, and adjustments.15Internal Revenue Service. Instructions for Form 8949 Each entry carries a code indicating whether the broker reported the basis to the IRS. Totals then flow to Schedule D of your Form 1040, where short-term and long-term results are netted and the final tax computed.16Internal Revenue Service. Instructions for Schedule D (Form 1040) Tax software handles most of the transfer automatically after you import the 1099-B, but verifying basis and holding period on each entry is still worth your time.
The return is due April 15 following the tax year. Form 4868 gets you an automatic six-month extension to file, but it does not extend the deadline to pay; interest runs on any unpaid balance from April 15.17Internal Revenue Service. Act Now to File, Pay, or Request an Extension Keep your 1099-B, Form 8949, and purchase records with the filed return. If the IRS questions a gain years later, having those documents ready makes the process far less painful.