Yes, stock sales count as income, but only the profit does, not the full amount your broker deposits. The IRS treats that profit as a capital gain, adds it to your adjusted gross income, and taxes it at one of two rate schedules depending on how long you owned the shares: ordinary income rates if you held for a year or less, and lower long-term capital gains rates (0%, 15%, or 20%) if you held longer than a year.
What Actually Gets Taxed
The taxable figure is your gain, not your proceeds. Gain equals the selling price minus your cost basis, which is generally what you paid for the shares plus any commissions or transfer fees at purchase.1Office of the Law Revision Counsel. 26 USC 1001 – Determination of Amount of and Recognition of Gain or Loss2Internal Revenue Service. Publication 551, Basis of Assets Buy a share for $1,000 with a $10 commission, sell it for $1,500, and you owe tax on $490, not $1,500.
If the sale price falls below your basis, you have a capital loss instead. Losses reduce your tax bill by offsetting gains, and a limited amount can offset wages and other income.
Short-Term vs. Long-Term Rates
Everything hinges on the holding period. Shares held for one year or less produce short-term capital gains, taxed at the same rates as your wages, from 10% up to 37% for 2026.3Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses A high earner in the 37% bracket who flips a stock inside a year hands more than a third of the profit to the federal government.
Shares held for more than one year qualify for long-term rates of 0%, 15%, or 20%, based on taxable income.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, a single filer pays 0% on long-term gains up to $49,450 of taxable income, 15% up to $545,500, and 20% above that. Joint filers get 0% up to $98,900 and 15% up to $613,700. One extra day of holding can drop your rate from 24% to 15%, so the purchase date on your confirmation matters.
Cryptocurrency, NFTs, and other digital assets are treated as property and follow the same one-year rule.5Internal Revenue Service. Frequently Asked Questions on Digital Asset Transactions The clock starts the day after you acquire the asset and stops on the day you sell.
How the Gain Moves Your AGI
Capital gains flow into gross income regardless of which rate applies.6Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined A long-term gain taxed at 15% still increases your AGI by the full amount. That bump can phase out your Roth IRA contribution, shrink the child tax credit, cut education credits, and raise your Medicare Part B premium two years later. People who normally qualify for these benefits sometimes lose them entirely in a year with a large sale. Splitting a position across two tax years, selling part in December and the rest in January, is one way to spread the AGI impact, though the unsold shares carry market risk in the meantime.
The 3.8% Net Investment Income Tax
Higher earners face an extra 3.8% surtax on net investment income. It kicks in when modified adjusted gross income exceeds $200,000 for single filers, $250,000 for joint filers, or $125,000 for married filing separately.7Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax The 3.8% applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold.8Internal Revenue Service. Net Investment Income Tax Those thresholds are fixed in the statute and don’t adjust for inflation, so they pull in more taxpayers every year.
Estimated Tax Payments
A large gain can force you to pay tax before you file. You generally owe estimated payments if your total tax will exceed withholding and credits by $1,000 or more, and withholding won’t cover at least 90% of the current year’s tax or 100% of last year’s (110% if last year’s AGI exceeded $150,000).9Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc. Skip them and you owe an underpayment penalty with interest.
You don’t have to spread the payment evenly across the year. The IRS lets you annualize income and pay more in the quarter you actually sold, using the Annualized Estimated Tax Worksheet in Publication 505 and filing Form 2210 with Schedule AI.
Losses, the $3,000 Cap, and the Wash Sale Trap
Capital losses first offset your capital gains. If gains and losses roughly cancel out, your investment tax bill can be close to zero. When losses exceed gains, the excess deductible against wages and other income is capped at $3,000 per year ($1,500 if married filing separately).10Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything above that carries forward indefinitely.4Internal Revenue Service. Topic No. 409, Capital Gains and Losses A $50,000 loss with no gains to absorb it takes over 15 years to deduct at $3,000 a year, unless future gains soak it up faster.
One trap to know about: the wash sale rule. Sell at a loss and buy the same or a substantially identical security within 30 days before or after the sale, and the IRS disallows the loss for that year.11Office of the Law Revision Counsel. 26 USC 1091 – Loss from Wash Sales of Stock or Securities The disallowed amount gets added to the basis of the replacement shares, so the deduction isn’t gone forever, just delayed. The 30-day window runs both ways, which catches investors doing year-end tax-loss harvesting who accidentally buy back too soon.
Sales Inside Retirement Accounts Don’t Count as Income Now
Selling stock inside a traditional IRA, 401(k), or similar tax-deferred account triggers no immediate capital gains tax. The proceeds stay inside the account, and nothing shows up on your return or affects your AGI that year.12Internal Revenue Service. Traditional IRAs Tax comes later, when you withdraw, and the entire distribution is taxed as ordinary income. You gain deferral but lose the long-term capital gains rate on the eventual payout.
Roth IRAs work differently. Contributions go in after-tax, and qualified distributions come out tax-free, gains included.13Internal Revenue Service. Roth IRAs Selling and rebuying inside a Roth has no tax consequence at any point, as long as you meet the age and five-year rules for qualified withdrawals.
How the Sale Gets Reported
Your broker sends Form 1099-B showing gross proceeds, cost basis, and trade dates for every sale. For the 2025 tax year, brokers must send it to you by February 16, 2026.14Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses The IRS gets its own copy, so the agency already knows what you sold before you file.
You report each transaction on Form 8949, separating short-term sales in Part I from long-term in Part II.15Internal Revenue Service. Instructions for Form 8949 (2025) The totals flow to Schedule D of Form 1040, which combines everything into a single net figure added to your income.16Internal Revenue Service. 2025 Schedule D (Form 1040) Capital Gains and Losses Leaving off a transaction that appears on your 1099-B is one of the most common triggers for an IRS accuracy-related penalty, which adds 20% on top of the tax owed plus interest.17Internal Revenue Service. Accuracy-Related Penalty
State Taxes Are a Separate Layer
Federal rates aren’t the whole bill. Most states with an income tax treat capital gains as ordinary income at the same rate they charge on wages. Some states offer partial exclusions or lower rates for long-term gains, and a handful have no income tax at all. In a high-tax state, the combined federal and state hit on a large sale can easily exceed 30%, so factor the state layer in before you calculate what you actually keep.