Long-term stock gains are taxed by the federal government at 0%, 15%, or 20%, depending on your taxable income and filing status. Those rates apply only when you’ve held the shares for more than one year before selling. High earners can owe an additional 3.8% surtax on investment income, which pushes the top effective federal rate on long-term stock gains to 23.8%. State tax may add more on top.
What Makes a Gain Long-Term
A stock qualifies for long-term treatment only if you hold it for more than one year before selling. The holding period starts the day after you buy and ends on the day you sell.1Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses Buy on June 1, 2025, and the earliest date you can sell for long-term treatment is June 2, 2026. Sell exactly one year after purchase and the gain is short-term, taxed at ordinary income rates that can be nearly double the long-term rate for higher earners.
That one-day difference is real money. Your brokerage tracks the acquisition date for each lot, so check it before placing a sell order.
2026 Federal Rate Brackets for Long-Term Gains
The rate you pay depends on your total taxable income, not just the gain itself. Long-term gains sit on top of your ordinary income and fill the brackets in order.2Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed “Taxable income” here means income after your standard or itemized deductions, not gross pay, so the deduction can keep part of a gain in a lower bracket.
For tax year 2026, the thresholds are:3Internal Revenue Service. Rev. Proc. 2025-32
- Single filers: 0% on taxable income up to $49,450; 15% from $49,451 to $545,500; 20% above $545,500.
- Married filing jointly: 0% up to $98,900; 15% from $98,901 to $613,700; 20% above $613,700.
- Head of household: 0% up to $66,200; 15% from $66,201 to $579,600; 20% above $579,600.
- Married filing separately: 0% up to $49,450; 15% from $49,451 to $306,850; 20% above $306,850.
The thresholds adjust for inflation each year.
The 3.8% Net Investment Income Tax
On top of the standard rates, higher-income taxpayers owe an additional 3.8% on net investment income, which includes capital gains, dividends, interest, and rental income.4Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax The surtax kicks in when your modified adjusted gross income exceeds:
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
The 3.8% applies to the lesser of your net investment income or the amount your modified AGI exceeds the threshold. These thresholds are not indexed for inflation, so more taxpayers cross them each year as wages rise.5Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Combined with the capital gains rate, that means an effective federal rate of 18.8% for someone in the 15% bracket who crosses the NIIT line, and 23.8% at the top. A large one-time gain from selling appreciated stock is exactly the kind of event that pushes income across these limits.
Other Assets Have Different Rates
The 0/15/20% structure applies to stock. Collectibles such as art, coins, and precious metals are taxed at up to 28% even when held long-term, and gains from certain depreciated real estate are taxed at up to 25%.2Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed If your portfolio includes anything beyond stocks, funds, and similar securities, those rules deserve a separate look.
State Tax Adds to the Bill
Federal rates are only part of the picture. Most states tax capital gains as ordinary income, and a handful impose rates above 10%. About eight states tax long-term gains at a reduced rate compared to wages, and roughly nine states either have no income tax or exclude capital gains entirely. Combined federal and state rates on long-term gains can range from under 20% to more than 33% depending on where you live. Check your state’s rules before estimating what you’ll actually keep from a sale.
Offsetting Gains with Losses
You don’t pay tax on gross gains. Losses on other investments sold during the same year offset your gains dollar for dollar. Sell one stock for a $10,000 profit and another for a $4,000 loss, and you’re taxed on the $6,000 net.
If losses exceed gains for the year, you can deduct up to $3,000 of the excess against ordinary income, or $1,500 if married filing separately.6Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses Anything beyond that carries forward indefinitely and keeps its character as short-term or long-term in future years.7Office of the Law Revision Counsel. 26 U.S. Code 1212 – Capital Loss Carrybacks and Carryovers
One trap for aggressive tax-loss harvesters: if you sell a stock at a loss and buy the same or a substantially identical stock within 30 days before or after the sale, the IRS disallows the loss under the wash sale rule.8Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss shifts to the cost basis of the replacement shares, so it isn’t gone forever, but you can’t use it against gains in the current year.
What Counts as the Taxable Gain
Your taxable gain is the difference between what you received from the sale and your cost basis. Cost basis is usually the price you paid plus any purchase commissions. Your brokerage reports both figures on IRS Form 1099-B early in the year following the sale.9Internal Revenue Service. Instructions for Form 1099-B
A few situations require manual adjustment. Stock splits change the per-share basis: a two-for-one split halves the basis per share and doubles the share count. Reinvested dividends add to your total basis because you already paid tax on the dividends when received. Stock-for-stock mergers roll basis into the new shares. Getting these right matters: an overstated basis means underreported gains and possible penalties, while an understated basis means you pay too much.
If you bought the same stock at different times and prices, you’re selling specific lots. Most brokerages default to first-in, first-out, but you can select particular lots. Choosing higher-basis lots reduces the taxable gain, and choosing lots held over a year secures long-term treatment.
Inherited Stock Gets a Step-Up
Inherited stock is taxed on very different terms. The cost basis resets to the fair market value on the date the previous owner died, regardless of what they originally paid.10Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If a parent bought shares at $5 and they were worth $50 on the date of death, your basis is $50. Sell right away at $50 and you owe nothing. Sell later at $60 and you’re taxed on $10.
Inherited stock is also treated as long-term automatically, no matter how quickly you sell after receiving it.
The step-up does not apply to gifts between living people. Receive stock as a lifetime gift and you take the giver’s original basis and holding period, which can produce a much larger taxable gain when you sell.
Qualified Small Business Stock
Section 1202 creates a major carve-out for stock in qualifying small businesses. Hold stock in a domestic C corporation that had gross assets under $50 million when the shares were issued, keep it for at least five years, and you can exclude up to 100% of the gain from federal tax.11Office of the Law Revision Counsel. 26 USC 1202 – Partial Exclusion for Gain From Certain Small Business Stock The excluded amount is capped at the greater of $10 million or ten times your adjusted basis in the stock, per issuer.
The requirements are specific. The company must be a C corporation, not an S corp or LLC. It must use at least 80% of its assets in an active business, and certain industries such as financial services and hospitality are excluded. When it applies, the exclusion effectively creates a 0% federal rate on gains that can reach eight figures, so founders, early employees, and angel investors should confirm eligibility before selling.
Paying the Tax
The federal system is pay-as-you-go. A large mid-year stock sale can require an estimated tax payment before your annual return is due; waiting until April can trigger an underpayment penalty.
You avoid the penalty if you pay at least 90% of your current year’s total tax liability through withholding and estimated payments, or at least 100% of last year’s total tax. If your adjusted gross income last year exceeded $150,000 ($75,000 if married filing separately), that second safe harbor rises to 110%.12Office of the Law Revision Counsel. 26 U.S. Code 6654 – Failure by Individual to Pay Estimated Income Tax No penalty applies if you owe less than $1,000 after subtracting withholding and credits. Estimated payments are due quarterly, on April 15, June 15, September 15, and January 15 of the following year.13Internal Revenue Service. Individuals Some people prefer to raise their W-2 withholding for the rest of the year instead of filing a voucher.
Stock sales are reported on IRS Form 8949, with acquisition date, sale date, proceeds, and cost basis for each transaction, split into short-term and long-term sections. Totals flow to Schedule D of your Form 1040.14Internal Revenue Service. Instructions for Form 8949 (2025) When your 1099-B shows that cost basis was reported to the IRS and no adjustments are needed, you can skip Form 8949 and enter totals directly on Schedule D. Review any imported figures against your own records, because brokerages sometimes get basis wrong on shares transferred from another account or acquired through corporate actions.