Federal long-term capital gains tax on shares is either 0%, 15%, or 20%, depending on your taxable income, and it applies only when you’ve held the shares more than one year before selling. For the 2026 tax year, single filers pay nothing on long-term gains if their taxable income stays at or below $49,450; married couples filing jointly get the 0% rate up to $98,900. Sell shares held a year or less and the profit is taxed as ordinary income, which runs as high as 37%.
2026 Rates and Income Brackets
The IRS set the 2026 long-term capital gains brackets in Revenue Procedure 2025-32.1Internal Revenue Service. Rev. Proc. 2025-32 Your filing status and taxable income determine which rate applies:
- 0% on taxable income up to $49,450 for single filers, $98,900 for married couples filing jointly, and $66,200 for heads of household.
- 15% on taxable income from $49,451 to $545,500 for single filers, $98,901 to $613,700 for joint filers, and $66,201 to $579,600 for heads of household.
- 20% on taxable income above $545,500 for single filers, $613,700 for joint filers, and $579,600 for heads of household.
Your entire gain isn’t taxed at one rate. The IRS stacks the long-term gain on top of your ordinary income and applies each rate only to the slice of the gain that falls within its bracket. If your wages leave you near the top of the 0% bracket, part of the gain can be taxed at 0% and the rest at 15%. Section 1(h) of the Internal Revenue Code caps the tax on net capital gain by computing each bracket slice separately.2Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
The Extra 3.8% Net Investment Income Tax
Higher-income investors owe an additional 3.8% Net Investment Income Tax on top of the standard rates. The surtax hits the lesser of your net investment income or the amount your modified adjusted gross income exceeds a statutory threshold: $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately.3Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax
These thresholds are not adjusted for inflation. They’ve been fixed at those dollar amounts since the tax took effect in 2013, so more investors fall inside its reach each year. A married couple with $250,000 in modified adjusted gross income who sells shares at a $50,000 long-term gain would owe 3.8% on $50,000, adding $1,900 to the bill on top of whatever the 15% or 20% rate produces.
When Shares Qualify as Long-Term
A capital gain is long-term when the shares are “held for more than 1 year.”4Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses The holding period starts the day after you buy and runs through the day you sell.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses
The counting matters. Shares bought on March 15, 2025 and sold on March 15, 2026 have been held exactly one year, which is not more than one year. Selling on March 16, 2026 or later is the earliest you’d get long-term treatment. Weekends, holidays, and market closures don’t pause the clock.
Figuring the Gain: Sale Price Minus Basis
Your taxable gain is the sale price minus your cost basis. Basis starts with what you paid for the shares, including brokerage commissions and transfer fees at purchase.6Internal Revenue Service. Topic No. 703, Basis of Assets
Basis rarely stays static. Stock splits change per-share cost without changing your total investment: 100 shares at $50 becomes 200 shares at $25 after a 2-for-1 split, and the total basis spreads across the larger share count. Mergers, spinoffs, and return-of-capital distributions all trigger adjustments. If you’re enrolled in a dividend reinvestment plan, every share bought with reinvested dividends adds to your total basis; skipping those DRIP purchases is a common way investors overpay tax on money they already reinvested.
The IRS expects you to substantiate basis. Without records, the fallback is a basis of zero, and the entire sale proceeds become taxable.
Choosing Which Lot to Sell
When you’ve bought the same stock at different times and prices, the IRS needs to know which specific shares you sold. The default is first-in, first-out: shares purchased earliest are treated as sold first. Average cost isn’t available for individual stocks and bonds; it’s a mutual fund method.7Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
The alternative is specific share identification. You tell your broker exactly which lot to sell at the time of the trade and get written confirmation. Selling higher-basis shares produces a smaller gain; the record-keeping is heavier but the tax savings on a larger portfolio can be meaningful.
Inherited and Gifted Shares Follow Different Rules
Shares received from someone else use different basis rules depending on how they got to you, and mixing the two up is expensive.
Inherited shares get a stepped-up basis under Section 1014: basis resets to the fair market value on the date of the previous owner’s death, wiping out unrealized appreciation from the decedent’s lifetime.8Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If a parent paid $10,000 for shares worth $100,000 at death, your basis is $100,000; selling the next day at $100,500 produces a $500 gain. Inherited shares are automatically long-term, even if you sell them a week after receiving them.9Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
Gifted shares carry over the donor’s original basis. If an uncle paid $5,000 for stock now worth $20,000 and gifts it to you, your basis is $5,000, and a sale at $20,000 produces a $15,000 gain.10Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust If the shares were worth less than the donor’s basis at the time of the gift, a dual-basis rule kicks in: use the donor’s basis for computing gain, the lower fair market value for computing loss, and if the sale price lands between them, there’s no reportable gain or loss.
Offsetting Gains with Losses
Losing trades reduce the tax on winning ones. Losses net against gains in two steps: within each category first (long-term losses against long-term gains, short-term against short-term), then a net loss in one category crosses over to offset a net gain in the other.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses Order counts because short-term gains are taxed at ordinary income rates, so a long-term loss that ends up erasing a short-term gain saves more than one absorbed against another long-term gain taxed at 15%.
If total losses exceed total gains for the year, up to $3,000 of the excess is deductible against ordinary income ($1,500 if married filing separately).11Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Anything unused carries forward indefinitely until it’s absorbed, keeping its original character; a long-term loss carried forward returns as a long-term loss.12Office of the Law Revision Counsel. 26 USC 1212 – Capital Loss Carrybacks and Carryovers
The Wash-Sale Trap
Selling shares at a loss and quickly buying them back doesn’t work. If you sell at a loss and purchase the same or a “substantially identical” security within 30 days before or after the sale, the loss is disallowed.13Office 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 danger zone. Buying replacement shares in a different account doesn’t get around it, and the rule reaches across your brokerage accounts, your IRAs, and even accounts held by your spouse.
The disallowed loss isn’t lost. It’s added to the basis of the replacement shares, so you eventually recognize it when those shares are sold without another wash sale. The original holding period also tacks onto the replacement shares, which can move them into long-term territory sooner.
Reporting and Paying
Each share sale gets reported on Form 8949, “Sales and Other Dispositions of Capital Assets.” You enter the purchase date, sale date, proceeds, and adjusted basis for each transaction; long-term sales go in Part II.14Internal Revenue Service. Form 8949 – Sales and Other Dispositions of Capital Assets The totals move to Schedule D, which combines short-term and long-term results into a net figure that flows to Form 1040. Schedule D also enforces the $3,000 deductible-loss cap and carries the rest forward.15Internal Revenue Service. Schedule D (Form 1040) 2025 – Capital Gains and Losses
Your broker sends Form 1099-B early each year with sale details already reported to the IRS. The basis on that form may miss adjustments, especially for shares transferred between brokers or acquired before cost-basis reporting was required. Compare the 1099-B to your own records before filing.
Estimated Tax on Large Sales
A big sale can produce tax that paycheck withholding won’t cover. The IRS expects taxes to be paid as income is earned, so you may owe estimated payments during the year.16Internal Revenue Service. Pay As You Go, So You Won’t Owe: A Guide to Withholding, Estimated Taxes, and Ways to Avoid the Estimated Tax Penalty You generally avoid an underpayment penalty if withholding and estimated payments together cover 90% of the current year’s tax or 100% of last year’s tax, whichever is smaller. If your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), the second safe harbor rises to 110% of last year’s tax.17Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty Owing less than $1,000 on the return also avoids the penalty. For the 2025 tax year filed in 2026, individual returns are due April 15, 2026, with an automatic extension to October 15 available for the return; the payment itself is still due April 15.
State Tax Adds to the Federal Bill
Federal tax isn’t the whole picture. Most states tax long-term capital gains as ordinary income, and the state rate stacks on top of the federal rate. Nine states have no income tax at all, though one of them imposes a separate tax on capital gains for high earners. A few states offer a reduced rate or a deduction that brings long-term gains below their ordinary income rate. In high-tax states, the combined federal-plus-state hit on a large gain can exceed 30%, so checking your state’s treatment before a sale is worth doing.