Stock Capital Gains Tax Rates: Short-Term, Long-Term, and Surtax

The capital gains tax on stocks depends mainly on how long you owned the shares before selling. Profit on stock held for one year or less is taxed as ordinary income, at federal rates from 10% to 37% in 2026. Profit on stock held longer than one year is taxed at preferential long-term rates of 0%, 15%, or 20%. High earners may also owe an additional 3.8% surtax on top of either rate.

Why the One-Year Mark Decides Everything

The IRS draws a hard line at one year. Stock held for one year or less produces a short-term capital gain, taxed at ordinary income rates. Stock held for more than one year produces a long-term capital gain, taxed at the lower preferential rates.¹ A single day can flip which rate schedule applies to the entire profit.

The clock starts the day after you buy, not the purchase date. Buy on June 1 and your holding period begins June 2. To qualify for long-term treatment, you need to sell on or after June 2 of the following year.¹ Your brokerage’s Form 1099-B reports the holding period to the IRS, so any mismatch on your return invites scrutiny.

Short-Term Rates for 2026

Short-term gains get no special treatment. The IRS adds them to your wages, interest, and other ordinary income and taxes the total at the standard federal brackets. For 2026, the single-filer brackets are:

10% on taxable income 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% over $640,600

These brackets are marginal, so only the income falling within each range is taxed at that rate.² A short-term gain can push part of your income into a higher bracket, but it does not retroactively raise the rate on the income already below that threshold.

Long-Term Rates for 2026

Stock held longer than one year qualifies for one of three rates: 0%, 15%, or 20%. Most investors land in the 15% tier, but lower-income filers can owe nothing at all on their long-term gains. For 2026:

0% on taxable income up to $49,450 (single) or $98,900 (married filing jointly)
15% from $49,451 to $545,500 (single) or $98,901 to $613,700 (married filing jointly)
20% above $545,500 (single) or $613,700 (married filing jointly)

These thresholds adjust annually for inflation.³ Taxable income here means your total income after deductions, not just investment income. A large salary can push your long-term gains into the 20% tier even when the gain itself is modest.

The 3.8% Surtax on Investment Income

High earners face an additional 3.8% Net Investment Income Tax on capital gains and other investment income. It applies when your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.⁴ Those thresholds are fixed in the statute and do not adjust for inflation, so more taxpayers cross them each year as incomes rise.

The surtax applies to the lesser of your net investment income or the amount by which your modified AGI exceeds the threshold. For someone in the 20% long-term bracket who also owes the surtax, the combined federal rate on stock gains reaches 23.8% before any state tax.⁵ Most states with an income tax also tax capital gains.

Figuring the Gain: Proceeds Minus Basis

Your capital gain or loss is what you received from the sale minus your cost basis in the shares. Cost basis is generally what you paid, including commissions and fees at purchase.⁶ Your brokerage reports both the proceeds and the basis to you and the IRS on Form 1099-B after each tax year.⁷

Corporate events can change your basis in ways that are not obvious. A 2-for-1 stock split doubles your share count but halves your per-share basis, leaving the total basis unchanged. Reinvested dividends add to basis because you paid tax on those dividends when they were received. If the reported basis on your 1099-B does not account for these adjustments, you are responsible for correcting it on your return.

Choosing Which Lots to Sell

If you bought the same stock at different times and prices, the shares you sell for tax purposes matter. The default rule is first-in, first-out: the IRS treats your oldest shares as the ones sold first.⁸ That approach often maximizes your gain because older shares tend to have a lower basis.

You can override FIFO with specific identification, telling your broker exactly which shares to sell at the time you place the trade. Selling higher-basis shares first reduces the taxable gain. You must designate the specific shares before the settlement date and receive broker confirmation.⁸ Most online brokerages let you pick specific tax lots at the moment of sale.

Inherited and Gifted Stock Follow Different Rules

Stock you receive as a gift or inheritance does not use the price the donor or decedent originally paid the way you might expect, and confusing the two rules is a costly mistake.

Inherited Stock

When you inherit stock, your basis resets to the fair market value on the date the original owner died. This stepped-up basis can eliminate decades of unrealized gain in one event.⁹ If your parent bought shares for $10,000 and they were worth $100,000 at death, your basis is $100,000. Sell the next day at $100,000 and you owe zero capital gains tax. Inherited stock is also treated as long-term regardless of how long the decedent actually held it, so any gain you do realize qualifies for the preferential rates.

If the stock has fallen in value since the decedent purchased it, the basis steps down to the lower fair market value at death. You cannot use the decedent’s higher original basis to generate a larger loss.

Gifted Stock

Stock received as a gift carries over the donor’s original basis. If your uncle paid $5,000 for shares now worth $25,000 and gives them to you, your basis is $5,000. When you sell, you owe tax on the $20,000 gain just as your uncle would have.¹⁰ Your holding period also includes the time the donor held the shares, so a gift of stock held three years by the donor is already long-term in your hands.

One wrinkle: if the fair market value on the date of the gift is lower than the donor’s basis and you later sell at a loss, your basis for calculating the loss is the fair market value on the gift date, not the donor’s higher basis.¹⁰ This prevents shifting paper losses to recipients in lower brackets.

Using Losses to Cut Your Tax Bill

Capital losses are the most direct way to reduce tax on stock gains. When you sell at a loss, that loss first offsets gains of the same type: short-term losses reduce short-term gains, and long-term losses reduce long-term gains. If one category still has a net loss after that netting, the leftover offsets gains in the other category.¹¹

If losses exceed gains for the year, you can deduct up to $3,000 of the net loss against ordinary income like wages, or $1,500 if married filing separately.¹² Any remaining loss carries forward to future tax years indefinitely, chipping away at gains and ordinary income until it is exhausted.

The Wash Sale Rule

You cannot sell stock at a loss for the tax benefit and immediately buy it back. The wash sale rule disallows the loss if you purchase substantially identical stock within 30 days before or 30 days after the sale, creating a 61-day window around the transaction.¹³ The rule also catches purchases by your spouse or a corporation you control, and it applies if the substantially identical stock is acquired in an IRA.¹⁴

A disallowed loss is not gone forever. The lost deduction gets added to the basis of the replacement shares, producing a smaller gain or larger loss when you eventually sell those shares.¹⁴ Your holding period for the new shares also includes the time you held the original ones. The practical workaround is to wait at least 31 days before repurchasing, or to buy a similar but not substantially identical stock in the meantime.

Reporting Sales on Your Return

Every stock sale during the year goes on Form 8949, where you list the asset description, dates of purchase and sale, proceeds, cost basis, and the resulting gain or loss. Totals from Form 8949 flow to Schedule D of Form 1040, which combines your net short-term and long-term results for the year.¹⁵ Both forms are filed with your return.

Your 1099-B is the starting point. The proceeds and basis it reports should match what you enter on Form 8949, and when they do not, such as with a wash sale, a split, or a carryover basis from a gift, you note the adjustment in the appropriate column. Tax software handles most of this if you import your 1099-B, but confirm that adjustments carried through. The IRS matches 1099-B data against your return, and unexplained discrepancies are a common audit trigger.¹⁶

Estimated Payments After a Large Sale

If you sell a large stock position during the year, your regular paycheck withholding probably will not cover the extra tax. The IRS expects you to pay as you earn, so you generally need to make quarterly estimated tax payments if you expect to owe $1,000 or more beyond what is withheld.¹⁷

To avoid an underpayment penalty, you need to pay at least 90% of your current-year tax liability through withholding and estimated payments, or 100% of your prior-year tax, which rises to 110% if your prior-year AGI exceeded $150,000.¹⁸ Investors who book a big gain late in the year often forget this and get hit with a penalty the following April. One alternative: ask your employer to increase withholding for the rest of the year. The IRS treats extra withholding as paid evenly across all quarters, even when the bulk lands in December.

1
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
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Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Internal Revenue Service. Rev. Proc. 2025-32
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Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax
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Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
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Office of the Law Revision Counsel. 26 U.S.C. 1012 – Basis of Property-Cost
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Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions
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Internal Revenue Service. Stocks (Options, Splits, Traders) 1
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Office of the Law Revision Counsel. 26 U.S.C. 1014 – Basis of Property Acquired From a Decedent
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Office of the Law Revision Counsel. 26 U.S.C. 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
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Office of the Law Revision Counsel. 26 U.S.C. 1222 – Other Terms Relating to Capital Gains and Losses
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Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses
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Office of the Law Revision Counsel. 26 U.S.C. 1091 – Loss From Wash Sales of Stock or Securities
14
Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
15
Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets
16
Internal Revenue Service. Accuracy-Related Penalty
17
Internal Revenue Service. Estimated Taxes
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Internal 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