The federal tax rate for stock gains runs from 0% to 20% if you held the shares longer than a year, and from 10% to 37% if you held them a year or less. Which side you land on, and where inside that range you fall, depends on your holding period and your total taxable income for the year. High earners owe an additional 3.8% on top. State tax may add more.
The Holding Period Sets Everything
Federal law draws a bright 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 preferential rates that top out at 20%.1Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
The clock starts the day after you buy and includes the day you sell. Buy on June 15, 2025 and sell on June 16, 2026, and the gain is long-term. Sell one day earlier and it is short-term. That single day can cut the effective rate roughly in half, so purchase dates matter more than most investors realize.
Short-Term Rates for 2026
Profits on stock held a year or less get no special treatment. The IRS adds the gain to your wages, interest, and other income, then taxes the total using the ordinary progressive brackets. For 2026:2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on taxable income up to $12,400 single, $24,800 joint
- 12% up to $50,400 single, $100,800 joint
- 22% up to $105,700 single, $211,400 joint
- 24% up to $201,775 single, $403,550 joint
- 32% up to $256,225 single, $512,450 joint
- 35% up to $640,600 single, $768,700 joint
- 37% above those top figures
Because the brackets are progressive, a short-term gain does not push all of your income into a higher bracket. It fills the next slice. Even so, someone already sitting in the 35% or 37% bracket pays close to double what they would owe on the same stock held a few months longer.
Long-Term Rates for 2026
Holding for more than a year unlocks a separate, lower rate schedule.3Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed For 2026, the thresholds are:4Internal Revenue Service. Revenue Procedure 2025-32
- 0% on taxable income up to $49,450 single, $98,900 joint, $66,200 head of household
- 15% from those thresholds up to $545,500 single, $613,700 joint, $579,600 head of household
- 20% above those figures
Married filing separately follows the single thresholds for 0% and 15%, with 20% starting above $306,850.4Internal Revenue Service. Revenue Procedure 2025-32
Most sellers land in the 15% bracket. A single filer with $90,000 in total taxable income pays 15% on a long-term stock gain rather than the 22% that would apply if the same gain were short-term. At the top, the 20% long-term rate is nearly half the 37% top ordinary rate. That gap is the entire reason “buy and hold” gets so much attention in tax planning.
The 3.8% Surtax for High Earners
One more layer applies at higher incomes. A 3.8% Net Investment Income Tax hits when your modified adjusted gross income exceeds $200,000 single or $250,000 joint.5Office of the Law Revision Counsel. 26 US Code 1411 – Imposition of Tax It applies to the smaller of your net investment income or the amount by which your total income clears the threshold.6Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
The surtax reaches both short-term and long-term gains. That pushes the top effective rate on long-term gains to 23.8% and on short-term gains to 40.8%. The thresholds are not indexed for inflation, so more taxpayers cross them each year. Report the surtax on Form 8960.
How the Taxable Gain Is Calculated
You are not taxed on the full sale price. You are taxed on sale proceeds minus your cost basis. Basis is what you paid for the shares, plus any commissions or transaction fees at purchase. Subtract basis from net sale proceeds, and the difference is your gain (or loss, if negative).
Your brokerage sends a Form 1099-B with each sale, but the reported basis is not always right, especially for shares transferred from another account or received as a gift. Compare it against your own records before filing.
Which Shares You Sell Changes the Bill
If you bought the same stock at different times and prices, the lot you pick to sell can change your tax outcome significantly. The default is first-in, first-out: the IRS assumes you sold your oldest shares first. You can override this with specific identification by telling your broker which shares to sell at the time of the transaction and getting written confirmation.7Internal Revenue Service. Publication 550 – Investment Income and Expenses
That lets you pick shares with the highest basis to shrink the gain, or shares held long enough to qualify for long-term rates. The selection has to happen before the trade executes. Most online brokerages offer a lot-selection option at the point of sale; skip it and FIFO applies automatically.
Losses That Shrink the Bill
A losing sale offsets your gains dollar for dollar. Short-term losses first offset short-term gains and long-term losses first offset long-term gains, but any leftover in either category crosses over to offset the other type. If total losses still exceed total gains, you can deduct up to $3,000 of the net loss against ordinary income each year ($1,500 if married filing separately).8Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
Losses beyond the $3,000 cap carry forward indefinitely, offsetting future gains or another $3,000 of ordinary income each year until used up. Keeping records of unused losses from prior years pays off in the years you finally have a big gain to soak them up.
The Wash Sale Trap
You cannot sell a stock at a loss and immediately buy it back to bank the deduction. If you repurchase the same stock, or something substantially identical, within 30 days before or after the sale, the IRS disallows the loss.9Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The 61-day window catches the pattern in either direction.
The disallowed loss is not gone. It gets added to the basis of the replacement shares, so you will recognize a larger gain or smaller loss when those replacement shares eventually sell. The original holding period tacks onto the new shares as well. One serious hazard: if the replacement purchase happens inside an IRA or Roth IRA instead of a taxable account, the disallowed loss is permanently forfeited, because the IRA’s basis cannot be stepped up.
State Tax Adds to the Federal Number
Federal rates are only part of the total. Most states tax capital gains as ordinary income at rates that run roughly from 3% to over 13%. Eight states have no income tax and therefore no state-level tax on stock gains: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. A few states offer reduced rates or partial exclusions for long-term gains; the majority simply add stock profits to state taxable income. Combined federal and state rates on short-term gains can clear 50% in the highest-tax states.
Estimated Tax After a Large Sale
Sell a big position mid-year and your regular paycheck withholding likely will not cover the resulting tax. The IRS expects you to pay as income is earned, and coming up short triggers an underpayment penalty. You avoid the penalty by meeting any one of these safe harbors:10Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- You owe less than $1,000 after withholding and credits.
- You paid at least 90% of the current year’s tax through withholding or estimated payments.
- You paid 100% of last year’s tax, rising to 110% if your adjusted gross income exceeded $150,000 ($75,000 married filing separately).
After a one-time sale, the simplest fix is a single estimated payment using Form 1040-ES for the quarter in which the sale occurred. Waiting until April means interest and penalties are already running. If your income is uneven across the year, the annualized installment method on Schedule AI of Form 2210 aligns payments with when you actually earned the money instead of forcing four equal quarterly amounts.