Profits on stocks you’ve held longer than one year are taxed by the federal government at 0%, 15%, or 20%, depending on your taxable income and filing status. That is the long-term capital gains tax rate on stocks, and it sits well below the ordinary income rates that apply to shares sold within a year. Most investors land at 15%. High earners can owe an extra 3.8% surtax on top, bringing the top federal rate to 23.8%.
What Counts as Long-Term
You have to own the stock for more than one year. Sell on day 366 or later and the gain qualifies for long-term treatment. Sell on day 365 or earlier and the profit is taxed as ordinary income, which can run as high as 37%.1Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
Count from the day after you buy through the day you sell. Buy on March 1 and your holding period starts March 2; you need to wait until at least March 2 of the following year to sell at the lower rate. The IRS uses the trade date on both ends, not the settlement date.2Internal Revenue Service. Publication 550 – Investment Income and Expenses Miss the mark by a single day and the entire gain is taxed at ordinary rates, so hold onto trade confirmations that prove exactly when you bought and sold.
2026 Income Brackets for the 0%, 15%, and 20% Rates
Which of the three rates applies depends on your total taxable income for the year, not just the size of the gain. The IRS adjusts the thresholds annually for inflation.3Internal Revenue Service. Revenue Procedure 2025-32
0% Rate
You pay nothing on long-term stock gains if your 2026 taxable income stays at or below:
- Single or married filing separately: $49,450
- Married filing jointly: $98,900
- Head of household: $66,200
This bracket does more work than many investors realize. Retirees living mostly on Social Security can often sell appreciated shares and owe zero federal tax on the gain.3Internal Revenue Service. Revenue Procedure 2025-32
15% Rate
The 15% rate covers the majority of investors. It applies when your taxable income is above the 0% ceiling but at or below:
- Single: $545,500
- Married filing jointly: $613,700
- Married filing separately: $306,850
- Head of household: $579,600
20% Rate
Only the portion of your gain that pushes taxable income above the 15% ceiling is taxed at 20%. For a single filer that means income over $545,500; for married joint filers, over $613,700.3Internal Revenue Service. Revenue Procedure 2025-32
The gain itself can move you between brackets. If your other income sits near the top of one tier, part of the gain may be taxed at the lower rate and the rest at the higher one. The IRS doesn’t dump the entire gain into a single bracket based on your last dollar of income.
The 3.8% Net Investment Income Tax
A separate surtax adds 3.8% on top of the capital gains rate if your modified adjusted gross income exceeds:
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
These thresholds are set by statute and are not adjusted for inflation, so more people cross them each year. The 3.8% applies to whichever is smaller: your net investment income for the year, or the amount by which your modified AGI exceeds the threshold.4Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax For someone already in the 20% bracket, the combined federal rate on long-term gains reaches 23.8%.
Losses Reduce What You Owe
Before you calculate the tax, losses on other sales are subtracted from your gains. Short-term losses first offset short-term gains, long-term losses first offset long-term gains, and any leftover net loss in one category offsets gains in the other.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses
If losses exceed gains for the year, you can deduct up to $3,000 of the net loss against ordinary income like wages. Married filing separately gets $1,500.6Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Losses beyond that carry forward indefinitely, applied against future gains and the $3,000 annual deduction until used up.5Internal Revenue Service. Topic No. 409, Capital Gains and Losses
One caution if you plan to harvest losses deliberately: selling at a loss and buying the same stock (or something substantially identical) within 30 days before or after the sale triggers the wash sale rule, and the IRS disallows the loss for that year.7Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed amount is added to the basis of the replacement shares, so the deduction is delayed rather than lost.
Which Shares You Sell Changes the Gain
If you’ve bought the same stock at different prices over time, the shares you pick to sell change your tax bill. By default, most brokerages use first-in, first-out, selling your oldest shares first. Those are usually the cheapest, which produces the largest gain.
Specific identification lets you pick exactly which lot to sell. Choosing shares you bought at a higher price shrinks the gain and the tax. You generally need to tell your broker before or at the time of the sale, and most online platforms handle this in a few clicks. Other methods, like highest-in, first-out, may also be available depending on the brokerage.
Reporting the Sale and Paying the Tax
Each sale gets reported on Form 8949, with buy and sell dates, proceeds, and cost basis. Long-term sales go in Part II. The totals move to Schedule D, which nets your gains and losses for the year, and the final figure flows to Form 1040.8Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets
Your brokerage sends a Form 1099-B each year with the details for every sale, including proceeds, cost basis, acquisition date, and whether the gain is short-term or long-term. For shares bought after 2010 (“covered securities”), the broker is required to report the cost basis to both you and the IRS. Reconcile the 1099-B against your own records, especially if you used specific identification or if a merger or other corporate action changed your basis.9Internal Revenue Service. Instructions for Form 1099-B Inaccurate reporting can bring a 20% accuracy-related penalty on any resulting underpayment, on top of the tax and interest.10Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
A large gain often means you owe estimated tax during the year, not just when you file. This applies whenever withholding from wages and other sources won’t cover at least 90% of your total tax for the year. Estimated payments are due quarterly on April 15, June 15, September 15, and January 15 of the following year.11Internal Revenue Service. Pay As You Go, So You Won’t Owe Miss them and you’ll owe an underpayment penalty. If you’re still on a paycheck, one workaround is to increase W-2 withholding for the remainder of the year. The IRS treats withholding as paid evenly across the year no matter when it actually comes out, so a late-year adjustment can cover the gain without triggering quarterly deadlines.