When you sell stock at a profit, the federal capital gains tax on stocks depends almost entirely on how long you owned the shares. Hold them a year or less and the profit is taxed as ordinary income, at rates from 10% to 37% for 2026. Hold them longer than a year and the profit qualifies for preferential long-term rates of 0%, 15%, or 20%. High earners may owe an additional 3.8% surtax on top of either rate.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The One-Year Holding Period Sets Everything
Federal law splits capital gains into two categories based on how long you held the stock before selling. One year or less is a short-term gain. More than one year is a long-term gain.2Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses
Your holding period starts the day after you buy the stock and runs through the day you sell it. If you purchased shares on March 1, 2025, you would need to wait until at least March 2, 2026, to sell them for long-term treatment. Getting this date wrong by a single day can bump your entire gain into the short-term bracket.
2026 Long-Term Capital Gains Rates
Long-term gains are taxed at preferential rates set well below the top ordinary income rate.3Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed The IRS has set the following income thresholds for the 2026 tax year.4Internal Revenue Service. Rev. Proc. 2025-32
Single filers:
- 0% on taxable income up to $49,450
- 15% on taxable income from $49,451 to $545,500
- 20% on taxable income above $545,500
Married filing jointly:
- 0% on taxable income up to $98,900
- 15% on taxable income from $98,901 to $613,700
- 20% on taxable income above $613,700
Head of household:
- 0% on taxable income up to $66,200
- 15% on taxable income from $66,201 to $579,600
- 20% on taxable income above $579,600
Married couples filing separately use the same 0% threshold as single filers ($49,450) with a lower 15% ceiling of $306,850.4Internal Revenue Service. Rev. Proc. 2025-32
These thresholds apply to your total taxable income, not just your investment income. A large stock sale can push part of a gain into a higher bracket even when the gain itself looks modest.
Short-Term Gains Get No Special Treatment
Short-term gains are added to your other income and taxed at the ordinary rates that apply to wages, running from 10% to 37% for 2026.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A single filer in the 24% bracket who sells stock held for ten months pays 24% on that gain, the same as if it were a paycheck.
The 3.8% Net Investment Income Tax
Higher-income investors owe an extra 3.8% surtax on net investment income on top of the regular capital gains rate. The tax kicks in when your modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married couples filing jointly, or $125,000 for married filing separately.5Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax The 3.8% applies to the lesser of your net investment income or the amount by which your income exceeds the threshold.6Internal Revenue Service. Topic No. 559, Net Investment Income Tax
These thresholds are not adjusted for inflation. They have remained the same since the tax was enacted in 2013, so more people cross the line each year as incomes rise. A married couple earning $260,000 with $30,000 in stock gains would owe the surtax on $10,000, adding $380 to the tax bill.
Figuring Your Taxable Gain
Cost Basis
Your taxable gain is the difference between what you sold the stock for and your cost basis. Basis is generally what you paid for the shares plus any transaction fees.7Office of the Law Revision Counsel. 26 U.S. Code 1012 – Cost Buy 100 shares at $50 each with a $10 commission and your basis is $5,010. Sell those shares for $7,500 and your gain is $2,490.
When you bought the same stock at different prices over time, you can often choose which specific lots to sell (specific identification). Otherwise, the IRS defaults to first-in, first-out, treating the oldest shares as sold first. Most brokerage platforms let you pick lots at the point of sale.
Netting Gains Against Losses
At year-end, short-term gains and losses are netted against each other, and long-term gains and losses are netted separately. If one category produces a net loss and the other a net gain, the loss offsets the gain, and whatever remains keeps its short- or long-term character for rate purposes.
If total losses exceed total gains, you can deduct up to $3,000 of the net loss against ordinary income such as wages ($1,500 if married filing separately).8Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Any loss beyond $3,000 carries forward to future tax years, where it can offset future gains or another $3,000 of ordinary income each year until used up.9Office of the Law Revision Counsel. 26 USC 1212 – Capital Loss Carrybacks and Carryovers
Gifted and Inherited Stock Follow Different Basis Rules
Stock received as a gift while the donor is alive generally carries over the donor’s original cost basis. If your uncle bought shares at $20 and gifted them to you when they were worth $80, your basis is still $20. Sell at $90 and you owe tax on the $70 gain. One exception: if the stock’s market value on the date of the gift was lower than the donor’s basis, you use the lower market value when calculating a loss.10Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
Inherited stock is different. The basis resets to fair market value on the date of the decedent’s death, regardless of what the original owner paid.11Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If your grandmother bought shares at $10 and they were worth $100 when she passed, your basis is $100. Sell at $105 and you owe tax on only $5. Appreciation during her lifetime is never taxed.
The Wash Sale Rule Can Void a Planned Loss
If you sell stock at a loss and buy the same or substantially identical security within 30 days before or after the sale, the IRS disallows the loss for that tax year.12Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The window covers 61 days total. It also applies if you buy the replacement shares in an IRA or Roth IRA, or enter into a contract or option to acquire the same stock.
The loss is not gone forever. It gets added to the cost basis of the replacement shares, reducing the taxable gain when you eventually sell those. But until that second sale, you cannot claim the deduction. Selling a losing position on December 15 and buying the identical stock back on January 5 triggers a wash sale, and the planned year-end loss disappears from your return.
Estimated Tax Payments on Large Sales
If you sell stock for a large gain and no employer is withholding taxes to cover it, you may need to make estimated tax payments during the year. The IRS expects taxes to be paid as income is earned, not in one lump sum in April, and an underpayment penalty can apply if you wait.13Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
You can generally avoid the penalty by hitting one of two safe harbors:
- Pay at least 90% of your total tax for the current year through withholding or estimated payments.
- Pay at least 100% of the prior year’s total tax. If your adjusted gross income exceeded $150,000 last year ($75,000 if married filing separately), the threshold rises to 110%.
Estimated payments are due quarterly: April 15, June 15, September 15, and January 15 of the following year. If you have a job with steady withholding and sell stock later in the year, you can often raise your W-4 withholding for the remaining pay periods instead of making a separate estimated payment.
How Stock Sales Get Reported
Your brokerage sends you Form 1099-B after year-end, listing each sale with proceeds, acquisition date, sale date, and cost basis.14Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions You use that information to complete IRS Form 8949, where each transaction is categorized as short-term (Part I) or long-term (Part II).15Internal Revenue Service. Instructions for Form 8949 (2025) The totals from Form 8949 flow onto Schedule D of Form 1040, where the IRS calculates your net gain or loss.
If your brokerage reported the correct basis on the 1099-B and you have no adjustments, some taxpayers can skip Form 8949 and report directly on Schedule D. For shares purchased before 2011, when brokerages were not yet required to track basis, the 1099-B may show basis as blank or “not reported.” In that case, you need your own records of the original purchase price. When the IRS has no basis data, it tends to treat the entire sale price as a gain.
State Tax Is Separate
Federal tax is only part of the bill. Most states also tax capital gains, generally as regular income, with rates that range from under 3% to over 13%. A handful of states impose no income tax at all and no state-level capital gains tax. Washington is an unusual case: it has no general income tax but does impose a separate 7% tax on capital gains above $250,000. A California resident in the top state bracket could pay a combined federal and state rate above 33% on long-term gains, while a Florida resident selling the same stock owes only the federal rate. Check your state’s department of revenue for current rates before selling a large position.