When you sell a stock for a profit in a taxable account, you owe capital gains tax. The rate depends on how long you held the stock: long-term (held over 1 year) is taxed at 0–20%, while short-term (1 year or less) is taxed at ordinary income rates — which can be as high as 37%.
2026 Capital Gains Tax Rates
Long-Term Capital Gains (held more than 1 year)
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351–$533,400 | Above $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701–$600,050 | Above $600,050 |
| Head of Household | Up to $64,750 | $64,751–$566,700 | Above $566,700 |
Short-Term Capital Gains (held 1 year or less)
Taxed as ordinary income at your marginal rate:
| Income | Federal Rate |
|---|---|
| Up to $11,925 (single) | 10% |
| $11,926–$48,475 | 12% |
| $48,476–$103,350 | 22% |
| $103,351–$197,300 | 24% |
| $197,301–$250,525 | 32% |
| $250,526–$626,350 | 35% |
| Above $626,350 | 37% |
The bottom line: Holding a stock for just one day past the 1-year mark can dramatically reduce your tax rate. Someone in the 22% ordinary income bracket pays only 15% on long-term gains.
How Stock Taxes Work — Step by Step
1. Buy the stock — no tax event.
2. Hold the stock — unrealized gains/losses accrue but aren’t taxed.
3. Receive dividends — taxed in the year received (see below).
4. Sell the stock — tax event. Calculate your gain or loss.
5. Report on your tax return — Schedule D and Form 8949, using Form 1099-B from your broker.
How to Calculate Your Capital Gain
Capital gain = Sale price − Cost basis
Cost basis = what you originally paid for the shares, including commissions. If you bought in multiple batches, you choose which shares to sell (FIFO, specific identification, or average cost — method matters for tax purposes).
Worked example:
- Bought 10 shares of XYZ at $50/share in January 2024: cost basis = $500
- Sold all 10 shares at $80/share in March 2026: proceeds = $800
- Holding period: 26 months (long-term)
- Capital gain: $800 − $500 = $300
- Tax owed (at 15% rate): $45
If sold in January 2025 (less than 1 year), it’s a short-term gain and taxed at your ordinary income rate — potentially $66 or more for the same $300 gain.
Taxes on Dividends
Stock dividends are taxed separately from capital gains:
Qualified dividends — paid by US companies and most large foreign companies, held long enough — are taxed at the preferential long-term capital gains rates (0%, 15%, 20%).
Ordinary dividends — dividends that don’t meet the qualified criteria — are taxed as ordinary income at your full marginal rate.
Most dividends from major US companies (S&P 500 stocks) are qualified dividends. Your broker’s year-end 1099-DIV will specify qualified vs. ordinary dividends.
Net Investment Income Tax (NIIT)
A 3.8% surtax applies to investment income for higher earners:
- Single filers: MAGI above $200,000
- Married filing jointly: MAGI above $250,000
This tax applies to capital gains, dividends, interest, rental income, and passive business income. It’s in addition to the regular capital gains rates — so high earners can effectively pay 23.8% (20% + 3.8%) on long-term gains.
How to Reduce Taxes on Stocks
1. Hold stocks longer than 1 year
The most direct way. Moving from short-term to long-term rates can cut your tax rate in half.
2. Tax-loss harvesting
Sell losing positions to offset gains. You can use capital losses to cancel out capital gains dollar for dollar. If losses exceed gains, you deduct up to $3,000 against ordinary income annually and carry forward the rest indefinitely.
Wash-sale rule: You can’t buy substantially identical securities within 30 days before or after the sale of a loss position — the IRS disallows the loss if you do.
3. Invest through tax-advantaged accounts
Stocks in a Roth IRA grow and can be withdrawn tax-free. Stocks in a traditional IRA or 401(k) grow tax-deferred. No capital gains tax applies while the money stays inside these accounts.
4. Donate appreciated stock
Instead of selling appreciated shares and donating cash, donate the stock directly to a qualified charity. You avoid capital gains tax entirely and still deduct the full market value if you itemize.
5. Use the 0% capital gains rate
If your taxable income is below $48,350 (single) or $96,700 (married), long-term capital gains are taxed at 0%. Retirees or low-income years are opportunities to realize gains tax-free.
6. Gift stock to family members
You can gift appreciated stock to family members in a lower tax bracket. If they sell it, they may owe 0% or 15% rather than your higher rate. Note the gift tax rules if annual gifts exceed $19,000 per recipient in 2026.
Taxes in Different Account Types
| Account Type | Dividends | Capital Gains | Notes |
|---|---|---|---|
| Taxable brokerage | Taxed when paid | Taxed when sold | Most flexible; taxable |
| Traditional IRA / 401(k) | Tax-deferred | Tax-deferred | Taxed as income on withdrawal |
| Roth IRA / Roth 401(k) | Tax-free | Tax-free | Best for long-term growth |
| 529 plan | Tax-free | Tax-free | Education expenses only |
What Forms Do You Need?
- Form 1099-B: Provided by your broker, lists all sales, proceeds, and cost basis
- Form 1099-DIV: Lists dividends received
- Schedule D: Summary of capital gains and losses on your 1040
- Form 8949: Detailed list of each individual sale transaction
If you use tax software (TurboTax, H&R Block), it imports 1099-B data automatically from most major brokerages.
Related Articles
- Capital Gains Tax 2026: Rates and How They Work
- What Is MAGI?
- S&P 500 Index Fund Guide 2026
- Tax-Loss Harvesting: How to Offset Stock Gains
- Roth IRA: Tax-Free Growth Explained
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