How are stock sales taxed in the US?

Stock sales are subject to capital gains tax based on the profit you make. If you hold the stock for more than one year before selling, the gain is considered long-term and taxed at preferential rates of 0%, 15%, or 20%. If held for one year or less, it is a short-term gain taxed at ordinary income rates ranging from 10% to 37%. High-income earners may also owe an additional 3.8% Net Investment Income Tax (NIIT). Your brokerage will report the sale on Form 1099-B, and you will report it on Schedule D of your tax return.

What is the wash sale rule and how does it affect my stock taxes?

The wash sale rule (IRS Section 1091) prevents you from claiming a tax loss if you purchase the same or substantially identical security within 30 days before or after the sale that generated the loss. The disallowed loss is not permanently lost—it is added to the cost basis of the replacement shares, which defers the tax benefit until you sell the new shares. This rule applies across all your accounts, including IRA accounts. To avoid wash sale violations, wait at least 31 days before repurchasing the same stock, or buy a similar but not substantially identical investment.

How are employee stock options taxed?

Incentive Stock Options (ISOs) are not taxed at exercise if you hold the shares for at least one year from exercise and two years from the grant date—the gain is taxed as a long-term capital gain when sold. If you sell earlier (disqualifying disposition), the bargain element is taxed as ordinary income. Non-Qualified Stock Options (NSOs) are taxed at exercise—the difference between the exercise price and fair market value is ordinary income. RSUs are taxed as ordinary income when they vest, based on the fair market value on the vesting date.

Are dividends taxed as capital gains?

It depends on the type of dividend. Qualified dividends are taxed at the same preferential long-term capital gains rates (0%, 15%, or 20%), while non-qualified (ordinary) dividends are taxed at your ordinary income tax rate. To be qualified, dividends must be paid by a U.S. corporation or qualified foreign corporation, and you must hold the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Both types of dividends may also be subject to the 3.8% NIIT for high-income taxpayers.

How do I report stock sales on my tax return?

Report stock sales on IRS Form 8949 (Sales and Other Dispositions of Capital Assets) and summarize the totals on Schedule D (Capital Gains and Losses). Your brokerage provides Form 1099-B with details of each transaction, including proceeds, cost basis, and whether the gain is short-term or long-term. You must report each sale even if you have a loss. If you have many transactions, you can attach a statement with the details. Be sure to account for any wash sale adjustments, stock splits, or basis adjustments from employee stock options.

Can I deduct stock losses on my taxes?

Yes, you can use capital losses to offset capital gains dollar for dollar. If your net capital losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against ordinary income per year. Any excess losses beyond this limit are carried forward to future tax years indefinitely. This is a key component of tax-loss harvesting strategies. However, be aware of the wash sale rule which disallows a loss if you repurchase the same or substantially identical security within 30 days.

What is the difference between ISOs and NSOs?

Incentive Stock Options (ISOs) receive favorable tax treatment—if you meet the holding requirements (hold shares 1 year from exercise and 2 years from grant date), the entire gain is taxed as a long-term capital gain. There is no ordinary income at exercise, but the bargain element may trigger AMT. Non-Qualified Stock Options (NSOs) are simpler but less tax-favorable: the spread between exercise price and fair market value at exercise is taxed as ordinary income, reported on your W-2. Any subsequent appreciation after exercise is taxed as a capital gain when you sell the shares.

Updated for Tax Year 2025-2026

Stock Capital Gains Tax Calculator 2026

Calculate your capital gains tax on stock sales instantly. Estimate taxes on short-term and long-term stock gains, employee stock options, and dividend income with accurate 2025-2026 federal rates.

Per-Share Pricing

2025-2026 Tax Rates

NIIT Included

Stock Capital Gains Tax Calculator

Calculate your 2025-2026 stock capital gains tax liability

Purchase Information

Purchase Price Per Share ($)

Number of Shares

Purchase Date

Sale Information

Sale Price Per Share ($)

Sale Date

Tax Filing Information

Filing Status

Annual Taxable Income ($)

Your income from other sources (excluding this gain)

How Are Stocks Taxed?

>1 Year

Long-term: 0%, 15%, or 20% rates

≤1 Year

Short-term: 10% to 37% rates

+3.8%

NIIT for high-income earners

The Core Tax Rule for Stocks

When you sell stocks for a profit in the United States, the IRS considers that profit to be a capital gain, and it is subject to federal income tax. The tax treatment of your stock gains depends primarily on how long you held the shares before selling them.

This holding period distinction is the single most important factor in determining your tax liability on stock transactions, and understanding it can save you thousands of dollars each year.

Long-Term vs Short-Term Rates

Stocks held for more than one year qualify for long-term capital gains treatment, which features preferential tax rates of 0%, 15%, or 20%, depending on your total taxable income and filing status. Stocks held for one year or less generate short-term capital gains, which are taxed at your ordinary income tax rate, which can be as high as 37% for the highest earners.

Understanding Cost Basis

Your cost basis is generally the purchase price per share multiplied by the number of shares, plus any commissions or fees paid at the time of purchase. If you acquired shares at different times and prices, the IRS requires you to use a specific method to identify which shares were sold.

Choosing a Share Identification Method

The default method for identifying shares is FIFO (First In, First Out), but you can also use specific identification or the average cost method for mutual fund shares. Choosing the right method can have a significant impact on your tax liability, especially if you have shares purchased at vastly different prices over time.

Dividend Tax Implications

In addition to capital gains on stock sales, investors must also consider the tax implications of dividends. Qualified dividends, which come from shares held for a minimum period and paid by qualified corporations, are taxed at the same preferential rates as long-term capital gains—0%, 15%, or 20%. Non-qualified dividends, also known as ordinary dividends, are taxed at your ordinary income rate.

The distinction between qualified and non-qualified dividends depends on both the type of corporation paying the dividend and the holding period of the stock. Understanding this distinction is important for tax planning, as the rate difference can be substantial.

High-Income? Watch for the NIIT

High-income taxpayers must also account for the 3.8% Net Investment Income Tax (NIIT), which applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds certain thresholds. For 2026, the NIIT thresholds are $200,000 for single filers, $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for head of household.

State Capital Gains Taxes

This additional tax can push the effective top rate on long-term stock gains to 23.8% and short-term gains to as much as 40.8% for high earners.

It is also important to consider state capital gains taxes, which apply in addition to federal taxes. Most states tax capital gains as ordinary income, with rates varying from 0% in states like Florida, Texas, and Nevada, to over 13% in California. The combined federal and state tax burden on stock gains can be significant, making tax-efficient investment strategies all the more important. Visit our capital gains tax calculator for a complete estimate that factors in both federal rates and the NIIT.

Short-Term vs Long-Term Stock Gains

Short-Term Stock Gains

• Held for 1 year or less before selling
• Taxed at ordinary income rates (10%–37%)
• No preferential tax treatment
• Common for day traders and active investors
• Higher tax burden erodes investment returns

Short-Term Tax Rates

Long-Term Stock Gains

• Held for more than 1 year before selling
• Taxed at preferential rates (0%, 15%, 20%)
• Significant tax savings potential
• Encourages buy-and-hold investing strategy
• Additional 3.8% NIIT for high earners

Long-Term Tax Rates

Real Savings Example

Short-Term Gain ($100K)

~$32,000

in federal tax at 32% bracket

Long-Term Gain ($100K)

~$15,000

in federal tax at 15% bracket

💰 Holding just a few extra days saves $17,000 in this scenario!

Understanding the Holding Period

The distinction between short-term and long-term stock gains can mean the difference between paying 37% and 0% on your investment profits, making it one of the most impactful factors in your overall tax strategy. The IRS defines the holding period as beginning the day after you acquire the stock and ending on the day you sell it.

This means that if you purchase shares on January 1st and sell them on January 1st of the following year, your holding period is only 364 days—still short-term. You must hold the shares through January 2nd to achieve a holding period of 365 days and qualify for long-term capital gains treatment.

A Practical Example

Consider an investor in the 32% ordinary income tax bracket who realizes a $100,000 gain on a stock position. If the gain is short-term, the federal tax would be approximately $32,000. If the same gain qualifies as long-term and falls within the 15% capital gains bracket, the tax drops to just $15,000—a savings of $17,000 simply by holding the shares a few extra days beyond the one-year mark.

For investors with larger positions, the savings can be even more dramatic, especially when you factor in the compounding effect of reinvested tax savings over multiple years.

Timing Strategy: The 0% Opportunity

In years when your income is lower—such as during a sabbatical, early retirement, or between jobs—you may be able to realize long-term gains at the 0% rate, effectively paying no federal tax on those gains. Always check your income before selling.

Plan Before You Sell

This tax differential makes careful timing of stock sales one of the most effective tax planning strategies available to investors. Before selling any appreciated stock, always check whether you are close to the one-year holding threshold.

If you are only a few days away, waiting to sell can result in substantial tax savings. Additionally, investors should consider their overall income picture for the year, as the long-term capital gains brackets are based on total taxable income. Learn more about optimizing your tax strategy on our short-term capital gains and long-term capital gains pages.

Employee Stock Options Tax

ISOs

Most tax-favorable. No regular tax at exercise. Long-term gains if held 1yr+ from exercise & 2yr+ from grant.

NSOs

Bargain element taxed as ordinary income at exercise. Reported on W-2. Simpler but less tax-efficient.

RSUs

Taxed as ordinary income at vesting based on FMV. Employer withholds tax. Simplest form of equity comp.

Why Equity Compensation Matters

Employee stock compensation is a significant part of total compensation for many technology and startup workers, but the tax rules governing these benefits are complex and vary depending on the type of equity award. Understanding how your specific stock compensation is taxed is essential for avoiding surprise tax bills and making informed decisions about when to exercise options and sell shares.

There are three primary types of equity compensation: Incentive Stock Options (ISOs), Non-Qualified Stock Options (NSOs), and Restricted Stock Units (RSUs).

Incentive Stock Options (ISOs)

Incentive Stock Options (ISOs) offer the most favorable tax treatment but come with strict holding requirements. When you exercise ISOs, there is no regular income tax on the bargain element (the difference between the exercise price and the fair market value at exercise), but this amount may trigger the Alternative Minimum Tax (AMT).

If you hold the shares for at least one year from the exercise date and two years from the grant date, the entire gain—from exercise price to final sale price—is taxed as a long-term capital gain at the preferential rates of 0%, 15%, or 20%. This can result in enormous tax savings compared to NSOs, but failing to meet the holding requirements converts the bargain element into ordinary income.

Non-Qualified Stock Options (NSOs)

Non-Qualified Stock Options (NSOs) are more straightforward but less tax-efficient. When you exercise NSOs, the bargain element is immediately taxed as ordinary income and is reported on your W-2. Your employer also withholds taxes at the time of exercise.

Any appreciation in the stock price after exercise is taxed as a capital gain—short-term if you sell within one year, or long-term if you hold for more than one year. Unlike ISOs, NSOs do not have a minimum holding period requirement for tax purposes, but holding the shares after exercise still determines whether subsequent gains are taxed at ordinary or capital gains rates.

Restricted Stock Units (RSUs)

Restricted Stock Units (RSUs) are the simplest form of equity compensation for tax purposes. RSUs are taxed as ordinary income when they vest, based on the fair market value of the shares on the vesting date. Your employer withholds taxes at vesting, typically by selling a portion of the shares to cover the tax obligation.

After vesting, any future appreciation or depreciation is treated as a capital gain or loss when you eventually sell the shares. Because RSUs are taxed at vesting regardless of whether you sell the shares, many financial advisors recommend selling vested RSUs immediately to diversify and avoid concentrating too much wealth in a single stock.

Dividend Tax vs Capital Gains

Qualified Dividends

Taxed at 0%, 15%, or 20%
Must hold stock >60 days in 121-day period
Paid by U.S. or qualified foreign corp
Same rates as long-term capital gains

Non-Qualified Dividends

Taxed at ordinary income rates (up to 37%)
REITs, MLPs, money market funds
Certain foreign corporations
No preferential tax treatment

Dividends vs Capital Gains: Two Different Taxes

Investors often confuse dividend taxes with capital gains taxes, but they are fundamentally different types of investment income with distinct tax rules. Dividends are periodic payments made by a corporation to its shareholders out of its earnings and profits, while capital gains arise from the sale of an asset at a price higher than its purchase price.

Both types of income are reported on your tax return, but they are calculated and reported differently, and the tax rates that apply depend on specific classification criteria. Qualified dividends receive the same preferential tax treatment as long-term capital gains, with rates of 0%, 15%, or 20% depending on your taxable income and filing status.

Qualified Dividend Requirements

To qualify, the dividend must be paid by a U.S. corporation or a qualified foreign corporation, and you must hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. This holding period requirement ensures that investors cannot simply buy a stock right before a dividend payment and immediately sell it to capture the preferential tax rate.

Non-Qualified Dividends: Higher Tax Burden

Non-qualified dividends, also called ordinary dividends, do not meet the criteria for qualified dividend treatment and are taxed at your ordinary income tax rate, which can be as high as 37%. Common sources include dividends from real estate investment trusts (REITs), master limited partnerships (MLPs), money market funds, and certain foreign corporations. Dividends from ESOPs and tax-exempt organizations are also typically non-qualified.

Key Difference: Control Over Timing

You have control over when you realize a capital gain by choosing when to sell, whereas dividends are received automatically based on the company's dividend schedule. This makes capital gains more amenable to tax planning strategies such as timing sales for lower-income years or using tax-loss harvesting to offset gains with losses.

NIIT Applies to Both Types

Both types of investment income may be subject to the 3.8% NIIT for high-income taxpayers, which can push the effective top rate on qualified dividends and long-term capital gains to 23.8%. For strategies on offsetting gains, visit our tax-loss harvesting guide.

Wash Sale Rule Explained

The 61-Day Wash Sale Window

30 Days Before

Sale Date

30 Days After

No repurchasing substantially identical securities within this entire 61-day window

What Is the Wash Sale Rule?

The wash sale rule, enacted under IRS Section 1091, prevents investors from claiming a tax loss on the sale of a security if they purchase the same or a substantially identical security within a 30-day period before or after the sale. The purpose is to prevent investors from creating artificial tax losses while maintaining essentially the same investment position.

The 61-Day Restricted Window

The 30-day window applies both before and after the loss sale, creating a total 61-day restricted period. For example, if you sell shares of Apple stock at a loss on March 15th, you cannot deduct that loss if you purchased substantially identical Apple shares between February 13th and April 14th.

The rule applies to purchases made in any of your accounts, including taxable brokerage accounts, IRA accounts, and even accounts owned by your spouse. Investors must coordinate their trading activity across all accounts to avoid unintended wash sale violations.

What Happens When a Wash Sale Occurs?

The disallowed loss is not permanently lost—it is added to the cost basis of the replacement shares. This adjustment effectively defers the tax benefit of the loss until you sell the replacement shares in a transaction that is not a wash sale. The holding period of the original shares is also added to the replacement shares.

What Counts as “Substantially Identical”?

For example, if you sell 100 shares of XYZ stock at a $5,000 loss and repurchase the same shares within 30 days, the $5,000 loss is disallowed but is added to the cost basis of the new shares. When you eventually sell the replacement shares, the higher cost basis will result in a smaller gain or larger loss, preserving the tax benefit.

The IRS has not precisely defined “substantially identical securities,” but securities that track the same index or represent the same company are considered substantially identical. Selling shares of an S&P 500 index fund and buying a different S&P 500 index fund would likely trigger the wash sale rule, whereas selling an S&P 500 fund and buying a total market index fund would generally not. Selling Apple stock and buying Apple call options would also trigger the rule.

Strategies to Avoid Wash Sale Violations

Wait 31 days — Simply wait at least 31 days before repurchasing the same security
Buy similar, not identical — Sell a tech ETF, buy a different tech ETF from another provider
Double up — Purchase additional shares, wait 31 days, then sell the original shares at a loss

Tax-Loss Harvesting With Wash Sale Awareness

To avoid wash sale violations while still implementing tax-loss harvesting strategies, investors have several options. The simplest approach is to wait at least 31 days before repurchasing the same security. Alternatively, you can immediately purchase a similar but not substantially identical security to maintain market exposure—for example, selling a technology sector ETF and buying a different technology ETF, or selling one total market fund and buying another that tracks a different index.

You can also double up on your position by purchasing additional shares, waiting 31 days, and then selling the original shares at a loss. Each of these strategies has its own considerations, and investors should consult with a tax professional to determine the best approach for their specific situation.

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