The tax rate on stock profits depends on how long you held them

The federal tax you owe on stock profits falls into two categories: short-term capital gains (stocks you held for one year or less) and long-term capital gains (stocks you held for more than one year). Short-term gains are taxed as ordinary income at your regular tax bracket—the same rate as wages or salary. Long-term gains get preferential rates: 0%, 15%, or 20%, depending on your total income for the year.

Your actual tax bill also depends on your filing status, total income, and whether you live in a state with its own capital gains tax. The federal rates are the same for everyone, but the income thresholds that determine which rate applies to you vary by whether you file as single, married filing jointly, head of household, or another status.

Key Takeaways

  • Short-term capital gains (stocks held one year or less) are taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your total income.
  • Long-term capital gains (stocks held over one year) are taxed at 0%, 15%, or 20% based on your income level and filing status.
  • You only owe tax on the profit—the difference between what you paid for the stock and what you sold it for—not the full sale price.
  • Some states impose their own capital gains tax on top of federal tax, ranging from 3% to 13.3% depending on where you live.
  • You report capital gains on Schedule D of your tax return, and your broker sends you a Form 1099-B showing your sales.

Short-term capital gains and your ordinary tax bracket

When you sell a stock you owned for 12 months or less, the profit counts as short-term capital gain and gets added to your other income for the year. This means it is taxed at whatever rate applies to your total income—the same brackets used for wages, interest, and dividends.

For 2024, those federal tax brackets range from 10% (the lowest bracket) to 37% (the highest). If you are single and earned $47,000 in wages plus $5,000 in short-term stock gains, your total income is $52,000, and the $5,000 gain is taxed at whatever bracket applies to that $52,000 total. The exact rate depends on your filing status and total income, not just the gain itself.

This is why short-term gains are considered less favorable than long-term gains: they do not get the preferential rates. If you are in the 24% tax bracket, a short-term gain is taxed at 24%. A long-term gain in the same situation would be taxed at 15%.

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

If you held the stock for more than one year before selling, the profit is a long-term capital gain and qualifies for lower federal tax rates. The rate you pay—0%, 15%, or 20%—depends on your total income and filing status, not on how much profit you made.

The 0% rate applies to long-term gains if your total income falls below a certain threshold. For 2024, that threshold is $47,025 for single filers, $94,050 for married couples filing jointly, and $63,000 for heads of household. If your income is below these amounts, you owe zero federal tax on long-term gains.

The 15% rate applies to most people in the middle-income range. For single filers in 2024, this covers income from $47,025 up to $518,900. For married couples filing jointly, it covers $94,050 to $583,750. Income above those thresholds is taxed at 20%.

These thresholds change each year with inflation, so the exact numbers shift annually. The IRS publishes updated thresholds in January of each tax year.

How to calculate your actual gain or loss

You do not pay tax on the full sale price of a stock. You only pay tax on the capital gain—the difference between what you paid for it and what you sold it for. If you bought 100 shares at $30 per share ($3,000 total) and sold them at $50 per share ($5,000 total), your gain is $2,000. That $2,000 is what gets taxed, not the $5,000 sale price.

If you sold at a loss—say you bought at $50 and sold at $30—you have a capital loss of $2,000. You can use capital losses to offset capital gains. If you had $5,000 in gains and $2,000 in losses in the same year, you report a net gain of $3,000. If losses exceed gains, you can deduct up to $3,000 of the excess loss against other income (like wages), and carry any remaining loss forward to future years.

Your broker reports all your sales on Form 1099-B, which shows the sale price and the date you bought and sold. You use this information to calculate your gain or loss and report it on Schedule D of your tax return.

State capital gains taxes add to your federal bill

In addition to federal tax, some states impose their own capital gains tax. The rate and rules vary significantly by state. California taxes long-term capital gains as ordinary income (up to 13.3%), while New York applies a 6.85% tax on gains over $1 million. Other states like Florida, Texas, and Wyoming have no capital gains tax at all.

A few states—including Washington, Oregon, and Minnesota—have recently enacted or proposed capital gains taxes that explore only to high-income earners or very large gains. The rules are still evolving in these states, so check your state's tax authority website for current rates and thresholds.

If you live in a state with a capital gains tax, your total tax bill is the federal rate plus the state rate. Someone in California with a $10,000 long-term gain in the 15% federal bracket would owe $1,500 in federal tax plus up to $1,330 in state tax (13.3%), for a combined $2,830.

How to report capital gains on your tax return

You report all stock sales on Schedule D (Capital Gains and Losses), which is part of Form 1040. List each sale separately: the date you bought it, the date you sold it, your cost basis (what you paid), the sale price, and your gain or loss. Your broker provides most of this information on Form 1099-B, which you receive by January 31 of the year after the sale.

Schedule D automatically separates your short-term and long-term gains and losses. The form calculates your net short-term gain or loss and your net long-term gain or loss, then combines them to show your total capital gain or loss for the year. If you have a net loss, you carry it to the appropriate line on Form 1040.

If you sold stocks through a brokerage account, the broker may have already reported the cost basis to the IRS on your 1099-B. Check the form carefully—sometimes the reported basis is incorrect if you reinvested dividends, received the stock as a gift, or inherited it. If the basis is wrong, you need to correct it on Schedule D.

Wash sales and other rules that affect your tax

The wash-sale rule prevents you from claiming a loss on a stock sale if you buy the same or a substantially identical stock within 30 days before or after the sale. If you sell Apple shares at a loss on December 15 and buy Apple shares again on December 20, the IRS treats the loss as disallowed and adds it to the cost basis of the new shares instead. This rule applies to stocks, mutual funds, and exchange-traded funds (ETFs) that track the same index.

If you inherited stock, your cost basis is "stepped up" to the market value on the date of the person's death, not what they originally paid. This means if your parent bought a stock for $5,000 and it was worth $20,000 when they died, your basis is $20,000. If you sell it when ready for $20,000, you owe no tax.

If you received stock as a gift, your cost basis is generally the same as the giver's basis. If your friend bought at $10 and gave it to you when it was worth $50, your basis is $10. If you sell at $60, your gain is $50, not $10.

Frequently Asked Questions

Do I owe tax if I sell at a loss?

No federal income tax on the loss itself, but you can use it to offset gains. If you have $5,000 in gains and $2,000 in losses, you report a net gain of $3,000. If losses exceed gains, you can deduct up to $3,000 against other income in that year and carry the rest forward to future years.

What if I day trade stocks—do the rules change?

No, the rules are the same. Every sale is either short-term (held one year or less) or long-term (held over one year), taxed accordingly. However, if you are classified as a professional trader by the IRS, different rules may explore. This is rare and requires meeting specific criteria about frequency and intent.

How do I know if my gain is long-term or short-term?

Count the days from the purchase date to the sale date. If it is 365 days or fewer, it is short-term. If it is 366 days or more, it is long-term. The IRS counts the purchase date as day zero and the sale date as day one, so buying on January 1 and selling on January 2 of the next year is long-term.

Can I reduce my capital gains tax by donating stock to charity?

Yes. If you donate appreciated stock directly to a may have access to charity, you avoid the capital gains tax on the appreciation and get a charitable deduction for the full fair market value. You must donate the stock itself, not the proceeds from selling it, and the charity must be IRS-recognized.

What happens if I do not report a capital gain?

Your broker reports the sale to the IRS on Form 1099-B, so the IRS knows about it. Failing to report creates a mismatch between what the IRS expects and what you filed. The IRS typically sends a notice and assesses tax, interest, and penalties. Penalties for underreporting can be 20% or higher.