how are long term stock gains taxed — guide

How are long-term stock gains taxed

How are long term stock gains taxed is a common question for investors planning sales, reallocations, or estate transfers. How are long term stock gains taxed depends primarily on the holding period (more than one year), the investor’s taxable income, special asset categories, and any state or local taxes that apply. This article explains definitions, holding period rules, federal rates and surcharges, special categories, how to compute basis and realized gain, reporting obligations, planning techniques, and international and estate considerations. It is written for beginners and references official guidance; it is not individualized tax advice.

Note: the exact answers to "how are long term stock gains taxed" change with law and indexed thresholds. Verify current figures with the IRS or a qualified tax advisor before acting.

Definition and scope

• What counts as a long-term stock gain? A long-term stock gain arises when you sell or otherwise dispose of stock that you held for more than one year and realize a profit. The gain equals sales proceeds minus your adjusted basis (cost plus adjustments).
• Covered assets: commonly covered are individual company shares, exchange-traded funds (ETFs), and mutual fund shares. Some other investment assets—such as certain cryptocurrencies or collectibles—may follow different tax rules; see the Special categories section below.
• Realized vs. unrealized: only realized gains (the proceeds from a sale or disposition) are taxable under the U.S. capital gains system. Unrealized (paper) gains are generally not taxed until you sell—though some countries are considering or have proposed taxing unrealized gains (see International section). For U.S. federal tax purposes, the act of sale (or other realization event) is the normal tax trigger.

How are long term stock gains taxed? Generally by applying preferential long-term capital gains rates to realized profits on stock held over one year, subject to adjustments and surtaxes.

Holding period rules

• Determining the holding period: count from the day after you acquire the shares through the day you sell them. If you bought shares on June 1, 2023, the holding period begins June 2, 2023. To qualify as long-term, the holding period must exceed one year.
• Additional purchases and averaging: if you buy the same stock multiple times, each lot has its own holding period. When you sell, the gain or loss and its classification (short- vs. long-term) depend on which lot you sold. Brokers often default to first-in, first-out (FIFO), but you can specify which lots to sell (specific identification) if you properly document it.
• Reinvested dividends: when mutual funds or dividend reinvestment plans buy new shares for you, each reinvestment establishes a separate acquisition date and basis. Those reinvested shares carry their own holding periods.
• Inherited stock: heirs generally receive a step-up (or step-down) in basis to the asset’s fair market value at the decedent’s date of death (or alternate valuation date when elected). That stepped-up basis often eliminates built-in gains for the heir; the holding period is typically treated as long-term regardless of how long the decedent held the asset.
• Gifted stock: if you receive stock as a gift, the donor’s basis and holding period generally carry over to you (carryover basis). Special rules apply if the donor’s basis exceeds the fair market value at the time of the gift and you later sell at a loss.
• Common exceptions: certain short-term transactions, like wash sales or some tax-free reorganizations, can affect the recognition or timing of gains and holding periods. Wash-sale rules affect loss recognition, not the holding period for gains; however, acquiring substantially identical securities within the wash-sale window can adjust basis.

Federal tax rates for long-term capital gains

• Preferential rates: for most taxpayers, long-term capital gains on stocks are taxed at preferential federal rates—commonly 0%, 15%, or 20%—that are lower than ordinary income tax rates.
• Which rate applies: which of the three rates applies depends on your taxable income and filing status in the year of the sale. Thresholds are indexed for inflation and can change with new guidance or legislation.
• Example illustration (use only as an example): in recent years, the 0% rate applied to lower taxable-income ranges (roughly single filers with taxable income up to around $44,000 and married filing jointly up to around $88,000), the 15% rate covered a broad middle range, and 20% applied at high-income levels (several hundred thousand dollars for single filers). These example thresholds are illustrative; check the current IRS tables for exact amounts.

Additional federal levies (Net Investment Income Tax)

• NIIT basics: a 3.8% Net Investment Income Tax (NIIT) can apply to net investment income, including capital gains, for higher-income taxpayers. NIIT is separate from capital gains tax rates and effectively raises the marginal tax on investment income.
• Typical thresholds: NIIT typically applies when modified adjusted gross income (MAGI) exceeds $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. These thresholds are statutory and not inflation-indexed; verify current rule details.
• Interaction: if NIIT applies, it is calculated on the lesser of (a) net investment income or (b) the excess of MAGI over the threshold. NIIT is in addition to the regular long-term capital gains tax.

Special categories and exceptions

• Collectibles: gains from the sale of collectibles (art, coins, certain precious metals) are often taxed at a higher maximum long-term rate (28% federal maximum for many collectibles), not the standard 0/15/20 rates.
• Qualified small-business stock (Section 1202): gains from qualified small-business stock may be eligible for partial or full exclusion if statutory requirements are met; rules are complex and time-limited.
• Depreciation recapture (Section 1250): sales of depreciated real estate can trigger depreciation recapture taxed differently (often at rates up to 25% for unrecaptured Section 1250 gains), which is separate from stock gain treatment.
• Qualified dividends vs ordinary dividends: qualified dividends receive preferential long-term capital gains tax rates if holding and other conditions are met; ordinary (nonqualified) dividends are taxed at ordinary income rates.
• Opportunity Zones, deferral, and other programs: certain investments and programs can defer or reduce capital gains tax (e.g., Opportunity Zone deferrals for qualifying investments). Availability and rules are time- and law-dependent.

Calculating capital gain (basis, adjusted basis, and gain/loss)

• Cost (basis): the starting point is your cost basis—commonly the amount you paid for the stock plus any commissions or fees.
• Adjusted basis: add adjustments such as reinvested dividends (in mutual funds/DRIPs), capital improvements, or certain corporate action adjustments. Subtract returns of capital. Wash-sale disallowed loss amounts can increase basis.
• Realized gain or loss: realized gain = sale proceeds (less selling costs) minus adjusted basis. If proceeds exceed basis, you have a realized gain; if less, a realized loss.
• Netting: short-term gains/losses (assets held one year or less) are netted separately from long-term gains/losses. After computing net short-term and net long-term totals, those nets are combined. A net long-term gain is subject to long-term rates; a net short-term gain is taxed at ordinary income rates.

Examples of calculation

Example 1 — Simple long-term gain:

• Purchase: Buy 100 shares at $20.00 on May 1, 2022. Basis = $2,000.
• Sale: Sell 100 shares at $35.00 on June 2, 2023. Proceeds = $3,500. Holding period exceeds one year.
• Realized gain = $3,500 - $2,000 = $1,500. This is a long-term capital gain. How are long term stock gains taxed here? The $1,500 will be taxed at your applicable long-term capital gains rate (0%, 15%, or 20%) plus any applicable NIIT.

Example 2 — Reinvested dividends and specific-lot sale:

• You own 50 shares bought Jan 1, 2021 at $50 each (basis $2,500) and 10 shares added via dividend reinvestment on Feb 1, 2022 at $60 each (basis $600).
• On Mar 1, 2023 you sell 20 shares and specify selling 10 shares from the Jan 1, 2021 lot and 10 shares from the Feb 1, 2022 lot.
• Gains for shares from Jan 1, 2021 will be long-term; gains for shares from Feb 1, 2022 may be long-term or short-term depending on sale date and exactly when each lot reached one-year holding.
• Accurately tracking specific-lot dates and bases is critical to determining how are long term stock gains taxed for each piece.

Reporting and forms

• Broker reporting: brokers must report sales to taxpayers and the IRS on Form 1099-B. The 1099-B often shows proceeds, date of acquisition, date of sale, and whether the broker’s basis reporting to the IRS is available. However, brokers may not always have correct or complete basis information for older lots or shares acquired outside the brokerage.
• Form 8949: taxpayers use Form 8949 to list details of each sale (unless an exception applies). Form 8949 captures date acquired, date sold, proceeds, cost basis, adjustments, and the gain or loss per transaction.
• Schedule D: totals from Form 8949 flow to Schedule D, which nets short-term and long-term gains and losses and computes the overall capital gain or loss for the year.
• Form 1040: net amounts are reported on Form 1040 (or relevant return) and affect taxable income. NIIT is reported on Form 8960 when applicable.
• Timing: report capital gains in the tax year in which the sale occurred. If you sold in 2025, report on your 2025 return filed in 2026 (or earlier with extensions as allowed).

Recordkeeping requirements

• Keep trade confirmations, monthly/annual brokerage statements, and year-end consolidated statements that show purchases, sales, dates, and amounts.
• Retain documentation for reinvested dividends, stock splits, mergers or spin-offs, and corporate actions that affect basis or holdings.
• For gifted or inherited shares, keep gift letters, donor cost records (where available), and estate valuation documents to demonstrate basis adjustments (step-up) and holding period consequences.
• IRS guidance generally recommends keeping records until the period of limitations for a given year expires (typically three to seven years) but retain permanent records for basis and inherited property.

Interaction with state and local taxes

• States vary: many U.S. states tax capital gains as ordinary income or impose their own tax rates. Some states have no income tax and therefore no state capital gains tax.
• Combined burden: the total tax on long-term gains equals federal tax (the preferential rates plus any NIIT) plus any state/local tax. The net benefit of long-term preferential rates can be reduced by high state tax rates.
• Action: check your state tax authority or consult a tax professional to confirm treatment and rates for capital gains in your state.

Common tax planning strategies

• Hold for the long-term: to access preferential rates, hold appreciated stock for more than one year before selling when feasible. This is the simplest answer to “how are long term stock gains taxed” in practice.
• Tax-loss harvesting: sell losing positions to realize losses that offset realized gains. Losses first offset gains of the same category (short-term vs. long-term) then the other category, with net capital loss limits for ordinary income offsets and carryforwards available.
• Timing sales across tax years: by shifting sales between tax years, investors can influence which tax year the capital gain appears in and potentially use different income brackets or 0% capital-gains windows.
• Use tax-advantaged accounts: hold actively traded or high-growth investments inside IRAs or employer plans (401(k), etc.) where gains grow tax-deferred or tax-free (Roth accounts). Assets inside tax-advantaged accounts are not subject to capital gains rules while inside the account.
• Gifts and charitable donations: gifting appreciated stock to charities can provide an immediate charitable deduction and avoid capital gains tax on the appreciation. Gifting to family members in lower tax brackets may shift tax burden, but gift and estate rules apply.
• Bunching gains in low-income years: if you expect a lower-income year (e.g., early retirement), timing large gains for that year can result in lower capital-gains rates, including the possible 0% bracket.

Limitations and caveats

• Wash-sale rules: selling a loss and repurchasing substantially identical securities within 30 days before or after the sale disallows the loss for current deduction and adjusts basis. Wash-sale rules do not apply to gains, but can affect netting strategies, so planning must account for them.
• AMT and other interactions: alternative minimum tax and other special tax regimes can interact with capital gains in limited cases; consult a tax professional for complex situations.
• Market risk: timing sales purely for tax reasons carries market risk—prices can move against you while you wait to meet holding-period or tax-year timing goals.
• Non-tax considerations: estate planning, investment goals, transaction costs, and liquidity needs may outweigh purely tax-driven choices.

International and nonresident considerations

• Nonresident investors: non-U.S. residents and foreign investors face different U.S. tax rules. U.S.-source capital gains on stocks of U.S. companies are generally not subject to U.S. tax for nonresident aliens unless connected with a U.S. trade or business or other specific rules apply. Treaties and source rules affect taxation.
• Withholding and treaty relief: some cross-border accounts and transactions involve withholding or information reporting; tax treaties can change the tax result and provide relief.
• Foreign tax systems: other countries may treat capital gains differently. For example, some countries tax only realized gains, some provide exemptions after holding periods, and others are considering or proposing taxation of unrealized gains (see Netherlands example below).
• Action: cross-border investors should consult cross-border tax guidance and qualified advisors.

Estate and gift considerations

• Step-up in basis at death: heirs commonly receive a step-up (or step-down) in basis to the fair market value at the decedent’s date of death. This can eliminate income tax on appreciation that occurred during the decedent’s lifetime.
• Holding until death: holding appreciated stock until death can therefore allow built-in gains to avoid income tax entirely for heirs—this is a common estate planning benefit of the step-up rule.
• Gifted property: when property is gifted during life, the recipient generally receives the donor’s basis and holding period (carryover). This means the recipient can inherit the built-in gain for income tax purposes.
• Gift-tax considerations: large gifts may trigger gift-tax reporting or use of lifetime exemption amounts; tax planning should coordinate income, gift, and estate tax consequences.

Historical background and recent legislative changes

• Preferential rates: U.S. preferential long-term capital gains rates have existed in various forms for decades to encourage long-term investment. Over time, brackets and maximum rates have changed.
• Recent legislation: changes such as the Tax Cuts and Jobs Act and subsequent adjustments altered tax brackets, rates, and thresholds. Thresholds are often indexed for inflation.
• As of January 22, 2026, according to a CoinSwitch survey reported by CryptoTale and media outlets, many investors in other asset classes (cryptocurrencies) have called for tax treatment aligned with equities and mutual funds. These market pressures can influence future policy debates about how gains in different asset classes should be taxed.
• As of early 2025, NL Times reported that the Netherlands was actively considering a proposal to tax unrealized gains on stocks and cryptocurrencies starting potentially in 2028. That proposal, if adopted, would mark a departure from the common realization-based approach and could affect international norms and investor behavior.

Reporting pitfalls and frequently asked questions

• Common errors:
  • Incorrect basis: failing to include commissions, reinvested dividends, or corporate-action adjustments.
  • Failing to report 1099-B transactions: even if brokers omit some items, taxpayers must report all taxable sales.
  • Misunderstanding holding period: counting acquisition day or sale day incorrectly can change qualification from short- to long-term.
  • Not accounting for reinvested dividends: automatic reinvestments have unique lot dates and bases.
• FAQs:
  • Q: Does a stock split change my holding period? A: No. Stock splits adjust shares and basis per share but do not reset the holding period.
  • Q: If I transfer shares between my accounts, does that trigger a gain? A: Transfers between accounts you own do not by themselves trigger taxable events; sales or dispositions do. Transfers to another person generally are gifts or sales and have tax consequences.
  • Q: Do mutual fund capital gains distributions count as long-term gains? A: Distributions are taxable to the recipient in the year declared and may be characterized by the fund as long- or short-term. Your holding period influences whether distributions of capital gains are treated as long-term.

Further reading and official resources

• For current U.S. federal rules and threshold amounts, consult IRS resources such as the IRS capital gains pages and Topic 409. Major tax-preparer guides and institutional summaries (for example, large tax-preparer software guides and brokerage educational pages) provide practical examples and calculators. For state rules, consult your state tax authority.
• Important authoritative sources: IRS publications and instructions for Form 8949 and Schedule D, IRS Topic 409, official IRS rate tables (for the tax year in question), and NIIT guidance (Form 8960 instructions).

See also

• Short-term capital gains
• Qualified dividends
• Tax-advantaged retirement accounts (IRAs, 401(k)s)
• Net Investment Income Tax (NIIT)
• Wash-sale rule

References

• IRS guidance on capital gains and losses and forms (Form 8949, Schedule D, Form 1040). Source: IRS publications and instructions.
• NIIT guidance and Form 8960 instructions.
• Major tax-preparer and financial education providers for explanatory guides and examples.
• As of January 22, 2026, CoinSwitch survey findings reported by CryptoTale and media outlets regarding investor preferences for equity-style taxation of crypto.
• As of early 2025, NL Times reporting on the Netherlands’ proposal to tax unrealized gains starting in 2028 (proposal under debate).

Notes on sources: readers should consult official IRS pages and qualified tax professionals for the most current, personalized information. News items cited are included to provide international context and do not change U.S. federal tax rules.

Next steps and resources

If you want tools to track basis, holding periods, and trade history, consider using a brokerage or a wallet with robust reporting features. For crypto and web3 assets, consider Bitget Wallet for custody and recordkeeping features, and explore Bitget educational resources for simple guides on tax-aware investing.

To learn more about how are long term stock gains taxed for your situation, gather your trade confirmations and 1099-B forms, then consult a qualified tax professional. For general tools and account options, explore Bitget platform features and the Bitget Wallet.