are capital gains on stocks taxable

Quick answer: are capital gains on stocks taxable?

Realized capital gains on stocks are generally taxable in the United States, and the tax treatment depends on the holding period, the type of account where the stock is held, the taxpayer’s income, and applicable federal and state rules. Reading this guide will help you understand what a capital gain is, when gains become taxable, how to calculate and report them, special categories and exceptions, planning techniques to manage tax liability, and where to look for authoritative guidance. Whether you are building a digital-asset portfolio or trading U.S. equities, this article addresses the core question "are capital gains on stocks taxable" throughout.

Basic concepts

What is a capital gain?

A capital gain is the profit realized when you sell a capital asset—such as a share of stock—for more than your cost basis. If you buy 100 shares at $20 each (cost basis = $2,000) and later sell them for $30 each (proceeds = $3,000), your capital gain is $1,000 (proceeds minus basis, before adjustments like transaction costs).

The reverse—when sales proceeds are less than your basis—is a capital loss. Gains and losses are central to how the tax code treats investment outcomes.

Realized vs. unrealized gains

Taxes are generally triggered only when gains are realized—meaning you sell or exchange the stock. An unrealized gain (a paper gain) exists when the market value exceeds your basis but you have not sold. The phrase "are capital gains on stocks taxable" refers to realized gains; unrealized gains are not taxable at the federal level until realized (with limited exceptions explored below for proposals and state ideas).

Cost basis and adjusted basis

Cost basis usually equals what you paid for the shares, including commissions or fees. Adjusted basis adds or subtracts certain items—stock splits, return of capital, corporate dividends that reduce basis, or acquisition adjustments for inherited property. Accurate basis tracking matters because capital gain (or loss) equals sale proceeds minus adjusted basis.

Brokers will usually report basis for covered lots, but you remain responsible for correctness on your tax return. Keep trade confirmations, statements, and records of corporate actions.

Holding period and tax classification

Short-term capital gains

Short-term capital gains arise when you sell stocks held for one year or less (365 days or fewer). Short-term gains are taxed at ordinary income tax rates based on your marginal bracket. In practice this means short-term gains can be taxed at rates up to the taxpayer’s top federal rate.

Long-term capital gains

Long-term capital gains result from selling stocks held longer than one year (more than 365 days). Long-term gains benefit from preferential federal tax rates. For most individual taxpayers those rates are 0%, 15%, or 20% depending on taxable income. Higher-income taxpayers may face additional surtaxes described below.

Understanding the holding period is essential when answering the question "are capital gains on stocks taxable" because it directly affects the rate applied to gains.

Federal tax rates and additional taxes

Federal long-term and short-term rates (overview)

• Short-term capital gains: taxed at ordinary income rates (your marginal federal tax rate). These brackets are progressive.
• Long-term capital gains: taxed at preferential rates (0%, 15%, or 20%) based on taxable income and filing status. These rates apply to most equities and long-term gains from stocks.

Exact income brackets and thresholds change with tax law and inflation adjustments each year—always check current IRS tables or a qualified tax advisor for the tax year in question.

Net Investment Income Tax (NIIT)

An additional 3.8% Net Investment Income Tax (NIIT) may apply to certain investment income, including capital gains, for taxpayers with modified adjusted gross income (MAGI) above statutory thresholds (for example, single filers or married filing separately thresholds are lower than married filing jointly). The NIIT is a surtax assessed above the regular income tax and applies to the lesser of (a) net investment income or (b) the excess of MAGI over the applicable threshold.

Special categories and rates

Some gains receive different treatment:

• Collectibles (art, coins, certain precious metals) may be taxed at a top long-term capital gain rate of 28%.
• Qualified dividends may be taxed at the same preferential long-term capital gains rates if requirements are met.
• Certain small business stock gains or section 1202 gains have special exclusions or reduced rates under specific conditions.

These special categories are exceptions to the standard stock capital gains rules, so verify whether your holdings qualify.

Reporting and forms

Broker reporting (Form 1099-B)

Brokers and custodians report sales of securities to you and the IRS using Form 1099-B. That form typically lists gross proceeds, and for covered securities it will also show the cost basis and whether the sale produced a short-term or long-term result.

You must reconcile broker reporting with your own records and report gains and losses on federal tax forms. Discrepancies should be addressed before filing.

Calculating gain/loss and netting rules

Taxpayers report individual sales on Form 8949 (if required) and summarize totals on Schedule D of Form 1040. The tax code requires netting gains and losses:

• Net short-term gains/losses are computed by combining all short-term sales.
• Net long-term gains/losses are computed separately.
• Then a final netting step offsets short-term totals against long-term totals.

If you end up with a net capital loss, up to $3,000 ($1,500 if married filing separately) of excess loss can offset ordinary income in a tax year. Any remaining capital loss can be carried forward to future years until used.

Timing and tax-year considerations

Capital gains are reported in the tax year when the sale occurred (the trade date or settlement date rules matter for certain assets—confirm timing with your broker). If you sold in 2025, gains are reported on your 2025 tax return filed in 2026.

Tax-exempt or tax-deferred situations

Tax-advantaged retirement accounts

Sales of securities inside tax-advantaged accounts (traditional IRAs, Roth IRAs, 401(k)s) generally do not trigger current capital gains tax. The tax treatment occurs at distribution:

• Traditional tax-deferred accounts: distributions are usually taxable as ordinary income when taken.
• Roth accounts: qualified distributions are tax-free if rules are met (age, holding period, etc.).

Because of this, one strategy to manage capital gains is to perform frequent trading inside retirement accounts where gains are not currently taxable (but follow plan or account rules and contribution limits).

Tax-exempt accounts and policies

Other accounts such as certain HSAs or 529 education plans have specific tax treatments for investment growth and distributions—consult plan rules for how sales inside those accounts affect taxes.

Special stock-related situations

Mutual funds and ETFs (capital gain distributions)

Mutual funds and some ETFs can realize gains internally and distribute capital gains to shareholders even when an individual shareholder did not sell. Those distributions are taxable in the year they are distributed and may be long-term or short-term depending on the fund’s holding period and realized gains.

Check fund year-end notices and 1099-DIV forms to determine taxable distributions.

Stock options and restricted stock

Stock-based compensation has nuanced tax rules:

• Nonqualified stock options (NQSOs): generally produce ordinary income on exercise equal to the spread (unless other elections apply) and capital gain/loss on later sale.
• Incentive stock options (ISOs): can produce favorable capital gains treatment if holding period rules are met, but alternative minimum tax (AMT) can be triggered at exercise.
• Restricted stock units (RSUs): typically taxed as ordinary income when vested (value at vesting), with later sales taxed as capital gains or losses relative to the basis set at vesting.

If you ask "are capital gains on stocks taxable" in the context of equity compensation, the answer is: both ordinary income and capital gains components can appear, depending on the instrument and timing.

Wash-sale rule

The wash-sale rule disallows a loss deduction if you purchase substantially identical securities within 30 days before or after the sale that produced the loss. The disallowed loss is added to the basis of the newly acquired shares, deferring the loss rather than eliminating it.

Inherited stock and step-up in basis

When you inherit stock, the basis is generally "stepped up" (or down) to the fair market value on the decedent’s date of death (or alternate valuation date). That step-up can eliminate capital gains that accrued during the decedent’s lifetime. If you later sell the inherited shares, your capital gain is the difference between sale proceeds and the stepped-up basis.

This step-up rule affects answers to "are capital gains on stocks taxable" because inherited assets often have little or no taxable gain at initial sale.

Planning strategies to manage capital gains tax

Holding period and timing sales

Holding qualifying stocks for more than one year converts short-term exposure to long-term capital gains treatment. Timing sales into a year when your taxable income is lower can move you into a lower long-term gains bracket (e.g., 0% or 15% instead of 20%).

Tax-loss harvesting

Tax-loss harvesting involves selling positions at a loss to offset realized gains, reducing taxable income. Harvested losses can offset gains dollar for dollar; excess losses can offset up to $3,000 of ordinary income per year and be carried forward.

Be mindful of the wash-sale rule when repurchasing similar positions.

Gifting or donating appreciated stock

Gifting appreciated stock to family has gift-tax and basis considerations; when you gift appreciated stock, the recipient inherits your basis for determining future gains (generally). Donating appreciated stock to a qualified charity often allows you to deduct the fair market value (subject to AGI limits) and avoid paying capital gains tax on the appreciation—this can be an efficient way to support causes while minimizing taxes.

Using tax-advantaged accounts and installment sales

Selling appreciated investments inside a tax-deferred account avoids immediate capital gains. Installment sales spread taxable gain over multiple years and may reduce exposure to high tax brackets in a single year (subject to rules and interest).

These strategies help answer the practical question "are capital gains on stocks taxable" by showing actionable ways to reduce current-year tax on realized gains.

State and local taxation

Variation by state

States vary widely. Many states tax capital gains as ordinary income with the same rates that apply to wages. Some states have no income tax and therefore do not tax capital gains at the state level. Others maintain special exemptions or add-on surtaxes targeting high-income taxpayers.

As of January 6, 2026, MarketWatch reported growing state-level activity on taxing high-net-worth households—some states were proposing higher income or wealth-related levies that could affect capital-gains-bearing taxpayers. Check your state revenue department for up-to-date rules.

Example resources / state guidance

State revenue departments publish guidance and FAQs about taxable income, reporting requirements, and rate tables. For example, Washington Department of Revenue and other state agencies provide details on state-specific treatment. Always consult your state’s guidance for the tax year in question.

Distinguishing investors from traders / businesses

Investor vs. trader status (tax treatment differences)

Most individuals are investors; their gains and losses are reported under capital gain rules. A person who qualifies as a trader in securities under IRS rules may be entitled to different tax and business deductions. Trader status carries strict criteria and should be evaluated carefully.

Mark-to-market election (Section 475(f))

Traders who make a Section 475(f) mark-to-market election treat securities as sold at year-end for fair market value, recognizing gains or losses as ordinary income instead of capital gains/losses. This changes wash-sale rules and loss carryover treatment. The election must be timely made and has pros and cons depending on your situation.

International considerations

Nonresident aliens and foreign investors

Nonresident aliens and some foreign investors are subject to different withholding and tax rules for U.S.-sourced income. Generally, capital gains from sale of U.S. stocks by nonresident aliens are not taxable in the U.S. unless connected to a U.S. trade or business or other exceptions apply. Treaty provisions can further modify treatment.

Foreign taxes and double taxation relief

If you pay foreign capital gains tax on a sale of foreign-listed shares, you may be able to take a foreign tax credit or deduction on your U.S. return to mitigate double taxation—subject to limitations and rules.

Common misconceptions and frequently asked questions

"I won’t owe taxes until I cash out my portfolio"

This is partially true: you do not owe federal capital gains tax until you realize gains via sale or exchange. However, taxable events also include certain corporate reorganizations, mutual fund distributions, and some compensation-related transactions. Additionally, state proposals discussed in the press (including ideas to tax unrealized gains) have appeared in debates, but realized-gain taxation remains the prevailing law.

"Dividends are always capital gains"

Dividends are distinct from capital gains. Qualified dividends may be taxed at long-term capital gains rates if holding and other criteria are met. Non-qualified dividends are taxed as ordinary income.

"Retirement account gains are never taxable"

Gains inside tax-deferred retirement accounts are not taxed currently, but distributions from traditional IRAs and employer-sponsored plans are typically taxable as ordinary income when withdrawn. Qualified Roth distributions are tax-free.

Practical checklist for taxpayers selling stocks

Recordkeeping essentials

• Keep trade confirmations and brokerage statements.
• Maintain records of cost basis, dates of acquisition, and dates of sale.
• Track corporate actions (splits, mergers, spin-offs, dividends) that affect basis.
• Keep documentation for gifted or inherited securities (date, basis, appraisals as needed).

Accurate records simplify reporting and reduce audit risk.

Working with brokers and tax professionals

• Verify 1099-B entries from your broker before filing.
• For complex situations (equity compensation, wash-sale tracking, trader elections, large capital events), consult a qualified tax professional.
• If you use digital-asset or equities services, consider platforms that provide clear basis reporting and exportable records—Bitget platform and Bitget Wallet provide consolidated reporting tools for users who trade or hold assets in Bitget-supported accounts.

Practical example: calculating a taxable sale

Assume you purchased 200 shares of Company X:

• Purchase: 200 shares × $25 = $5,000 cost basis
• Sale (after 14 months): 200 shares × $45 = $9,000 proceeds
• Long-term capital gain = $4,000 If your taxable income places you in the 15% long-term bracket for the year, federal tax on the gain would be $600 (before state tax and possible NIIT). This example demonstrates how holding >1 year turns the same price move into a lower-rate gain.

Policy context and evolving proposals (brief, factual note)

As of January 6, 2026, MarketWatch reported state-level proposals and ballot measures targeting very high-net-worth taxpayers, including ideas to raise income taxes on millionaires or impose one-time wealth levies on billionaires. These proposals are evolving and subject to legal challenge; they illustrate why taxpayers should monitor both federal and state developments because future rules could change how and when gains are taxed.

This article focuses on existing federal rules and typical state treatments. Any changes proposed at the state level should be verified with the state revenue department and legal counsel.

References and further reading

• IRS Topic No. 409, Capital Gains and Losses (see current IRS publications for the tax year)
• Investor education pages from Vanguard and Fidelity
• Practical guides from TurboTax, NerdWallet, Merrill
• Investopedia overviews for capital gains concepts
• Tax Policy Center analyses for policy context
• Washington Department of Revenue and other state revenue department guidance
• MarketWatch reporting (as of January 6, 2026) on state tax proposals targeting high-net-worth taxpayers

Further personalized guidance should come from the IRS, your state revenue agency, or a qualified tax advisor.

Practical next steps

• Verify your broker’s 1099-B and reconcile with your records.
• Track holding periods and basis for each lot to optimize long-term treatment when practical.
• Consider tax-loss harvesting or charitable donation of appreciated stock to manage taxable gains.
• If you trade frequently, evaluate whether trader tax status or the Section 475(f) election applies and consult a tax professional.

If you trade or hold assets on an exchange, consider Bitget for consolidated account reporting and the Bitget Wallet for secure custody; these tools can simplify recordkeeping for capital gains reporting.

Further explore Bitget tools and consult a tax professional to align trading and tax planning with your financial goals.