The one-year rule
- Held more than one year → long-term: 0%, 15% or 20%
- Held one year or less → short-term: taxed at ordinary rates up to 37%
The clock starts the day after you acquire the shares. To be long-term, sell on or after the day after the one-year anniversary.
When your clock starts
- RSUs: the settlement date, when shares are delivered
- NSOs and ISOs: the exercise date
- Early exercise with 83(b): the exercise date, even before vesting
- ESPP: the purchase date
2026 long-term rates
Single:
- 0% up to about $49,450 of taxable income
- 15% up to about $545,500
- 20% above that
Married filing jointly:
- 0% up to about $98,900
- 15% up to about $613,700
- 20% above that
The 3.8% net investment income tax
If your modified adjusted gross income is over $200,000 single or $250,000 joint, add 3.8% on investment income, including both long- and short-term gains. The top long-term rate is effectively 23.8%.
States
Most states tax capital gains as ordinary income, with no long-term discount. A few, including Washington, tax capital gains separately.
Is waiting worth it?
Waiting saves up to about 17 points federally. But a stock that drops 20% while you wait can wipe out the saving. Weigh:
- how close you are to the one-year date
- how concentrated your wealth is in the stock
- how volatile the stock is
Compare
Set your exit timing in the calculator to compare selling before and after the one-year mark.
General information, not tax advice.
Frequently asked questions
What is the difference between long-term and short-term capital gains on stock?
If you hold stock for more than one year, you qualify for long-term capital gains tax rates of 0%, 15%, or 20%. Selling shares held for one year or less results in short-term gains, which are taxed at ordinary income rates reaching as high as 37%.
When does the one-year holding period clock start for startup equity?
For RSUs, the clock starts on the settlement date when shares are delivered. If you have NSOs, ISOs, or performed an early exercise with an 83(b) election, the clock begins on the exercise date. For ESPP participants, the holding period starts on the purchase date.
Does the 3.8% net investment income tax apply to stock sales?
Yes, if your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers, you must pay this additional 3.8% tax. This tax applies to both long-term and short-term gains, effectively raising the top long-term federal rate to 23.8%.
Is it always better to wait a year before selling company stock?
Waiting can save you up to 17 percentage points in federal taxes, but it carries market risks. If the stock price drops significantly while you wait, those losses may outweigh your tax savings. You should carefully consider the stock's volatility and your overall wealth concentration before deciding.
Official sources (for the detail-minded)
- IRC Section 1(h)The 0% / 15% / 20% long-term capital gain rates
- IRC Section 1222Short- vs long-term holding periods
- IRC Section 1211(b)The $3,000 limit on deducting net losses
- IRC Section 1411The 3.8% net investment income tax
- IRS Form 8949Where each stock sale is reported
Run your own numbers
See your tax, take-home, and what to set aside. Free, and nothing is stored.
Keep reading
Too Little Tax Taken Out? How to Spot and Fix Underwithholding
Your employer withholds a flat 22% on most equity income, but your real rate can be far higher. Here's how to spot the gap and close it.
Penalties for Paying Tax Late: Underpayment, Late-Payment and Late-Filing
Three different penalties can apply when tax is paid late. Here's what each costs and how the safe harbors keep you clear.
How commissions and bonuses are taxed and withheld
A commission check isn't taxed at a special rate, but it's withheld differently from your salary. Here's why big checks can look over-taxed, and why you may still owe in April.
How ESPP shares are taxed
Your ESPP discount is taxed when you sell, not when you buy. How much counts as salary depends on how long you held the shares.
Estimates only. Not tax, legal, or investment advice. See our methodology