Check the purchase date before you sell an investment at a profit in a taxable brokerage account. Sell on or before the one-year anniversary and the gain is taxed at your ordinary income rate. Wait one more day and it qualifies for federal long-term capital gains rates of 0%, 15%, or 20%.
Say you bought $15,000 of a stock that’s now worth $25,000, and your income puts you in the 22% bracket. Sell at 11 months and the $10,000 gain costs $2,200 in federal tax. Sell at 13 months and it’s taxed at 15%, or $1,500. Those two months are worth $700. At lower taxable incomes, the long-term rate is 0%, so waiting can erase the federal tax on the gain.
The IRS counts the holding period from the day after you buy through the day you sell. Buy on March 10, and March 11 of the following year is the first day a sale counts as long-term. Every purchase gets its own holding period, including shares bought through dividend reinvestment and automatic monthly investing. Your broker tracks each one as a separate tax lot, so a position built over time can be part long-term and part short-term on the same day.
For company shares from restricted stock units (RSUs), the holding period starts at vesting, so shares that vested in the past year are short-term no matter when the grant was made.
Before you sell, look up the purchase date of every lot in your account. If only some qualify, choose the shares yourself on the sell order instead of leaving the choice to your broker’s default method. Sell the long-term lots now and hold each of the rest until it passes a year and a day.
Inside an IRA or 401(k), none of this matters, because sales there don’t trigger capital gains tax.
Wait only if you’d keep the stock anyway. In the example, a drop of about 3.3% before the long-term date leaves you worse off than selling today. If you’re selling because you expect the price to fall, sell now.
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