Executive Summary
How is capital gains tax calculated on stock options and RSUs?
When you sell shares from RSUs or stock options, the gain (sale price minus your cost basis) is taxed as capital gains. If you held the shares more than 1 year, you get long-term rates: 0%, 15%, or 20% depending on income. If you held 1 year or less, it's short-term—taxed at your ordinary income rate (up to 37%). The holding period starts when you receive the shares: at vesting for RSUs, at exercise for options.
You sold some shares. Now you owe capital gains tax. How much? It depends on how long you held the shares. Hold more than a year, and you pay a lower rate. Sell sooner, and you pay your full income tax rate. It's that simple.
The bottom line: Long-term capital gains (1+ year) are taxed at 0%, 15%, or 20%. Short-term (1 year or less) are taxed at your ordinary rate—up to 37%. For most people, holding 1+ year saves a lot. See our when to sell RSUs and ISO qualifying disposition guides.
Short-Term vs. Long-Term
| Short-Term | Long-Term | |
|---|---|---|
| Holding period | 1 year or less | More than 1 year |
| Tax rate | Your ordinary income rate (10%–37%) | 0%, 15%, or 20% |
| When it applies | Sell within 1 year of getting shares | Sell after 1+ year |
Example: You're in the 32% bracket. You sell shares with a $10,000 gain. Short-term: $3,200 tax. Long-term (15% bracket): $1,500 tax. You save $1,700 by holding 1+ year.
When Does the Holding Period Start?
| Equity Type | Holding Period Starts |
|---|---|
| RSUs | When they vest (you receive the shares) |
| NSOs | When you exercise (you buy the shares) |
| ISOs | When you exercise (special rules—see below) |
| ESPP | When you purchase the shares |
Long-Term Capital Gains Rates (2025–2026)
| Filing Status | 0% | 15% | 20% |
|---|---|---|---|
| Single | Up to ~$49,450 | ~$49,451 – $545,500 | Over ~$545,500 |
| Married filing jointly | Up to ~$98,900 | ~$98,901 – $691,000 | Over ~$691,000 |
Thresholds are adjusted for inflation each year.
The 3.8% NIIT Surcharge
If your income is over $200,000 (single) or $250,000 (married filing jointly), you may owe an extra 3.8% on investment income—including capital gains. That's the Net Investment Income Tax (NIIT). So your top rate on long-term gains can be 23.8% (20% + 3.8%). See our NIIT guide.
Special Rules for ISOs
For Incentive Stock Options, the rules are stricter. To get capital gains treatment (and avoid ordinary income at exercise), you need a qualifying disposition:
- Hold shares 2 years from grant and 1 year from exercise
- If you sell sooner, it's a "disqualifying disposition"—the spread at exercise is ordinary income
See our ISO qualifying vs. disqualifying guide for details.
RSUs: You're Already Taxed at Vesting
When RSUs vest, you pay ordinary income tax on the value. That's your cost basis. When you sell, you only owe capital gains on the appreciation since vesting.
Example: RSUs vest at $50/share. You pay income tax on that. You sell at $60/share a year later. Your gain is $10/share. If you held 1+ year, that $10 is long-term capital gains. If you sold within a year, it's short-term.
Frequently Asked Questions
Is it always better to hold 1+ year?
Not always. If you need the money, or you're worried the stock will drop, selling sooner can make sense. The tax savings from holding might not outweigh the risk. But if you're holding anyway, the 1-year mark is worth watching.
Do state taxes apply to capital gains?
Yes. Most states tax capital gains as income. California, New York, and others have their own rates. Your total tax = federal + state.
What if I have a loss?
Capital losses can offset capital gains. If you have more losses than gains, you can deduct up to $3,000 per year against ordinary income. The rest carries forward. See our tax-loss harvesting guide.
Disclaimer: This guide is for educational purposes. It does not constitute tax advice.
Last Updated: March 2026 | Research Team: VestingStrategy