How to Calculate Tax on Sale of Long Term Stock Holdings

If you have long-term capital gains, you must use IRS Form 1040.

If you have long-term capital gains, you must use IRS Form 1040.

If you've held a stock for more than one year before you sell it, you qualify for the lower long-term capital gains rates on the sale profits. To figure the taxes you'll owe on the sale of long-term stock holdings, you'll first need to determine your profit, so you'll need to know what you paid for the shares and the price for which you sold them. Estimating your income taxes helps you know how much you need to set aside from your sale to pay Uncle Sam.

Add the fee for purchasing the stock to the price you paid to determine your cost basis. For example, if you paid $7,185 for the stock and a $15 transaction fee, your cost basis is $7,200.

Subtract the transaction fee for selling the stock from proceeds you received from the sale to figure your net proceeds. For example, if you sold the stock for $12,015 and paid a $15 transaction fee, your net proceeds are $12,000.

Calculate your long-term capital gain by subtracting your cost basis from your net proceeds. In this example, subtract $7,200 from $12,000 to find that your long-term capital gain is $4,800.

Calculate the tax rate applicable to your long-term capital gains. In 2012, the maximum rate is 15 percent. However, in 2013, your long-term capital gains may be hit with an additional 3.8 percent Medicare tax if your income is high enough. If the tax rates are not extended, the long-term capital gains rate will increase to 20 percent and the phaseout of itemized deductions would act as a 1.2 percent tax increase, according to PriceWaterhouse Coopers. As a result, your long-term capital gains rate could be as high as 25 percent.

Multiply your long-term capital gains rate by your long-term capital gain from selling your stock to figure the tax. Continuing the example, if your long-term capital gains rate is 15 percent, multiply $4,800 by 0.15 to find you owe $720 in federal taxes.

Multiply your state income tax rate by your proceeds to figure your state taxes on your stock sale. Rates vary from state to state and often depend on your income. Finishing the example, if your state tax rate is 4.5 percent, multiply $4,800 by 0.045 to find you owe another $216 in state income taxes.

 

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