Profits from selling Fannie Mae stock or Fannie Mae mortgage-backed securities are taxed as capital gains under the same federal rules that apply to any other capital asset. Hold the position for more than a year and the gain qualifies for the long-term rates of 0%, 15%, or 20%. Sell within a year and the gain is ordinary income, taxed at rates up to 37%. The wrinkle for Fannie Mae capital gains tax is on the debt side: mortgage-backed securities require ongoing basis adjustments, and part of what looks like a capital gain on an MBS can be reclassified as ordinary interest income when you sell.
How Long You Held It Sets the Rate
The holding period is the single biggest lever on your tax bill.
If you sell within one year or less, the profit is a short-term capital gain and gets taxed at your ordinary income rate. For the 2026 tax year, ordinary rates run from 10% to 37%.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Short-term trading in FNMA, which is volatile, often produces gains taxed no differently than wages.
Hold for more than a year and the long-term rates apply. For 2026:2Internal Revenue Service. Topic No. 409 – Capital Gains and Losses
- 0% on taxable income up to $49,450 single or $98,900 married filing jointly.
- 15% on taxable income from $49,450 to $545,500 single, or $98,900 to $613,700 joint.
- 20% above $545,500 single or $613,700 joint.
High-income investors owe an additional 3.8% Net Investment Income Tax on the lesser of net investment income or the amount modified adjusted gross income exceeds $200,000 single or $250,000 joint.3Internal Revenue Service. Net Investment Income Tax Those thresholds are not indexed for inflation. Stacked on the 20% bracket, the top federal rate on a long-term gain reaches 23.8%.
Selling Fannie Mae Stock
FNMA common and preferred shares are capital assets, and a sale follows standard capital gains rules.4Office of the Law Revision Counsel. 26 U.S. Code 1221 – Capital Asset Defined Your gain or loss is the sale price minus your adjusted cost basis (what you paid plus commissions).
The 2008 Conservatorship Did Not Reset Your Basis
Many current FNMA holders bought before the Federal Housing Finance Agency placed Fannie Mae into conservatorship in September 2008. That event did not trigger a taxable event for common stockholders. Shares were not canceled. Dividends were suspended and the FHFA took over governance, but the stock remained outstanding, your original basis carried forward, and your holding period was uninterrupted. Any sale today by a pre-2008 holder produces a long-term gain or loss.
If you bought shares in multiple lots and cannot identify which you sold, the IRS default is first-in, first-out: the earliest lot is treated as the one sold.5Internal Revenue Service. Stocks, Options, Splits, and Traders 3
Losses on the Stock
A loss on FNMA offsets other capital gains dollar for dollar. If losses exceed gains for the year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately), and any remainder carries forward indefinitely.2Internal Revenue Service. Topic No. 409 – Capital Gains and Losses
The Wash Sale Trap
FNMA’s price swings tempt investors to sell at a loss and jump back in. Don’t. If you buy substantially identical stock within 30 days before or after the loss sale, the loss is disallowed and gets added to the basis of the replacement shares instead.6Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities To claim the loss in the current tax year, wait at least 31 days before repurchasing. Buying Freddie Mac shares during the window could raise a substantially-identical argument, though that is a less clear-cut case than repurchasing FNMA itself.
Selling Fannie Mae Mortgage-Backed Securities
MBS are debt instruments, and the tax code makes you adjust your basis throughout the holding period. Three moving parts matter.
Principal Payments Reduce Your Basis
Each mortgage payment from homeowners in the underlying pool includes principal, and that principal flows through to you as a return of investment. It is not taxable income, but it does reduce your cost basis. As your basis shrinks, more of the eventual sale price becomes taxable gain.
Premium Amortization
If you bought the MBS above par, you are required to amortize the premium over the life of the security using the constant yield method.7Office of the Law Revision Counsel. 26 U.S. Code 171 – Amortizable Bond Premium The annual amortization reduces both your basis and the taxable interest you report. For taxable bonds this is mandatory. Skip it and your basis will be wrong at sale.
Market Discount Becomes Ordinary Income
Bought the MBS below par? When you sell, the portion of your gain equal to the accrued market discount is taxed as ordinary income, not at capital gains rates.8Office of the Law Revision Counsel. 26 U.S. Code 1276 – Disposition Gain Representing Accrued Market Discount Treated as Ordinary Income The accrued amount is proportional to how long you held the bond relative to its remaining life. Only the gain above the accrued market discount stays a capital gain.
A de minimis rule can spare you. If the total market discount is less than one-quarter of 1% of the bond’s stated redemption price at maturity, multiplied by the number of complete years remaining to maturity when you bought it, the discount is treated as zero and the whole profit is a capital gain.9Legal Information Institute. 26 USC 1278(a)(2) – Definition of Market Discount
Inherited Fannie Mae Positions
Inherit FNMA stock or MBS and your basis is generally the fair market value on the decedent’s date of death, not what they paid.10Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If the decedent bought decades ago at a much higher price, the stepped-up basis can wipe out most of the gain. If the value at death was below their purchase price, basis steps down to that lower figure; you cannot claim the decedent’s unrealized loss. Holding period on inherited property is automatically long-term.
Estate tax and capital gains tax are separate. The federal estate tax exemption is $15,000,000 per person in 2026, and most inherited FNMA positions fall well below it.11Internal Revenue Service. What’s New – Estate and Gift Tax
Can You Write Off Fannie Mae Preferred as Worthless
Some FNMA preferred series traded at fractions of a cent for years, and holders often ask about a worthless security deduction. If a security becomes completely worthless during the tax year, the code treats it as sold for zero on the last day of that year.12Office of the Law Revision Counsel. 26 U.S. Code 165 – Losses “Completely” is the operative word. Stock that still trades, even at a negligible price, does not qualify, and you carry the burden of proving worthlessness by pointing to a specific event that fixed it in the year you claim. FNMA common has traded on the OTC market throughout conservatorship, which makes worthlessness a hard argument for common shares. Some preferred series with no realistic recovery prospect may present a stronger case. Get professional advice before filing this one.
State Tax Adds On Top
Most states tax capital gains as ordinary income, stacking a state rate on the federal bill. A few have no income tax; others push combined rates above 30% for high earners. Check your state’s rules when estimating what you’ll actually owe.
How to Report the Sale
Every FNMA stock or MBS sale is reported on Form 8949, which totals into Schedule D of your Form 1040.13Internal Revenue Service. Instructions for Form 8949 Your broker issues Form 1099-B with the proceeds and, for covered securities, the cost basis.
Reconcile that 1099-B against your own records. Shares bought before 2011 are generally non-covered, meaning the broker was not required to track basis. A 1099-B for FNMA shares purchased in, say, 2007 may show proceeds and no basis at all. The IRS treats a missing basis as zero, which would tax the entire sale price as gain unless you supply the correct figure.
For MBS, any accrued market discount reclassified as ordinary income is reported separately as interest income, not folded into the Schedule D gain.13Internal Revenue Service. Instructions for Form 8949 The Form 8949 instructions include a worksheet for the split. Getting that division right between capital gain and ordinary interest is where MBS reporting most often goes wrong and where IRS notices most often follow.