How Is Withdrawing From a Brokerage Account Taxed?

Withdrawing money from a brokerage account is not, by itself, a taxable event. The tax question is whether you had to sell investments to free up the cash, and if so, whether those sales produced a gain. That is what the IRS taxes when you withdraw from a brokerage account: the realized profit on securities you sold, not the transfer to your bank. Cash that was already sitting in your settlement fund can move out with no new tax attached.

When a Withdrawal Triggers No Tax

If the cash in your account came from a sale you already made, a dividend, interest, or a deposit from your bank, moving it out to your checking account creates nothing new for the IRS. The tax on that money, if any, was settled when the sale happened or when the income was credited.

Dividends and interest are taxed in the year they hit your account, whether you withdraw them or leave them there. The IRS treats income as “constructively received” the moment it’s available to you.¹ A $500 dividend paid to you in 2026 is 2026 income even if the cash sits untouched until 2028.

The scenario that does create a bill is selling investments to raise cash. That sale locks in a gain or a loss.

What Gets Taxed When You Sell

Sell an investment for more than you paid, and the profit is a capital gain. Sell for less, and you have a capital loss. Unrealized gains, no matter how large the paper profit, owe nothing until you actually sell.²

Holding period splits gains into two buckets. Owned the asset one year or less? Short-term. More than one year? Long-term.³ The difference between day 365 and day 366 can cut your rate substantially, so check the dates before you place the sell order.

When you have multiple sales in a year, the IRS nets them. Short-term gains and losses offset each other first; long-term does the same. If one bucket ends net-positive and the other net-negative, they offset across. If your losses exceed your gains overall, 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.³

How Much You’ll Pay

Short-Term Gains

Short-term gains are taxed at ordinary income rates, which run from 10% to 37% federally for 2026 depending on your total taxable income.³ A big short-term sale can push you into a higher bracket for the year.

Long-Term Gains

Long-term gains get preferential rates of 0%, 15%, or 20%. For 2026 single filers:

0% on taxable income up to $49,450
15% from $49,451 to $545,500
20% above $545,500

For married couples filing jointly, the 0% rate runs through $98,900, the 15% rate through $613,700, and 20% applies above that. Most filers land in the 15% bracket, meaning a one-year hold roughly cuts the federal rate in half compared with a short-term sale.

The 3.8% Surcharge for Higher Earners

Above certain income thresholds, an additional 3.8% Net Investment Income Tax applies. The NIIT hits the lesser of your net investment income or the amount your modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint).⁴ These thresholds don’t adjust for inflation. Combined with the 20% long-term rate, the top federal rate on long-term gains reaches 23.8%.⁵

Qualified Dividends

Dividends that meet the qualified-dividend rules are taxed at the same preferential rates as long-term gains, not as ordinary income.⁶ They’re taxed in the year received regardless of whether you withdraw them.

Cost Basis Sets the Number That Gets Taxed

Your taxable gain is the sale price minus your cost basis, not the full proceeds. Cost basis is generally what you paid, including transaction fees. Buy 100 shares at $50, sell them for $80, and the taxable gain is $3,000 on $8,000 of proceeds.²

Reinvested dividends add to your basis. Someone who put $10,000 into a mutual fund and reinvested $2,000 in dividends over several years has a $12,000 basis, not $10,000. Overlooking those reinvestments is a common way people overpay on gains.

Choosing Which Shares to Sell

When you own the same security at different purchase prices, which lot counts as sold? The default is first-in, first-out: the oldest shares go first.⁷ For an investment that has climbed steadily, FIFO usually sells the lowest-basis shares and produces the largest taxable gain.

Specific share identification is the alternative. You tell your broker which lots to sell, at or before the trade settles. Picking higher-basis lots shrinks the gain; picking loss lots can offset gains elsewhere. Most brokerage platforms now surface this choice inside the trade ticket.

Your broker reports basis and holding period on Form 1099-B, and the IRS gets a copy. Discrepancies get flagged, so keep your own records aligned.

Ways to Reduce What You Owe on a Withdrawal

Wait Past the One-Year Mark

The simplest lever. Holding for at least a year and a day converts a short-term gain, taxable up to 37%, into a long-term gain taxed at 0%, 15%, or 20%. If you can time a withdrawal around a holding period that’s about to cross, do.

Sell High-Basis Lots

Own 200 shares of a stock at $80, half bought at $40 and half at $70? Selling the $70 lot produces a $10-per-share gain instead of $40. Same withdrawal, much smaller tax.

Harvest Losses

Selling losers deliberately generates realized losses that offset your gains dollar for dollar. Excess losses deduct up to $3,000 against ordinary income and carry forward.³

The wash sale rule limits this. If you buy a substantially identical security within 30 days before or after the loss sale, the IRS disallows the loss for that year.⁸ The disallowed amount gets added to the basis of the replacement shares, so it isn’t gone permanently, but it won’t help this year’s return.

Donate Appreciated Shares Instead of Selling

If you were going to give to charity anyway, donating appreciated stock held more than a year is often better than selling and donating the cash. You generally deduct the full fair market value and skip the capital gains tax on the appreciation. The deduction for donated appreciated securities is capped at 30% of adjusted gross income, with a five-year carryforward for the excess.⁹

Estimated Tax Payments After a Big Sale

A large gain can generate a bill your paycheck withholding won’t cover. Quarterly estimated payments are expected if you’ll owe at least $1,000 after withholding and credits and your withholding won’t reach 90% of the current year’s liability or 100% of last year’s (110% if your prior-year adjusted gross income was above $150,000).¹⁰

The 2026 payment deadlines fall on April 15, June 15, September 15, and January 15, 2027. If your gain happens late in the year, the annualized income installment method (Form 2210, Schedule AI) lets you calculate each quarter’s payment based on income actually received that quarter, rather than spreading the full year evenly.¹⁰ Skipping required payments triggers an underpayment penalty that accrues like interest.¹¹

Reporting the Sale

After year-end, your brokerage sends Form 1099-B listing every sale, the proceeds, the cost basis for covered securities, and whether each result was short- or long-term. Those transactions flow onto Form 8949, and the totals from 8949 carry to Schedule D, which produces the net capital gain or loss that lands on your Form 1040.¹²

State Tax and Medicare Ripples

Federal is only part of the total. Most states tax capital gains as ordinary income, with top rates from roughly 3% to over 13%; a handful of states have no income tax at all. On a large withdrawal, the state layer can matter as much as the federal one, so check your state’s treatment before selling.

If you’re on Medicare or close to it, realized gains flow into the modified adjusted gross income that determines Income-Related Monthly Adjustment Amounts (IRMAA) on Part B and Part D premiums. Those surcharges look back two years, so a 2026 sale affects 2028 premiums.¹³ If the spike came from a one-time event tied to a qualifying life change like retirement, Form SSA-44 lets you ask Social Security to recalculate.¹⁴

Retirement Accounts Follow Different Rules

Everything above applies to a standard taxable brokerage account. IRAs and 401(k)s work on a completely different framework. Trades inside those accounts generate no capital gains tax while the money stays in. Traditional account withdrawals are taxed as ordinary income on the full amount, and withdrawals before age 59½ generally add a 10% penalty.¹⁵ Qualified Roth withdrawals come out tax-free once the account has been open five years and you’re at least 59½.¹⁶ If your account is a retirement account, none of the capital gains rules on this page determine your tax; the retirement account rules do.

1
Internal Revenue Service. Publication 550, Investment Income and Expenses
2
Office of the Law Revision Counsel. 26 USC 1001 – Determination of Amount of and Recognition of Gain or Loss
3
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
4
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
5
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
6
Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions
7
Internal Revenue Service. Stocks (Options, Splits, Traders) 3
8
Office of the Law Revision Counsel. 26 USC 1091 – Loss from Wash Sales of Stock or Securities
9
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
10
Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals
11
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
12
Internal Revenue Service. About Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
13
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
14
Social Security Administration. Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event
15
Vanguard. IRA Withdrawal Rules: What You Need to Know
16
Fidelity. What Is the Roth IRA 5-Year Rule and How Does It Work