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What Taxes Do I Pay If I Sell My Tesla Stock?

By Maurie Backman - Feb 3, 2021 at 6:02AM

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Unloading Tesla? Read this first.

If you're invested in Tesla (TSLA -5.00%), you may be sitting pretty right about now. Shares were up 695% in 2020 and jumped this week again. In fact, some analysts believe that Tesla is one of the most solid growth stocks you could buy today.

But what if you're ready to take your win and run with it? If you're thinking of selling your Tesla stock to cash out your gains, you'll need to think about the tax implications involved. Here's what you need to know.

Waiting to sell can pay off

If you bought Tesla a year ago, you may easily be up more than $700 a share at this stage of the game. But you'll need to be careful when selling that stock for one big reason -- you don't want to get hit with higher taxes than necessary.

Smiling man in suit holding lots of hundred-dollar bills

Image source: Getty Images.

When you sell stocks for a higher price than what you bought them for, you'll be liable for capital gains taxes. But the amount you pay in taxes will depend on how long you've held your stock before selling it.

Stocks that are held for at least a year and a day are subject to what are known as long-term capital gains, and those are the ones that are taxed at the most favorable rates.

If you're single earning up to $40,400 or married earning up to $80,800, your long-term capital gains tax rate will actually be 0%. That's right -- you can walk away with a profit without paying a dime in tax. Beyond that, if you're single earning up to $445,850 or married earning up to $501,600, your long-term capital gains tax rate will be 15%. Earnings above these levels are subject to a long-term capital gains tax rate of 20% -- the highest rate you might pay.

Now, let's compare those rates to short-term capital gains, which apply to investments that are held for a year or less. Your short-term capital gains tax rate will be the same as your marginal tax rate -- the one that applies to your ordinary income

Here's what those rates look like for single tax-filers:

Marginal Tax Rate

Income Range

10%

$0-$9,950

12%

$9,950-$40,525

22%

$40,525-$86,375

24%

$86,375-$164,925

32%

$164,925-$209,425

35%

$209,425-$523,600

37%

Greater than $523,600

Data source: IRS.

And here's what they look like for married filers:

Marginal Tax Rate

Income Range

10%

$0-$19,900

12%

$19,900-$81,050

22%

$81,050-$172,750

24%

$172,750-$329,850

32%

$329,850-$418,850

35%

$418,850-$628,300

37%

Greater than $628,301

Data source: IRS.

Your marginal tax rate is what you'll pay on your highest dollars of earnings. Now, let's say you're single earning $165,000 a year. Your marginal tax rate in that scenario is 32%, which is what you'll be charged for short-term capital gains. On the other hand, your long-term capital gains tax rate is just 15% -- and that's a lot less painful.

As such, if you're thinking of selling Tesla stock, or any other stock for that matter, it pays to hang onto your investment for at least a year and a day before cashing out. Doing so could result in a world of tax savings and leave you with more money to invest as you see fit.

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