Federal Tax Rates
The 23.8% federal floor you can't avoid
For 2026, selling appreciated stock held longer than one year triggers two federal taxes:
The Embark Approach
20% Long-Term Capital Gains
Applies to taxpayers with income above $518,900 (MFJ) or $492,300 (single). Most concentrated stock holders are in this bracket.
3.8% Net Investment Income Tax (NIIT)
Additional tax under §1411 for income above $250K (MFJ) or $200K (single). Applies to virtually all stock sales of meaningful size.
23.8% Combined Federal Rate
On a $4.5M gain (basis $500K on $5M), federal tax alone is $1,071,000. And that's before state taxes.
Short-term capital gains (held < 1 year) are taxed at ordinary income rates: — up to 37% federal + 3.8% NIIT = 40.8%, plus state taxes. If you hold RSUs or recently vested stock, selling within 12 months of acquisition is dramatically more expensive.
State-by-State
The state tax layer that pushes the total above 35%
| State | State Capital Gains Rate | Combined Rate (Fed + State) |
|---|---|---|
| California | 13.3% (highest in U.S.) | 37.1% — $1,669,500 tax on $4.5M gain |
| New York (NYC) | 10.9% + 3.876% city | 38.6% — $1,737,000 tax on $4.5M gain |
| New Jersey | 10.75% | 34.55% — $1,554,750 tax on $4.5M gain |
| Oregon | 9.9% | 33.7% — $1,516,500 tax on $4.5M gain |
| Minnesota | 9.85% | 33.65% — $1,514,250 tax on $4.5M gain |
| Washington | 7% (LTCG >$250K) | 30.8% — $1,386,000 tax on $4.5M gain |
| Massachusetts | 9% (short-term: 12%) | 32.8% — $1,476,000 tax on $4.5M gain |
| Texas | 0% | 23.8% — $1,071,000 tax on $4.5M gain |
| Florida | 0% | 23.8% — $1,071,000 tax on $4.5M gain |
| Nevada | 0% | 23.8% — $1,071,000 tax on $4.5M gain |
"A New York City resident selling $5M in stock with a $500K basis writes a check for $1,737,000. That's 34.7% of the entire position — gone. Permanently. And it could have generated $500K+/year through Embark instead."
By Position Size
Tax cost at $1M, $5M, $10M, and $25M
All calculations assume 90% unrealized gain (basis = 10% of current value) and California residency (37.1% combined rate):
| Position Size | Tax Bill (CA, 37.1%) | Embark Alternative |
|---|---|---|
| $1,000,000 | $333,900 — you keep $666,100 | $0 tax. Earn $100K+/yr income. Keep $1M position. |
| $3,000,000 | $1,001,700 — you keep $1,998,300 | $0 tax. Earn $300K+/yr income. Keep $3M position. |
| $5,000,000 | $1,669,500 — you keep $3,330,500 | $0 tax. Earn $500K+/yr income. Keep $5M position. |
| $10,000,000 | $3,339,000 — you keep $6,661,000 | $0 tax. Earn $1M+/yr income. Keep $10M position. |
| $25,000,000 | $8,347,500 — you keep $16,652,500 | $0 tax. Earn $2.5M+/yr income. Keep $25M position. |
Sell $10M Position (CA)
$6,661,000
After paying $3,339,000 in taxes (37.1% of $9M gain), you have $6.66M to reinvest. At 7% annual returns, year-10 value: ~$13.1M.
Embark §721 SPV ($10M)
$20,000,000+
$0 tax. $1M+/year in income × 10 years = $10M cumulative income. Plus you still hold the $10M stock position. Total: $20M+.
10-Year Wealth Gap: Embark delivers $20M+ vs $13.1M from selling — a $6.9M difference. The tax bill ($3.34M) and its lost compounding ($3.56M) account for the entire gap.
The Embark Strategy
Generate Income on Your Appreciated Stock — Without a Tax Event
Engineers at Google, Meta & Apple use Embark’s IRS §721 strategy to generate 10%+ targeted income on concentrated positions — keep your stock, participate in upside, with no taxable event.
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Opportunity Cost
The hidden cost of paying capital gains tax
Taxes aren't just a one-time cost — they're permanently lost capital that can never compound again. Here's what the tax payment would have earned in Embark income:
| Tax Paid (CA, $5M position) | If That Tax Were in Embark Instead | 10-Year Forgone Income |
|---|---|---|
| $1,669,500 in taxes | $166,950/year at 10% income | $1,669,500 in forgone income over 10 years |
| Plus: lost compounding | The $1.67M never compounds again | At 7% growth: $1.61M more in lost compounding |
| Total opportunity cost | Tax + forgone income + lost compounding | $4,949,000 total 10-year cost of selling |
Selling a $5M California position doesn't cost $1.67M. It costs nearly $5M over 10 years when you account for the income and compounding that tax payment would have generated. This is why Embark's §721 SPV delivers dramatically better outcomes — the $0 tax at contribution means every dollar stays invested and generating income.
When to Sell
The limited cases where paying the tax is correct
Despite the tax cost, selling is sometimes the right move:
Small gain (under $100K) — the tax cost is manageable and alternatives have minimum position sizes
Short-term holding (< 1 year) but you have compelling reasons to exit (fundamental deterioration)
No-tax state (TX, FL, NV) AND relatively low gain — federal-only rate of 23.8% is more bearable
Tax loss harvesting — you have offsetting losses that reduce or eliminate the tax
Step-up at death is imminent — §1014 eliminates gain at death; selling may trigger unnecessary tax if you're in poor health
You've genuinely lost conviction in the stock and want out regardless of tax cost
If your position is $3M+ with significant unrealized gains and you're in a high-tax state, explore all six monetization strategies before selling. The tax cost is almost certainly too high to justify an outright sale.
FAQ
Frequently asked questions
What's the capital gains tax rate for 2026?
Federal: 20% LTCG + 3.8% NIIT = 23.8% for high-income taxpayers. State rates vary from 0% (TX, FL, NV) to 13.3% (CA). Combined rates range from 23.8% to 38.6% (NYC). Check the state-by-state table above for your specific rate.
Can I offset capital gains with capital losses?
Yes — capital losses offset capital gains dollar-for-dollar. If you have $500K in losses and $4.5M in gains, your net gain is $4M. But most concentrated stock holders don't have sufficient losses to meaningfully offset multi-million dollar gains.
What about the step-up in basis at death?
Under §1014, the cost basis of inherited stock is 'stepped up' to fair market value at date of death. This means the entire unrealized gain is eliminated — your heirs pay $0 in capital gains tax. This makes selling appreciated stock especially costly if you might otherwise leave it to heirs.
Does Washington state tax capital gains?
Yes — Washington enacted a 7% long-term capital gains tax on gains exceeding $250,000, effective 2022. The state Supreme Court upheld it as an excise tax. Combined federal + WA rate: 30.8%. See our state table above.
Monetize Appreciated Stock Series
6 of 7
Don't Pay the Tax. Generate Income Instead.
Generate Income on Your Appreciated Stock — Without a Tax Event
Every dollar you pay in capital gains tax is permanently lost capital. Embark's §721 SPV generates 10%+ targeted annual income on your appreciated stock — $0 tax at contribution. Keep your stock position. Keep your wealth.