One year is the line that changes everything
Sell an investment you’ve held for one year or less, and the profit is a short-term capital gain, taxed exactly like ordinary income — the same brackets that apply to your salary. Hold it past one year, and the profit becomes a long-term capital gain, taxed at meaningfully lower preferential rates: 0%, 15%, or 20% depending on your income. The math above shows both stacked on your actual income, so you can see the real dollar difference a single day’s holding period can make.
Key terms
Short-term capital gain
Profit on an asset held one year or less, taxed at your ordinary income tax rates — the same brackets that apply to your salary.
Long-term capital gain
Profit on an asset held more than one year, taxed at preferential rates of 0%, 15%, or 20% depending on your total taxable income.
Cost basis
What you originally paid for the asset, plus certain adjustments. Your taxable gain is the sale price minus your cost basis, not the full sale price.
Net Investment Income Tax (NIIT)
An additional 3.8% tax on investment income for filers above $200,000 (single) or $250,000 (married filing jointly) in total income, on top of regular capital gains tax.
What a $10,000 long-term gain actually costs, by income level
| Ordinary income (before the gain) | LTCG tax | NIIT | Total tax on the gain |
|---|---|---|---|
| $30,000 | $0 | $0 | $0 |
| $60,000 | $1,500 | $0 | $1,500 |
| $200,000 | $1,500 | $380 | $1,880 |
| $600,000 | $2,000 | $380 | $2,380 |
Figures assume a single filer realizing a $10,000 long-term gain on top of the ordinary income shown. At $30,000, the entire gain falls in the 0% bracket and owes nothing federally. The same $10,000 gain costs nothing, $1,500, or $2,380 in tax depending entirely on what income it’s stacking on top of — the gain amount never changes, only the answer does.
Why gains “stack” instead of just applying a flat rate
Capital gains don’t get taxed in isolation — they stack on top of your ordinary income to determine which bracket they land in. Short-term gains stack first, taxed at your ordinary marginal rates. Long-term gains then stack on top of your ordinary income plus short-term gains, taxed at the long-term rates for whatever bracket that combined total falls into. This is why the same $25,000 long-term gain can be entirely tax-free for one person and partially taxed at 15% or 20% for another — it depends entirely on what income it’s stacking on top of.
The 0% bracket is real, and often overlooked
Long-term gains that fall within the 0% bracket — up to $49,450 of total taxable income for single filers, $98,900 for married filing jointly in 2026 — owe no federal tax at all. This is a genuinely useful planning tool for lower-income years: retirees living on modest withdrawals, someone between jobs, or anyone with a year of unusually low ordinary income may be able to realize substantial long-term gains completely tax-free by staying under that threshold.
The extra tax high earners should know about
Above $200,000 (single) or $250,000 (married filing jointly) in total income, an additional 3.8% Net Investment Income Tax can apply on top of the regular capital gains tax. This calculator estimates it using your total income and gains; the real calculation (Form 8960) uses a slightly broader definition of investment income and modified AGI, so treat this as a close estimate rather than an exact figure if you’re near the threshold.
Using this calculator
Enter your ordinary taxable income — after deductions, not your gross salary — since that’s what gains actually stack on top of. If you’re deciding whether to wait for a sale to cross the one-year holding mark, compare the short-term and long-term tax figures above on the same gain amount to see exactly what patience is worth in your specific situation.
This article is for educational purposes only and isn't legal, financial, or tax advice. See our Disclaimer for details.
