Federal Capital Gains Tax Framework
Short-Term Gains (≤ 1 Yr)
Tax = ST Gain × Marginal Ordinary Rate
Long-Term Gains (> 1 Yr)
Tax = LT Gain × (0%, 15%, or 20%)
Net Investment Surtax (NIIT)
NIIT = min(NII, MAGI - $200k) × 3.8%
Step-by-Step Calculation Breakdown
Example: Single Filer, $85,000 Wages, $5,000 Short-Term Gain, $20,000 Long-Term Gain
1. Ordinary Income Margin: $85,000 base places ST gains in the 22% bracket
2. Short-Term Tax: $5,000 × 22% = $1,100.00
3. Long-Term Tax: $20,000 falls in 15% LTCG bracket = $3,000.00
4. MAGI Threshold: Total $110,000 is under $200k single NIIT limit = $0.00 NIIT
5. Total Capital Gains Tax: $1,100 + $3,000 = $4,100.00
6. Effective Capital Gains Rate: $4,100 ÷ $25,000 total gains = 16.40%
Total Capital Gains Tax Due:$4,100.00 (16.40% Effective)
Key Capital Gains Tax Optimization Strategies
- Cross the 365-Day Threshold: Delaying sales by just a few days to surpass 12 months often cuts federal taxes from 24%–37% down to 15%.
- Tax-Loss Harvesting: Realize paper losses before December 31 to offset realized capital gains dollar-for-dollar and reduce taxable income.
- Primary Residence Exemption (Section 121): Exclude up to $250,000 ($500,000 if married) of capital gain on a home sale if you lived in it for 2 of the past 5 years.