People usually ask “how much capital gains tax do I pay” expecting one number. There isn’t one —
but there are only five things that determine it, and once you know all five the answer is
arithmetic.
1. The gain. Not the sale price. Sale price minus your cost basis — what you paid, plus
improvements and acquisition costs, minus any depreciation claimed.
2. The holding period. More than one year and the gain is long-term, taxed federally at
0%, 15% or 20%. One year or less and it is short-term, taxed as ordinary income at your
marginal rate. This single distinction is often worth more than every other planning decision
combined.
3. Your filing status. Single, married filing jointly, married filing separately, or head of
household. Each has its own bracket thresholds.
4. Your other taxable income. This is the input people leave out, and it is the one that sets
the rate. The long-term bracket is determined by your total taxable income including the gain
— so the same $200,000 gain can be taxed at 15% for one household and 20% for another.
5. Your state. Applied last, on top of everything federal. The spread runs from 0% in
Texas and seven other states to over 13% in California.
The Part That Surprises People: NIIT
Above $200,000 of modified adjusted gross income (single) or $250,000 (married filing
jointly), an additional 3.8% Net Investment Income Tax applies to investment income, including
capital gains. It is a separate charge layered on top of the capital gains rate, and because the
threshold is not indexed the way the brackets are, more households cross it each year.
A gain large enough to be taxed at 20% federally is, almost by definition, large enough to trigger
NIIT — so the realistic top federal figure on a big long-term gain is 23.8%, not 20%.
Short-Term vs Long-Term, Concretely
The gap is not marginal. On the same gain, a high earner filing jointly can face an ordinary rate
in the mid-thirties on a short-term gain against 20% on a long-term one — before NIIT and state
tax, which apply either way. Switch the Gain Type toggle in the calculator above from
Long-Term to Short-Term and watch the total move.
Where a sale date is genuinely flexible and the one-year mark is close, that toggle is the most
valuable thing on this page.
If the Number Is Bigger Than You Expected
There are recognised approaches for deferring, spreading or reducing a capital gains bill. Each is
a category of strategy with its own rules, costs, risks and eligibility requirements, and none is
a recommendation here:
- 1031 exchange — defer gain on investment real estate by
reinvesting in like-kind property within statutory deadlines.
- Opportunity Zone funds — defer and potentially reduce tax by
investing the gain in a qualified fund.
- Tax-loss harvesting — offset realised gains with realised losses elsewhere in a portfolio.
- Timing and instalment sales — spread a gain across tax years so less of it is taxed in the
top band.
Which of these — if any — fits depends on the asset, the amounts, and your whole financial
picture. That is a conversation for your CPA and your adviser, not a calculator.
Grace Capital Management, LLC is an SEC Registered Investment Adviser. Securities offered through
Concorde Investment Services, LLC, member FINRA/SIPC — separate and unaffiliated entities. This
page is educational and is not investment, tax, or legal advice. Tax rules change and individual
circumstances vary; confirm any figure with your own tax and legal advisers.
