Capital gains
The profit from selling an asset for more than its cost basis; taxed at lower rates if held more than one year.
Gain = Proceeds − Basis ; Long-term rate = 0%, 15% or 20% by taxable income
Explanation
A capital gain is realized when you sell an asset (stocks, funds, real estate) for more than your cost basis. Unrealized gains, ones on paper, are not taxed until you sell.
Short-term gains (assets held one year or less) are taxed at your ordinary income rates. Long-term gains (held more than one year) and qualified dividends get preferential federal rates of 0%, 15% or 20%.
Long-term gains are “stacked” on top of your ordinary taxable income. Your ordinary income fills the brackets first, and gains occupy the space above it. So the same $20,000 gain can be taxed at 0% for one person and 15% for another. For 2026, the 0% rate applies up to about $49,450 of taxable income for single filers and $98,900 for married filing jointly; the 20% rate begins around $545,500 single and $613,700 joint. These thresholds are inflation-adjusted each year.
High earners may also owe the 3.8% net investment income tax (NIIT), and most states tax capital gains as ordinary income. Special rates apply to some assets, such as collectibles (up to 28%) and depreciation recapture on real estate (up to 25%).
In scenarios, the app estimates the gain on each taxable-account sale using tracked cost basis, stacks it on your ordinary income, and applies the federal rates plus NIIT and your state’s treatment.
Example
A single filer in 2026 has $60,000 of wages and a $20,000 long-term gain.
- Ordinary taxable income: $60,000 − $16,100 standard deduction = $43,900
- Room left in the 0% gain bracket: $49,450 − $43,900 = $5,550, taxed at 0%
- Remaining gain: $20,000 − $5,550 = $14,450 × 15% = $2,167.50
If the same gain were short-term, it would be added to ordinary income ($63,900 taxable): $6,500 at 12% ($780) plus $13,500 at 22% ($2,970) = $3,750. Holding past one year would save $1,582.50.