Capital Gains Tax Calculator

Understanding the Capital Gains Tax Calculator

When you sell an investment—such as stocks, bonds, or real estate—for more than you paid for it, the profit is considered a capital gain and is subject to taxes. The amount of tax you owe depends on several factors, most notably your income and how long you held the asset. This calculator helps you estimate your potential tax liability from both short-term and long-term gains.

How It Works

The calculator uses simplified tax brackets for a given tax year to estimate the taxes owed on your investment profits.

• Short-Term Gains: These are profits from assets held for one year or less. They are added to your ordinary income and taxed at your marginal tax rate, which can be as high as 37%.
• Long-Term Gains: These are profits from assets held for more than one year. They are taxed at preferential rates, which are significantly lower than ordinary income rates. The long-term capital gains rates are 0%, 15%, or 20%, depending on your total taxable income and filing status.

The Calculation

The calculator first determines the tax on your short-term gains by adding them to your annual income and applying the standard income tax brackets. It then calculates the tax on your long-term gains separately using the specific long-term capital gains brackets. The final result is the sum of these two amounts. Understanding this distinction is key to effective tax planning, as holding an asset for more than a year can lead to substantial tax savings.

Frequently Asked Questions