There are three federal rates on a long-term capital gain and they are published as thresholds of taxable income rather than as brackets of the gain, which is the detail that trips up almost every hand calculation. The band is decided by your income for the year, not by the size of the gain, and the gain then stacks on top of that income rather than being taxed in isolation.
The three bands, and what decides which one you are in
The IRS publishes it directly: the tax rate on most net capital gain is no higher than 15% for most individuals, a 0% rate applies where taxable income is at or below $48,350 for single and married filing separately, $96,700 for married filing jointly and qualifying surviving spouse, and $64,750 for head of household, and a 20% rate applies above the 15% band. The figure being tested is taxable income, the number after deductions, which is why a hand calculation starting from gross salary usually lands in the wrong band.
The short-term case has no band at all
Everything above describes a long-term gain. The IRS rule is that an asset held more than one year before disposal produces a long-term gain or loss, and one year or less produces a short-term one, with exceptions for property acquired by gift, from a decedent, or as patent property. A short-term gain is simply part of your ordinary income for the year and is taxed at whatever rate that income attracts. There is no preferential table, no threshold to be under and nothing to plan around except the date itself.
Two things sit outside the table
The first is loss netting, which happens before the rate: losses reduce gains, and where losses exceed gains the deductible excess against ordinary income is the lesser of $3,000, or $1,500 if married filing separately, or the total net loss, with the rest carried forward. The second is the Net Investment Income Tax, a further 3.8 percent charged on the lesser of net investment income or the amount by which modified adjusted gross income exceeds $200,000, $250,000 or $125,000 depending on filing status. Neither appears in a rate table and both change the answer.
And the state, which is a second calculation
There is no national state rule to apply. California publishes that it does not have a lower rate for capital gains and that all capital gains are taxed as ordinary income. Washington has no income tax and charges a 7% tax on the sale or exchange of long-term capital assets. Texas's constitution states that the legislature may not impose a tax on the realized or unrealized capital gains of an individual, family, estate or trust. The record on this site is those sentences, each with the page and the date it was read.
Questions people ask about calculating capital gains tax
Are the bands brackets of the gain or of my income?
Of taxable income. The IRS publishes the 0% band as applying where taxable income is at or below $48,350, $96,700 or $64,750 depending on filing status, so the band is decided by the income figure and the gain stacks on top of it.
What is the highest federal rate on a long-term gain?
A 20% rate applies above the 15% band. The IRS states that the rate on most net capital gain is no higher than 15% for most individuals, which is a statement about most people rather than a ceiling.
Where does the 3.8% fit in the calculation?
Outside the rate table, as a separate charge on the lesser of net investment income or the excess of modified adjusted gross income over the threshold for your filing status.
Do I apply losses before or after the rate?
Before. Capital losses reduce capital gains first, and only the excess loss is tested against the annual deduction limit.