Capital Gains vs Ordinary Income Tax Calculator
Compare the tax you would owe on a capital gain treated as short-term (ordinary income) versus long-term (preferential LTCG rates) using 2026 federal tax law under the One Big Beautiful Bill Act. Includes NIIT calculation and side-by-side tax savings breakdown.
| Component | Short-Term | Long-Term |
|---|---|---|
| Tax on ordinary income | — | — |
| Tax on capital gain | — | — |
| LTCG rate applied | N/A (ordinary) | — |
| Net Investment Income Tax (3.8%) | — | — |
| Total federal tax on gain | — | — |
| Effective rate on gain | — | — |
Rates per IRS Topic 409 and P.L. 119-21 (One Big Beautiful Bill Act, signed July 4, 2025). Federal only — state taxes not included. Last updated: April 2026.
How Capital Gains Tax Works in 2026
A capital gain is the profit you make when you sell an asset — such as stocks, mutual funds, real estate, or cryptocurrency — for more than you paid. The IRS taxes these gains differently depending on how long you held the asset before selling. This single variable — the holding period — can result in dramatically different tax bills on the same profit.
The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) preserved the long-term capital gains framework established by the Tax Cuts and Jobs Act of 2017. Rates of 0%, 15%, and 20% remain intact for 2026 and beyond, with no planned sunset. Source: IRS.gov Topic 409 and P.L. 119-21.
Short-Term vs Long-Term: The Holding Period Rule
Short-term capital gains apply when you sell an asset held for one year or less. These gains are taxed as ordinary income at your marginal bracket — the same rates as your wages and salary (10%, 12%, 22%, 24%, 32%, 35%, or 37% for 2026). If you are in the 32% bracket, a $50,000 short-term gain adds $16,000 in federal tax.
Long-term capital gains apply when you hold an asset for more than one year (at least 366 days). These gains qualify for preferential rates:
- 0% rate — Single filers with taxable income up to $48,350; Married Filing Jointly up to $96,700
- 15% rate — Single $48,351–$533,400; MFJ $96,701–$600,050
- 20% rate — Single above $533,400; MFJ above $600,050
On the same $50,000 gain, a taxpayer in the 15% LTCG bracket pays just $7,500 — a saving of $8,500 compared to the 32% ordinary rate. The tax savings from waiting one year to sell can be substantial.
Net Investment Income Tax (NIIT) — The 3.8% Surtax
High-income investors face an additional 3.8% Net Investment Income Tax (NIIT) on capital gains and other investment income when Modified Adjusted Gross Income (MAGI) exceeds $200,000 for single filers or $250,000 for married filing jointly. This surtax applies on top of the regular LTCG rate, bringing the effective maximum federal capital gains rate to 23.8% (20% + 3.8%) for top earners.
The NIIT was established under the Affordable Care Act and was not modified by the OBBB Act. It applies to both short-term and long-term gains once the MAGI threshold is crossed. The calculator above automatically factors in NIIT based on your total income.
Tax Savings Comparison: Should You Wait to Sell?
The decision to sell an asset before or after the one-year threshold is one of the highest-value tax planning decisions available to individual investors. Even a few days can mean the difference between ordinary income rates and LTCG rates. For a taxpayer in the 24% ordinary income bracket selling an asset with a $100,000 gain:
- Short-term (held 11 months): $24,000 federal tax at 24%
- Long-term (held 13 months): $15,000 federal tax at 15%
- Savings from waiting: $9,000 — with no change to the underlying investment
Tax loss harvesting, Roth conversion strategies, and asset location across taxable vs tax-advantaged accounts can further reduce the capital gains tax burden. Always consult a qualified tax professional for personalized advice. Data sourced from IRS.gov and P.L. 119-21.