Taxes · Investing · One lot
Hold an investment more than a year and the profit usually stacks into 0%, 15%, or 20% instead of ordinary income rates. Ordinary income fills first. NIIT 3.8% is a MAGI flag on top, not a fourth bracket. Holding period, cost basis, and which lot you sell matter more than slogans.
Updated 2026-09-13 · 10 min read · Educational, not tax advice. Run proceeds − basis before you click sell. 0% harvest sequence: tax-efficient withdrawals.
Sell at 365 days and the profit is ordinary income — 10 / 12 / 22 / 24% for most households in 2026. Sell after more than one year and it is usually long-term. That one extra day is one of the highest-ROI calendars in personal finance if you were going to sell anyway. Do not hold a concentrated position an extra year to save 7 points if the business can blow up.
Cost basis is what you paid, plus reinvested dividends and return-of-capital adjustments. The gain is proceeds minus basis, minus selling commissions. Specific-identify the lot at the broker before the trade. Default FIFO sells the oldest (often cheapest) shares first.
Worked slice
Other taxable income $40,000. 2026 0% cap $49,450, so $9,450 of the gain is still 0%. Remaining $50,550 at 15% = $7,583 federal. MAGI $116,100 is under the $200,000 NIIT floor. At a typed 5% state, add $3,000. All-in $10,583 (17.6%). Same numbers as short-term: extra ordinary tax $12,160 + $3,000 state = $15,160. Waiting the extra day saves about $4,578 federally-plus-state.
The usual miss
Single, other taxable $180,000, MAGI before $196,000, $40,000 long-term gain. All of it is 15% ($6,000). MAGI after $236,000 is $36,000 over the $200,000 floor, so NIIT is 3.8% × $36,000 = $1,368. Federal on the sale is $7,368, not $6,000. The 15% sticker is not the bill.
| Rate | Single | MFJ | HOH | MFS |
|---|---|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $66,200 | $0 – $49,450 |
| 15% | $49,451 – $545,500 | $98,901 – $613,700 | $66,201 – $579,600 | $49,451 – $306,850 |
| 20% | Over $545,500 | Over $613,700 | Over $579,600 | Over $306,850 |
These are taxable income caps, including the gain. Short-term uses the ordinary tables in the same revenue procedure (10% through $12,400 single / $24,800 MFJ, then 12 / 22 / 24 / 32 / 35 / 37). Qualified dividends use the long-term stack. Collectibles can hit 28%. Unrecaptured §1250 gain on depreciated real estate can hit 25%. This classroom’s calculator models a stock or fund lot, not those two.
The 3.8% net investment income tax applies to the lesser of net investment income or MAGI over a floor that Congress did not index: $200,000 single / HOH, $250,000 MFJ, $125,000 MFS (IRC §1411). A conversion is ordinary income, not NII, but it still raises MAGI and can pull an existing gain over the floor. IRMAA is a different MAGI cliff two years later — do not rebuild it here; use IRMAA MAGI room.
Taxable brokerage: prefer broad index ETFs with low turnover so you control the lots. Tax-advantaged accounts: a fine home for funds that throw ordinary income. Roth is the best wrapper for assets you expect to grow the most. That map is asset location, not a reason to sell a winner today to “tidy the ticker.”
Do not let the tax tail wag the dog. A 15% long-term rate on a needed sale is cheaper than a concentrated position that blows up. Inside a 401(k) or IRA there is no 1099-B — trades there do not create capital gains.
A realized loss first offsets realized gains, then up to $3,000 of ordinary income ($1,500 MFS). The rest carries forward. Selling a loser and buying a substantially identical security 30 days before or after — including in an IRA — is a wash sale. That file is tax-loss harvesting. A mutual-fund capital-gains distribution in December is a realized gain you did not click. ETFs usually spit less. Neither is a reason to harvest a $200 loss for the story.
Free tool
Proceeds − basis, long vs short, 0/15/20 stack, NIIT flag, your state %. Shareable URL. Hash + /chart.js.
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12-step: fill the 0% band, then 12%, watch IRMAA. Already the playbook — no second wall.
0% / 15% / 20% of the gain. Single 0% to $49,450, 15% to $545,500. MFJ $98,900 / $613,700. Rev. Proc. 2025-32. Short-term is ordinary.
More than one year (IRC §1222). Day 365 is still short. Specific-ID the lot before the trade.
No. No 1099-B. Traditional withdrawals are ordinary; qualified Roth withdrawals are not taxed.
Extra 3.8% on the lesser of NII or MAGI over $200k single / $250k MFJ. Floors are not indexed.
Yes. Ordinary fills first; LTCG stacks. $40k other taxable leaves $9,450 of 0% room for a single filer in 2026.
Sell a loser to offset gains, then $3,000 of ordinary. Wash sale if you buy substantially identical within 30 days either side.
Yes. A capital-gains distribution is a realized gain even if you did not sell. Same 0/15/20 stack.
No. IRC §121 is $250k / $500k on a primary residence after the 2-of-5 test. Different page.
Educational only. Confirm Rev. Proc. 2025-32, IRC §1(h), §1222, §1411, and your 1099-B before you file. Twin URL capital-gains-basics is a stub. Written by Thomas Sanders.