I am marginally in a lower tax bracket based on W2 income. If I add capital gains from stock sales, then this tax bracket would go higher. Does capital gains actually affect your tax bracket or are they just taxed separately (based on long-term vs short-term gains/losses) ?

  • I don't think you all answered his question. I believe he was asking, will the capital gains itself change your tax bracket... Example.... A Single Filer, with an income of $25,000 would be in the 15% tax Bracket. If this Single filer, made $25,000 in W2 Income, but had capital gains of $300,000 Would he still be in the 15% tax Bracket... or would he move up to 35% Tax Bracket? The difference is this... if he is still in the 15% tax bracket his 300,000 capital gains would be taxed at 0% And if his Tax Bracket was 35% then his capital gains would be taxed at 15% Meaning does his $300,000 Capita – user42147 May 12 '16 at 6:27

I think you're misunderstanding how tax brackets work. If you make $1 more and that bumps you into a higher bracket, only THAT particular dollar will be taxed at the higher tax bracket rate... Not your entire income.

Short term capital gains are treated as income. Long term capital gains have a special tax rate currently.

  • That's an important distinction regarding how tax brackets work. I was not fully aware of that. How tax brackets work – Tim Feb 7 '11 at 3:03

I'm not sure where you are, but in the United States capital gains are taxed at a lower rate than other types of income.

On the 1040, captial gains income is separated from earned income, and income tax is calculated just on earned income. Then capital gains tax is calculated on capital gains income, and then added to income tax afterward.

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