Estimate the federal tax on your investment gains. Long-term gains get preferential 0/15/20% rates that stack on your ordinary income — so part of your gain may be taxed at 0%.
Hold an investment more than a year before selling and the profit qualifies as a long-term capital gain, taxed at 0%, 15%, or 20% rather than your ordinary income rate. These preferential rates are one of the biggest advantages in the tax code for patient investors. Sell within a year and the gain is short-term, taxed as ordinary income — often a much higher rate.
Long-term gains sit on top of your ordinary income when determining the rate. If your ordinary income is low, part or all of your gain can fall in the 0% bracket and escape federal tax entirely. As your income rises, gains push into the 15% and eventually 20% bands. The calculator shows exactly how your gain splits across these brackets.
Realizing gains in a low-income year — common in early retirement before Social Security and RMDs — can mean paying 0% on a chunk of them, a strategy known as gain harvesting. But gains also raise your adjusted gross income, which can shrink ACA subsidies and, later, raise Medicare premiums. Seeing the whole picture before you sell is what separates a smart sale from a costly one.