How capital gains tax is computed

A $40,000 sale does not produce a $40,000 tax base. Subtract the $25,000 basis first and the gain is $15,000, which is what the rate is applied to. That distinction is the single biggest source of unnecessary alarm about selling an investment.

At 15 percent, the tax on this gain is $2,250. Most of the sale proceeds are a return of money that was already yours, and the tax touches only the growth on top of it.

Basis starts at what you paid and moves from there. Commissions and purchase costs raise it. Reinvested dividends raise it, which is the one that most often gets missed and causes the same money to be taxed twice: once as a dividend when it was reinvested, and again as gain because the basis was never adjusted.

Return-of-capital distributions lower it. Corporate actions can restate it entirely. Keeping the running figure is the difference between a correct gain and a plausible one, and only a correct basis produces a correct tax.

Nothing inside this identity decides the rate. The holding period does, and so does your income level and the type of asset. A sale inside a year is generally taxed as ordinary income; longer than that and a separate schedule applies. Short-term against long-term gains prices what one day either side of the anniversary is worth.

Because the rate comes from outside, the same $15,000 gain can cost $2,250 or $3,000, depending on facts that have nothing to do with the trade. The tax brackets calculator shows where income falls, and marginal tax rate explains the stacking.

Losses offset gains before any tax is due, which is what tax-loss harvesting works with, and the tax loss harvest calculator prices it. Gains inside tax-advantaged accounts are outside this rule entirely. A main home has its own exclusion, covered in how the home sale exclusion works. The capital gains tax calculator runs the gain and the tax from the three figures you supply. This is educational material, not financial advice.