How We Calculate: Capital Gains Tax

What This Calculator Does

The Capital Gains Tax calculator estimates your US or UK tax liability when you sell an asset for a profit. It shows the tax owed, effective rate, and a breakdown of how the tax is calculated across different brackets and rates.

For the US, it compares short-term vs long-term holding strategies and includes the Net Investment Income Tax (NIIT) for high earners. For the UK, it applies the annual exempt amount and determines the split between basic and higher rate CGT.

How the US Calculation Works

Long-Term Gains (Held > 1 Year)

1. Calculate the gain: sale price − purchase price
2. Add gain to existing taxable income to determine which bracket applies
3. Apply the applicable long-term rate (0%, 15%, or 20%) to the gain
4. If modified AGI exceeds the NIIT threshold, add 3.8% on investment income above the threshold

Short-Term Gains (Held ≤ 1 Year)

Short-term gains are taxed as ordinary income. The gain “stacks” on top of your existing taxable income:

1. Calculate tax on (existing income + gain) using federal brackets
2. Subtract tax on existing income alone
3. The difference is the tax on the short-term gain
4. Add NIIT if applicable

This stacking means a large short-term gain can push you into a higher marginal bracket.

How the UK Calculation Works

1. Calculate the gain: sale price − purchase price
2. Deduct the annual exempt amount (£3,000 for 2025/26)
3. For basic rate taxpayers: determine how much unused basic rate band remains after salary/income
4. Tax gains within the remaining basic rate band at 18%, and any excess at 24%
5. For higher/additional rate taxpayers: all taxable gains at 24%

How Each Variable Affects the Result

Holding Period (US): The single biggest factor. Long-term rates (0-20%) are roughly half of short-term rates (10-37%) for most taxpayers. An extra day of holding can save thousands.

Taxable Income: Determines which bracket your gains fall into. In the US, low-income investors can pay 0% on long-term gains. In the UK, income affects how much basic rate band remains for the 18% rate.

Filing Status (US): Married filers have roughly double the bracket thresholds of single filers, meaning more of their gains fall into lower brackets.

NIIT (US): Only affects high earners, but adds a full 3.8% to the effective rate. There’s no way to avoid it beyond reducing AGI below the threshold.

Common Uses

• Estimating tax before selling stocks, ETFs, or crypto
• Comparing the benefit of holding an additional year (short vs long-term)
• Planning year-end tax-loss harvesting strategies
• Budgeting for property disposal (buy-to-let in the UK)

Why This Calculator Exists

Capital gains tax rates are not intuitive — they depend on your income, filing status, holding period, and country. This calculator shows the exact tax in seconds, making it possible to compare scenarios and make informed decisions about when to sell.