rjs
Level 15
Level 15

Deductions & credits

@RogerButer 

The calculation of the tax on long-term capital gain is complicated. The rate that applies to your long-term capital gain is determined by your total taxable income. The long-term capital gain is "stacked" on top of your taxable ordinary income when calculating the tax on the gain. What might be happening is that your long-term capital gain straddles the 0% and 15% brackets. If you add $1,000 of ordinary income, such as an IRA distribution, it pushes $1,000 of long-term capital gain from the 0% bracket into the 15% bracket. So you are only paying 12% on the IRA distribution, but you have to pay 15% on an additional $1,000 of long-term capital gain. In the reverse situation, if you reduce your IRA distributions by $1,000, then $1,000 of long-term capital gain drops down from the 15% bracket into the 0% bracket, so you see a $270 reduction in total tax.

 

If you have qualified dividends (1099-DIV box 1b), the qualified dividends are combined with long-term capital gain when calculating the tax.