Your capital gain is not being taxed at 40% Tax returns don't work that way at all. What is happening is that every time you enter additional income, your Adjusted Gross Income goes up and your entire return is recalculated. The amount of tax you see is the result of that higher AGI, which may have lowered a credit, may have lowered your itemized deductions subject to a subtraction of a percentage of AGI, may have made less or none of a retirement contribution deductible, etc., etc.
The only way to really tell what changes in a return when you change your AGI is to print the return both before and after the income entry and compare them. You would, of course, have to pay for your return.
