Turbotax is treating my long-term capital gains as ordinary income

[ratzfatz]

I have one larger transaction of long-term capital gains from a cryptocurrency sale that the software doesn't seem to recognize as a long-term capital gain. When I remove it, my total federal tax due is decreased by much more than the long-term capital gains tax rate that should apply to me, more in line with my ordinary income tax rate (roughly 5 percentage points more).

This sale was not reported to me by a financial institution, so I entered it myself, and I did so correctly under 'holding period' as long-term. Any suggestions as to what may be going on here?

Thank you!

[MinhT1]

When you add a long term capital gain on your tax return, the tax liability does not simply go up by the amount of long term capital gain tax. Other factors will come into play and can affect your tax liability.

Two things that can affect your total tax:

- The addition of the long term gain will add to your AGI and lower your earned income tax credit

- The capital gain may trigger or add to the Net Investment Income tax (NIIT) of 3.8%.

Please read this IRS document about the NIIT.

[ratzfatz]

Thanks so much. This is very helpful. Looks like this issue is related to the NIIT. One suggestion for TurboTax would be to make this type of issue clear to the user with a pop-up informing you of what is happening behind the scenes because otherwise, the attentive non-expert will think they entered something incorrectly.