First, if your Social Security income is not being taxed and it should be, review your answer to the question about living in a certain foreign country during 2025. This comes up just after you enter your Social Security income.
If part of your income comes from long-term capital gains, then the total is added to your income on Form 1040 line 7. But, it is taxed at a lower rate than simply looking at the tax tables.
There is a separate worksheet called the Qualified Dividends and Capital Gains Tax Worksheet that applies that lower tax rate to the capital gains. Without going into great detail, this worksheet separates your capital gains from the rest of your income and applies the capital gains rate to the capital gains income (which is lower than the ordinary income tax rate). Then your total tax amount is reported on Form 1040 line 16.
You can see this worksheet by using Forms in the upper right corner of the TurboTax desktop version, or by looking for it when printing your return if using TurboTax Online.
When you look at this worksheet, pay attention to lines 23 and 24. The tax calculated on line 23 takes into account the capital gains tax. The tax calculated on line 24 comes directly from the tax tables. Then, the lesser of those two lines is reported on line 25 and Form 1040 line 16. Therefore, if the capital gains tax rate gives you a lower overall tax, then that is the tax on your Form 1040.
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