TurboTax reduced both my Federal and State refunds when I entered long term capital gains. However, my married filling jointly gross income says the tax rate is 0.

[ThomasM125]

I'm not sure where you are seeing the tax rate. It is possible your rate was $0 before you entered the capital gain income and that raised your tax rate. Long term capital gains can be exempt from tax if you are in a low income tax bracket, but short term capital gains are fully taxable as ordinary income. You can look on your form 1040, on line 15 to see what your taxable income is and you can look on line 24 to see what your tax is. When you print out your tax return, you will see the Qualifed Dividends and Capital Gain Tax Worksheet that will show how your capital gains were taxed.

You can view your form 1040 and schedules 1 to 3 while working in the online version of TurboTax by following these steps:

1. Click on Tax Tools in the left menu bar
2. Click on Tools
3. Look under Other Helpful links….
4. Choose View Tax Summary
5. Look in the left menu bar and choose Preview my 1040
6. Scroll down the page to see form 1040 and schedules 1 to 3

[rjs]

To put it another way, first of all the federal tax rate that applies to long-term capital gains is determined by your taxable income, not gross income. But it's based on your total taxable income, including the capital gain. Did you include the capital gain when you looked at the tax brackets?

Also, most states do not have lower tax rates for long-term capital gains like the federal tax does. So for your state tax, the long-term capital gain is just additional income that is taxed at the regular rates.