Introduction
Capital Gains Tax Worksheet: Every tax season, millions of Americans who hold investments and earn wages face the same stressful question: “How much will I really owe on my taxes when my qualified dividends and long-term capital gains are mixed in with regular income?” It’s not just about adding up numbers — it’s about understanding how the IRS applies different tax rates to different kinds of income, and how you can keep more of your hard-earned money by taking advantage of preferential tax rules. (storybase.com)
In this step-by-step example for Tax Year 2025, we follow a real-world scenario for a married couple filing jointly — “Alex and spouse” — as they sort through wages, interest, qualified dividends, and stock gains. Instead of getting lost in IRS forms, you’ll see exactly how to use the IRS Qualified Dividends & Capital Gains Tax Worksheet, how the special 0%, 15%, and 20% capital gains brackets work, and why $40,000 of investment income ends up taxed at 0% for them. (storybase.com)
Whether you’re preparing your own return, planning your investments, or just trying to decode complex IRS rules, this example makes the process practical, relatable, and easy to follow — giving you clarity on how your investment income can dramatically reduce your overall tax bill. (storybase.com)
Form 1040 Tax Schedules Guide — How to File by April 15, 2026
Example Taxpayer: “Alex” (Married Filing Jointly)
Tax Year: 2025 (filed April 15, 2026)
Filing Status: Married Filing Jointly
Income items for 2025
- As per form W‑2 wages: $80,000
- Qualified dividends (Form 1099‑DIV, Line 3a): $12,000
- Long‑term capital gains from sale of stocks (Line 7): $28,000
- Other income (interest, etc.): $4,000
Standard deduction (MFJ 2025): $29,200 (approx, typical IRS amount)*
— That gives taxable income (Form 1040, Line 15) of:
Taxable income = 80,000 + 4,000 + 12,000 + 28,000 − 29,200
≃ $94,800 (rounded for simplicity)
This $94,800 goes on Line 1 of the worksheet.
Related And Must Read Article: Ultimate Guide to the IRS Qualified Dividends and Capital Gain Tax Worksheet (Line 16)
Filling Out the “Qualified Dividends & Capital Gains Tax Worksheet”
| Capital Gain Tax Worksheet Line | Entry & Explanation |
| 1. | Taxable income from Form 1040, Line 15: $94,800 |
| 2. | Qualified dividends (Form 1040, Line 3a): $12,000 |
| 3. | Net capital gain (Line 7 or Schedule D smaller of 15/16): $28,000 |
| 4. | Line 2 + Line 3 = $12,000 + $28,000 = $40,000 |
| 5. | Line 1 − Line 4 = $94,800 − $40,000 = $54,800 |
| 6. | 0% rate threshold (MFJ): $96,700 for 2025 (0% cutout) |
| 7. | Smaller of Line 1 or Line 6 = $94,800 |
| 8. | Smaller of Line 5 or Line 7 = $54,800 |
| 9. | Line 7 − Line 8 = $94,800 − $54,800 = $40,000 → taxed at 0% |
| 10. | Smaller of Line 1 or Line 4 = $40,000 |
| 11. | Line 9 = $40,000 |
| 12. | Line 10 − Line 11 = $40,000 − $40,000 = $0 |
| 13. | 15%/20% threshold (MFJ): $600,050 for 2025 — the 20% rate point) |
| 14. | Smaller of Line 1 or Line 13 = $94,800 |
| 15. | Line 5 + Line 9 = $54,800 + $40,000 = $94,800 |
| 16. | Line 14 − Line 15 = $94,800 − $94,800 = $0 |
| 17. | Smaller of Line 12 or Line 16 = $0 |
| 18. | Line 17 × 15% = $0 × 0.15 = $0 |
| 19. | Line 9 + Line 17 = $40,000 + $0 = $40,000 |
| 20. | Line 10 − Line 19 = $40,000 − $40,000 = $0 |
| 21. | Line 20 × 20% = $0 × 0.20 = $0 |
Now Add the Parts On Capital Gains Tax Worksheet
Tax on preferential income (qualified dividends & gains):
Line 18 + Line 21 = $0
Tax on ordinary income (Line 22):
Line 22 is the tax on Line 5 of the worksheet ($54,800) using the regular tax table or Tax Computation Worksheet for 2025.
Let’s assume the regular tax on $54,800 (MFJ) from 2025 tax tables is about $6,200 (this is an approximate tax from typical IRS tables).
(You would look up the exact amount in the IRS tax table per your filing status.)
Capital Gains Tax Worksheet Totals
| Line | Result |
| 23. | Add lines 18 + 21 + 22 = $0 + $0 + $6,200 = $6,200 |
| 24. | Regular tax on Line 1 ($94,800) — assume about $13,000 |
| 25. | Tax on all taxable income: smaller of Line 23 or Line 24 = $6,200 |
So the tax shown on Form 1040, line 16 would be about $6,200.
This reflects the benefit of lower rates on qualified dividends and long‑term capital gains: you pay much less than the regular tax on the full taxable income because $40,000 of it fell into the 0% capital gains bracket.
Why Capital Gains Tax Worksheet Result Makes Sense
0% Capital Gains Portion
Because the taxpayer’s combined income ($94,800) stayed under the 0% capital gains threshold ($96,700) for married filing jointly in 2025, all $40,000 of qualified dividends and long‑term capital gains were taxed at 0% in the worksheet computation.
15% / 20% Rate Portions
There is no 15% or 20% portion because of that threshold — hence Lines 17–21 are zero.
Ordinary Income Tax
Only the ordinary income portion ($54,800: wages + interest + “excess” income after subtracting dividends & gains) paid regular tax — and that’s what determines most of the $6,200 total.
Key Takeaways oN Capital Gains Tax Worksheet
- Qualified dividends & long‑term gains can be taxed at favorable rates 0%, 15%, or 20% depending on total income.)
- The worksheet lets you split your taxable income into portions taxed at these different rates.
- In this example, because total taxable income stayed below the first threshold, all $40 K of investment income was taxed at 0%.
- Only the ordinary part of income (wages & other non‑preferential income) was taxed under the regular tax tables.
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