What this line means
The tax on your capital gains calculated using the Schedule D Tax Worksheet, which applies different tax rates to different categories of gain: 0%/15%/20% for standard long-term gains, 25% for unrecaptured Section 1250 gain, and 28% for collectibles gains. This worksheet is required when lines 18 or 19 have amounts. Otherwise, use the simpler Qualified Dividends worksheet on line 20.
Does this apply to you?
Easy to overlook
The worksheet stacks gain categories in a specific order The tax is computed by stacking income in layers: ordinary income first (taxed at regular rates), then 28% gain, then unrecaptured Section 1250 gain, then remaining long-term gain. The stacking order determines which income fills each rate bracket first, and getting the order wrong changes the total tax. 1 IRS Schedule D Tax Worksheet instructions
You only use this worksheet OR line 20, never both If you are required to use the Schedule D Tax Worksheet (because lines 18 or 19 have amounts), you skip line 20 entirely. If lines 18 and 19 are both zero, you use line 20 and skip line 21. Completing both results in an incorrect tax calculation. 2 General filing pattern — multiple capital gain rate layers
Watch out for this
Applying a single flat capital gains rate to all gains when multiple rate categories exist. A filer who sold both a rental property (25% recapture rate) and stocks (15% rate) needs this worksheet to apply the correct rate to each category. Using one rate for everything either overpays or underpays the tax owed.
Footnotes
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IRS Schedule D (Form 1040) Instructions, Schedule D Tax Worksheet. https://www.irs.gov/instructions/i1040sd ↩
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IRS Schedule D (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩