Schedule D Tax Worksheet: How the Rate Layers Are Calculated

The Schedule D Tax Worksheet is the IRS calculation you use to figure your federal income tax when your return contains capital gains that don’t fit the standard 0%, 15%, and 20% long-term rate structure. It layers your income across the ordinary tax rates and each preferential capital gains rate, including the 25% rate on unrecaptured Section 1250 gain and the 28% rate on collectibles and Section 1202 gain, then compares that layered total to what the regular tax table would produce and takes the lower number. The result goes on Form 1040, line 16.¹

When the Worksheet Is Required

Two different worksheets apply preferential capital gains rates, and the IRS routes you to one or the other based on what’s in your return. The simpler Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions handles the common case: long-term gains or qualified dividends and nothing unusual beyond that.²

You have to use the Schedule D Tax Worksheet instead if any of these are true:¹

Schedule D, line 18 is greater than zero. That’s the 28% rate gain line, which picks up collectibles held more than a year and any Section 1202 exclusion on qualified small business stock.
Schedule D, line 19 is greater than zero. That’s the unrecaptured Section 1250 gain line, which captures the depreciation portion of gain on real property held more than a year. It can also come to you through a Schedule K-1, a 1099-DIV from a REIT, or installment payments on a previously sold property.
You filed Form 4952 and elected to treat some capital gains as investment income to increase your investment interest expense deduction, with an amount on line 4g.³

If none of those apply, the simpler worksheet does the job. And if your only gains are short-term, or you have a net capital loss, you skip both worksheets — the regular tax table applies.

Inputs to Pull Before You Start

The Schedule D Tax Worksheet reads from figures your other forms have already produced. Have these in front of you:

Taxable income from Form 1040, line 15.²
Qualified dividends from Form 1040, line 3a.
Net long-term capital gain from Schedule D, line 15, and combined net gain from line 16.⁴
28% rate gain from Schedule D, line 18, calculated using the 28% Rate Gain Worksheet in the Schedule D instructions.¹
Unrecaptured Section 1250 gain from Schedule D, line 19, calculated using its own worksheet in the Schedule D instructions.

The subsidiary worksheets have to be done first. The Schedule D Tax Worksheet only reads their outputs; it doesn’t recompute them.

Prior-year capital loss carryovers have already done their work by the time you reach the tax worksheet. Short-term carryovers reduce short-term gains on Schedule D line 6; long-term carryovers reduce long-term gains on line 14. The annual $3,000 cap ($1,500 if married filing separately) on net losses against ordinary income applies at that stage, with anything above the cap carrying forward indefinitely.⁵ You don’t adjust for carryovers again inside the tax worksheet.

How the Layered Calculation Works

The worksheet slices your taxable income into layers, applies the right rate to each layer, and adds the results.

Ordinary Income Base

First, the worksheet strips out your net capital gain from taxable income. What remains — wages, interest, business income, and everything else — gets taxed at the regular rates using the tax table or tax computation worksheet. That’s your base tax.¹

The 0%, 15%, and 20% Layers

The preferential rates then apply to your “adjusted net capital gain,” which is your regular long-term gains plus qualified dividends. The special gain types (collectibles and unrecaptured 1250) are excluded here because they get their own treatment.⁶

The 0% rate fills whatever room exists between your ordinary income base and the top of the 0% capital gains threshold. If your ordinary income already exceeds that threshold, no gain gets the 0% rate. The 15% rate then covers the next band of adjusted net capital gain up to the 20% threshold. Anything above that gets 20%.

The 25% and 28% Layers

Unrecaptured Section 1250 gain is taxed at a maximum 25% rate, and collectibles gain (along with any Section 1202 gain) at a maximum 28% rate.⁶ The word “maximum” is doing real work. If your total taxable income is low enough that a collectibles gain would otherwise be taxed at 15%, you pay 15%; the 28% ceiling only bites to the extent the gain would otherwise land in a higher bracket. The worksheet computes these as standalone components and adds them to the running total.

The Final Comparison

The worksheet sums tax from every layer — ordinary rates on the base, 0/15/20 on adjusted net capital gain, 25 on unrecaptured 1250 gain, 28 on collectibles and Section 1202 gain — and compares that total to the tax you’d owe if all your income ran through the regular tax table. You pay the lower amount. That final figure moves to Form 1040, line 16.¹

What Counts as Collectibles or Unrecaptured 1250 Gain

The IRS defines collectibles broadly: artwork, rugs, antiques, gold and silver bullion, other metals, gems, stamps, coins, and alcoholic beverages held more than a year. A profitable sale of any of these goes on Schedule D line 18 and triggers the 28% layer.¹ Section 1202 gain, the non-excluded portion of a qualified small business stock sale where a partial exclusion was claimed, also feeds into that 28% category.⁶

Unrecaptured Section 1250 gain is the depreciation portion of gain on real property you previously depreciated — a rental house, a commercial building, or similar assets held more than a year. Depreciation you claimed gets recaptured at a maximum 25% rate; any remaining gain above that amount is regular long-term capital gain at the standard preferential rates.⁶

2026 Capital Gains Rate Thresholds

The 0/15/20 thresholds adjust annually for inflation. For 2026 they are:⁷

Single: 0% up to $49,450; 15% from $49,450 to $545,500; 20% above $545,500.
Married filing jointly: 0% up to $98,900; 15% from $98,900 to $613,700; 20% above $613,700.
Head of household: 0% up to $66,200; 15% from $66,200 to $579,600; 20% above $579,600.
Married filing separately: 0% up to $49,450; 15% from $49,450 to $306,850; 20% above $306,850.

These thresholds decide which slice of adjusted net capital gain lands at which rate inside the worksheet. The 25% and 28% maximum rates are fixed by statute and don’t move with inflation.

What the Worksheet Doesn’t Cover

The 3.8% net investment income tax is calculated separately on Form 8960 and layered on top of whatever the Schedule D Tax Worksheet produces. It applies when modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), at 3.8% of the lesser of net investment income or the excess over the threshold.⁸ Capital gains — including those taxed at 25% and 28% — count as net investment income; Section 121 home sale exclusions and Section 1031 like-kind exchange deferrals do not.⁹ A high-income taxpayer in the 20% bracket can therefore face a combined federal rate of 23.8% on long-term gains, or 31.8% on collectibles.

State income tax is also separate. Most states tax capital gains as ordinary income; a few don’t tax them at all. The federal worksheet doesn’t touch either calculation.

Keep the Worksheet, Don’t File It

The Schedule D Tax Worksheet carries the IRS’s “Keep for Your Records” label. You don’t attach it to your return.¹ Only the last line — the final tax figure — moves to Form 1040, line 16. Tax software handles the mechanics behind the scenes. If you work the calculation by hand, keep the completed worksheet with your return copy. If the IRS ever questions how you applied the capital gains rates, that worksheet is the record showing your math.

1
Internal Revenue Service. 2025 Instructions for Schedule D (Form 1040)
2
Internal Revenue Service. Instructions for Form 1040 (2025)
3
Internal Revenue Service. Form 4952, Investment Interest Expense Deduction
4
Internal Revenue Service. Schedule D (Form 1040)
5
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
6
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
7
Internal Revenue Service. Revenue Procedure 2025-32
8
Internal Revenue Service. Net Investment Income Tax
9
Internal Revenue Service. Instructions for Form 8960