[kyteland]

While income tax and short term capital gains do work like that (an increasing marginal rate) long term capital gains (LTCG) do not. They are paid fully at the bracket you fall in to. When calculating tax rates (US federal, states may vary) you apply income first and capital gains second to determine your rate.

If you're filing single the LTCG threshold is $518,900 in 2024. So as an example, if you made $400,000 in income and $118,000 in LTCG that would put you just under the threshold to pay 15%. you'd calculate ordinary income tax on the $400,000 and then you'd pay $118,000x15%=$17,700 in LTCG.

But if you made just $2000 more in LTCG you'd pay much more as you'd be bumped into the higher 20% rate. You'd end up paying $120,000x20%=$24,000 in LTCG taxes, an increase of $6300 in taxes on just and additional $2000 in gains.

[PopAlongKid]

You are wrong.

First, let's state that you are referring to taxable income, not gross income. The former is usually non-trivially smaller than the latter, due to adjustments (including pre-tax paycheck deductions) and itemized/standard deduction.

Using 2023 numbers (since we don't know whether 2024 tax law will change between now and the end of the year), and your dollar amounts:

$400K of ordinary taxable income tops out at 35% marginal rate, the total tax is $111,895.

$120K of LTCG income is taxed as follows:

$92,300 x 15% = $13,845

$27,700 x 20% = $5,540

Total LTCG tax = $19,385

(the 2023 LTCG 15% bracket tops out at $492,300)