Calculate Your Real Investment Return After All Taxes

The Number Your Brokerage Hides From You

Your brokerage statement shows a return. That number is not your return. It is the return before the IRS takes its share, before your state takes its share, and before inflation erodes what remains.

Real return is what you can actually spend. Everything else is accounting theater.

The gap between gross return and real after-tax return is not small. For a high-income investor holding taxable assets in a high-tax state, the gap routinely exceeds 4 percentage points annually. Over a 20-year horizon, that difference compounds into hundreds of thousands of dollars on a $1 million portfolio.

The formula is straightforward. The execution requires precision.

Real After-Tax Return = ((Gross Return x (1 - Effective Tax Rate)) - Inflation Rate)

None of those three inputs should be estimated casually.

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The Three Tax Layers That Compound Against You

Layer 1: Federal Capital Gains Tax

Federal tax on investment gains splits into two buckets based on holding period.

Assets held 12 months or less generate short-term capital gains. These are taxed as ordinary income. At the top marginal rate, that is 37% for 2025.

Assets held longer than 12 months generate long-term capital gains. The federal rates are 0%, 15%, or 20%, depending on taxable income. For a single filer with taxable income above $518,900 in 2025, the rate is 20%.

The 3.8% Net Investment Income Tax also applies to individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly). This stacks on top of the capital gains rate.

A top-bracket investor selling a long-term position faces a federal rate of 23.8%. That same investor selling a short-term position faces 37%. The difference on a $500,000 gain: $66,000.

Layer 2: State Income Tax

State taxes vary from 0% in Florida, Texas, and six other states to 13.3% in California on ordinary income. Most states tax capital gains at the ordinary income rate. California does not offer a preferential rate for long-term gains.

A California resident in the top bracket adds 13.3% to that 23.8% federal rate. Combined burden on long-term gains: 37.1%. On short-term gains, the combined rate reaches 50.3%.

The state layer is not trivial. It is often larger than the difference between short-term and long-term federal rates.

Layer 3: Inflation

The IRS taxes nominal gains, not real ones. If you bought an asset for $100,000, held it for 10 years, and sold it for $175,000, you owe tax on the full $75,000 gain. The fact that inflation over that decade may have consumed $22,000 of that gain in purchasing power terms is irrelevant to the tax code.

The U.S. 10-year average CPI inflation rate through 2024 sits near 3.4%. At that rate, $100,000 in 2014 required roughly $140,000 in 2024 to maintain the same purchasing power.

An investor who earned 7.5% annually on a taxable portfolio, paid 37.1% in combined taxes, and faced 3.4% inflation retained a real return of approximately 1.3% per year. That is the actual wealth creation.

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Worked Example 1: The Impatient Seller

Setup: An investor in New York City holds a concentrated stock position. Purchase price: $200,000. Current value: $320,000. Holding period: 9 months. Combined federal and state/city short-term rate: approximately 48%.

Gain: $120,000 Tax at 48%: $57,600 After-tax proceeds above cost basis: $62,400 After-tax return on original $200,000 investment: 31.2% nominal

Now apply inflation. CPI averaged 3.2% over the 9-month hold. That reduces the real return further.

Real after-tax return: approximately 28.8% over 9 months, or 38.5% annualized.

Now run the same numbers at 12 months and 1 day:

Federal long-term rate: 20%. New York state rate: 10.9%. NYC rate: 3.876%. Combined: approximately 34.8%.

Tax on $120,000 gain: $41,760 After-tax proceeds above cost: $78,240 After-tax return: 39.1% nominal over 12 months

The 3-month wait converts $57,600 in tax to $41,760. The investor keeps an additional $15,840 by holding longer. Annualized, the short-term sale still looks larger. But the investor also faces the reinvestment question: what does the $15,840 in tax savings compound to over 10 years at 7%? Approximately $31,100. That is the real cost of impatience.

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Worked Example 2: The High-Yield Bond Investor

Setup: An investor in the 37% federal bracket, residing in Illinois (4.95% flat income tax rate), holds $1,000,000 in a taxable account invested in a high-yield bond fund yielding 7.2% annually. Interest income is taxed as ordinary income.

Annual gross income from the fund: $72,000 Federal tax at 37%: $26,640 Illinois tax at 4.95%: $3,564 Total tax: $30,204 After-tax income: $41,796 After-tax yield: 4.18%

Now subtract inflation at 3.0%:

Real after-tax yield: 1.18%

The investor is generating $72,000 per year in apparent income and retaining real purchasing power growth of roughly $11,800 per year on a $1,000,000 position. That is not an error. That is the accurate picture.

The same analysis applied to a municipal bond fund yielding 4.8% tells a different story. Municipal bond interest is federally exempt and exempt from Illinois state tax for Illinois-issued bonds. After-tax yield: 4.8%. Real after-tax yield: 1.8%.

The municipal bond outperforms the high-yield bond by 0.62 percentage points in real after-tax terms, despite offering a 2.4-point lower gross yield. This is the calculation most investors skip.

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How Holding Period and Account Type Change Everything

Tax-advantaged accounts change the math entirely. Inside a Roth IRA, qualified distributions are tax-free. The after-tax return equals the gross return, minus only inflation.

A 7% gross return inside a Roth IRA with 3% inflation produces a 4% real return. The same 7% gross return in a taxable account at a combined 40% tax rate produces a 1.2% real return after 3% inflation.

Over 25 years, $500,000 growing at a real 4% becomes approximately $1,332,000. The same $500,000 at a real 1.2% becomes approximately $665,000. The account type decision is worth $667,000 on this position alone.

Asset location strategy follows directly from this analysis. Hold high-turnover funds, REITs, and bond funds in tax-advantaged accounts. Hold low-turnover index funds and buy-and-hold equities in taxable accounts. The gross return stays the same. The after-tax return shifts materially.

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The Right Way to Build Your After-Tax Return Benchmark

Every investment decision deserves a consistent benchmark. That benchmark should be expressed in real after-tax terms, not gross returns.

To build yours, you need four inputs:

1. Your combined federal and state marginal rate on ordinary income
2. Your combined federal and state marginal rate on long-term capital gains
3. Your expected average annual inflation rate over the holding period
4. The expected holding period, which determines which rate applies

With those four inputs, you can convert any gross return projection into a real after-tax return projection and compare investments on an equal footing.

A 9% gross return on a short-term trade in a high-tax state may underperform a 6.5% gross return on a long-term equity position held in a taxable account. The gross numbers do not tell you that. The after-tax numbers do.

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Run the Numbers on Your Actual Portfolio

The analysis above uses specific rates and specific positions. Your situation differs on every variable: your state, your bracket, your holding periods, your account mix.

The CalcMoney investment return calculator applies your specific tax rates, your actual holding period, and a user-defined inflation assumption to produce your real after-tax return. It does not generalize. It calculates.

If you hold positions across taxable and tax-advantaged accounts, run each separately. The blended picture often reveals that the after-tax return on your taxable positions is the weakest link in an otherwise sound allocation.

Calculate your real after-tax investment return →

The gross return on your brokerage statement is a starting point. The number you should actually care about is the one that remains after every tax authority and inflation have taken their share. That number is smaller than you expect. It is also the one worth optimizing.

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Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.