An ordinary income tax rate applies to income taxed under ordinary income-tax rules rather than preferential capital-gains rules. It matters when comparing where to hold assets and when estimating the tax benefit of realizing investment losses. section 8.1 section 14.3
Asset location
A model assigns a 35% ordinary-income rate to IRA distributions. Because bond interest is generally taxed at a higher rate than stock dividends, it places $500,000 of bonds in the IRA and $500,000 of stocks in the taxable account. The modeled strategy produces $4,913,923 after tax, compared with $4,162,819 when the holdings are reversed. section 8.1
For tax-loss harvesting, estimate the immediate benefit by multiplying the realized loss by the applicable rate. Use the ordinary income rate when the loss offsets ordinary income; compare that benefit with commissions, bid–ask spreads, and other replacement-trade costs. section 14.3
