High damping capacity is one of the prominent properties of NiTi shape memory alloy (SMA), having applications in many engineering devices to reduce unwanted vibrations. Recent experiments demonstrated that, the hysteresis loop of the stress-strain curve of a NiTi strip/wire under a tensile loading-unloading cycle changed non-monotonically with the loading rate, i.e., a maximum damping capacity was obtained at an intermediate strain rate (ε.critical). This rate dependence is due to the coupling between the temperature dependence of material’s transformation stresses, latent-heat release/absorption in the forward/reverse phase transition and the associated heat exchange between the specimen and the environment. In this paper, a simple analytical model was developed to quantify these thermo-mechanical coupling effects on the damping capacity of the NiTi strips/wires under the tensile loading-unloading cycle. We found that, besides the material thermal/mechanical properties and specimen geometry, environmental condition also affects the damping capacity; and the critical strain rate ε.critical for achieving a maximum damping capacity can be changed by varying the environmental condition. The theoretical predictions agree quantitatively with the experiments.