Understanding 0% Capital Gain Brackets
Surprisingly, many investors are unaware of the 0% capital gain brackets, which can allow for “harvesting profits” without triggering taxes when selling profitable assets. With new deductions set to roll out in 2025 under President Trump’s “Big Beautiful Bill,” more investors might find themselves eligible for these brackets.
Tommy Lucas, a certified financial planner based in Orlando, Florida, suggests that alongside other tax strategies, this could represent a substantial opportunity for selling investments while incurring no capital gains tax.
How 0% Capital Gain Bracket Works
Assets held for more than a year are generally assessed under long-term capital gains, which fall into tax rates of 0%, 15%, or 20%, depending on one’s taxable income. There’s also a 3.8% additional charge affecting higher-income individuals, bringing some investors’ total to 23.8%.
For 2025, single filers will qualify for the 0% long-term capital gains rate if their taxable income is below $48,350. For married couples filing jointly, that threshold is $96,700. To determine taxable income, one subtracts either standard or itemized deductions from their adjusted gross income. However, keep in mind that when investments are sold, their profits contribute to the taxable income calculation.
Financial experts note that the increased standard deduction, alongside a temporary deduction for older individuals, may result in a higher number of investors falling into the 0% bracket in 2025.
Utilizing 0% Brackets for “Tax Gain Harvesting”
One of the significant advantages of the 0% long-term capital gain bracket is implementing a strategy called “tax harvesting.” This involves selling profitable securities strategically during low-income periods.
“We’re excited to see what the future holds,” mentioned Jared Gagne, a CFP and Private Wealth Manager at Claro Advisor in Boston.
Moreover, Andrew Herzog, an Associate Wealth Manager at Watchman Group in Texas, pointed out that some investors might sell their assets to effectively “reset” the original purchase prices. This strategy can potentially increase the investment’s cost basis, thereby diminishing profits and yielding future tax benefits.
Experts also emphasize the need to consider how these strategies align with broader financial goals, including legacy objectives. For instance, if a child is set to inherit profitable assets, they would benefit from a “step-up basis” according to the market value at the time of the original owner’s passing.
