Did you know that the capital gains tax rate for people in the 15%-or-less tax bracket is zero? This means that if your taxable income is less than $49,450 (filing as single in 2026) or $98,900 (married filing jointly), then your long-term capital gains may be tax-free.

While this may not apply to most people with large investment accounts, if you have a moderately sized investment account and not much other income, you can avoid capital gains tax by harvesting capital gains over a period of years, with no taxes.

What Are Capital Gains?

Capital gains are the difference between the price you paid for an asset (cost basis) and the price you eventually sell it for. These assets can include a house, mutual fund, share of stock or bond, and more.

What Is the Difference Between Long- and Short-Term Capital Gains?

A gain on assets held more than one year is considered long-term capital gains, and a gain on assets held less than one year is considered short-term capital gains. Short-term capital gains are taxed at whatever your ordinary income tax rate is. Only long-term capital gains receive the special treatment.

What Is the Capital Gains Rate on Collectibles?

Collectibles such as art, musical instruments, fine wine and other alcohol, coins, jewelry, and other such items are taxed at higher rates (28%) and not subject to the lower capital gains rate.

What Is Cost Basis?

Your cost basis is typically the price you paid for an investment. The difference between the selling price and your cost basis determines your capital gain or capital loss, which is then used to calculate the tax you owe. The cost basis amount can be adjusted under the following circumstances (this is not a complete list):

1. If you didn’t pay for it but were gifted the asset, your cost basis is whatever the donor paid for the asset.
2. If you inherited your asset from a person, your cost basis is typically whatever the fair market value of the asset was at their date of death.
3. If you inherited the asset from a trust, your cost basis could be either the value at the date of death of the trust donor OR the amount paid for the asset, depending on the trust structure.
4. If you received restricted stock, your cost basis is typically the value on which you were taxed when the restrictions lapsed.
5. If you exercised stock options, the cost basis varies based on how long you held the stock before selling it.

Temporarily Low Income

Contrary to what you might think, you are likely to have a higher income than expected once you retire. You might have a pension, IRA distributions, 401(k) distributions, interest, dividends, capital gains, Social Security and possibly part-time employment income. This often adds up to more than the limits mentioned above.

Reasons you may have temporarily low income include:

1. You have retired and are not yet required to be taxed on your IRA or 401(k) (required minimum distributions now start at age 73 for those born before 1960 and at age 75 for those born in 1960 or later).
2. You don’t need distributions from your IRA or 401(k) for cash flow.
3. You are deferring collecting Social Security until age 70.
4. You have little other income.

During this period of relatively low income, you may be able to take advantage of the 0% tax rate on long-term capital gains. However, it is important to note that the 0% rate only applies to that portion of the gain that fills up the 15% income tax bucket. For example, if a married couple has $40,000 in part-time earnings, $4,000 in interest and dividends and $16,000 in an employer pension ($60,000 total) and a standard deduction of $32,200 (taxable income of $27,800), they can take an additional $71,100 in long-term capital gains at a 0% rate. But if their gain was, for example, $80,000, then the $8,900 above the limit would be taxable at the 15% capital gains tax rate.

The tax savings can be significant. If you are married and your gross income is $120,000, including $60,000 of long-term capital gains, your taxable income will be $87,800 ($120,000 less the $32,200 standard deduction) and the $60,000 capital gains will not incur any federal tax. If your capital gains were instead taken in a year when your other income exceeded $120,000, you would pay $9,000 in capital gains taxes ($60,000 x 15%).

Tax planning can be complicated, and the example above is simplified. If you need assistance with tax planning as part of your overall financial planning, please reach out to our team. Always review your personal financial situation with your tax professional for tax advice specific to you.