Capital gains harvesting in the 0% bracket

Long-term capital gains are taxed at lower rates than wages. For some households in some years, that rate is zero. If your taxable income is low enough, you can sell investments at a gain, pay no federal tax on the gain, and buy them back right away.

Doing this resets your cost basis higher. When you sell later, in a year with more income, there's less gain left to tax. This is called tax gain harvesting.

The 2026 thresholds

Long-term gains and qualified dividends are taxed at 0%, 15% or 20%, depending on your taxable income. The gains stack on top of your ordinary income. The 0% rate applies to the part of your gains that fits under these limits:

These are limits on taxable income, after deductions. With the standard deduction, a married couple under 65 can have about $131,100 of total income and still pay 0% on long-term gains that fit under the limit.

Gains only qualify for these rates if you held the investment for more than a year. Short-term gains are taxed like wages.

A worked example

Grace and Omar are 63 and 61 and file jointly. They retired early and live on their taxable brokerage account. This year they expect $8,000 of interest and non-qualified dividends and $6,000 of qualified dividends. They haven't claimed Social Security and have no pension.

Their standard deduction is $32,200, so their taxable income is zero. All of their 0% room is unused.

How much gain can they realize at 0%?

• The 0% rate runs to $98,900 of taxable income.
• Add the standard deduction: $131,100 of income.
• Subtract the $14,000 they already have: $117,100 of long-term gains at a 0% federal rate.

They own a stock index fund worth $350,000 that they bought for $200,000. Its gain is $150,000, or about 43% of its value. To realize $117,100 of gain, they'd sell about $273,000 of the fund and buy it straight back. Their cost basis rises by $117,100. The federal tax on the sale is zero.

If they sold a little more, the extra gain would be taxed at 15%. The cost of going over is small at first, so you don't need to be exact to the dollar. But you do need to know where your income will land.

Check these first

ACA premium subsidies

This is the trap that catches early retirees. Grace and Omar are under 65. If they buy health insurance on the ACA marketplace, their subsidy depends on their income, and realized gains count.

For 2026 coverage, a two-person household loses the subsidy entirely above 400% of the poverty line, which is $84,600 in the 48 contiguous states. Harvesting $117,100 of gains would put their income at $131,100. They'd lose the whole subsidy, which could be worth more than $10,000 a year.

Even below the cliff, more income means a smaller subsidy. Between 300% and 400% of the poverty line, they'd pay 9.96% of each extra dollar of income toward their premium. That makes "0%" gains cost about 10% in practice.

A more modest harvest, keeping total income under $84,600, would still raise their basis by about $70,000 without crossing the cliff. See IRMAA and ACA cliffs.

State income tax

Most states tax capital gains as ordinary income. A gain that's free at the federal level may still cost several percent in state tax. Check your state before you sell.

Medicare surcharges

If you're 63 or older, extra income this year can raise Medicare premiums two years from now. The first joint surcharge tier for 2026 applies above $218,000 of income.

Other income that moves with gains

Realized gains raise your adjusted gross income. That can make more Social Security taxable if you're already claiming, and it can reduce the senior deduction for people 65 and older above $150,000 of joint income.

Harvesting gains or converting to Roth?

Both use the same low-income years, and they compete for the same room. A Roth conversion is ordinary income, so it fills the 10% and 12% brackets first. Gains stack on top. If you convert enough to reach the 12% bracket's top, you'll have used up most of your 0% gain room too.

Which is more valuable depends on your situation:

• Large traditional IRAs and big future required distributions usually point to conversions.
• Large unrealized gains in a taxable account you'll spend from can point to harvesting.
• Heirs. Investments held until death usually get a step-up in basis, so their gains are never taxed. If you'll leave the account to heirs, harvesting gains may not be worth much. See estate basics.

Practical points

• The wash-sale rule doesn't apply to gains. That rule stops you from claiming a loss if you rebuy the same investment around the time of the sale. Selling at a gain and rebuying immediately is fine.
• Use specific lots. If you bought the same fund at different times, choose which shares you sell. Selling the lots with the biggest gains raises your basis the most.
• Watch fund distributions. Many funds pay capital gain distributions late in the year. They count toward your income, so harvest after you know their size.
• Do it every low-income year. Harvesting a little each year can do more than one large sale.

How the app helps

The app doesn't plan gain harvesting for you yet. It does track cost basis in taxable accounts and taxes realized gains at the right rate, stacked on top of ordinary income. Opening a year in Cash flow shows that year's adjusted gross income, taxable income and top federal bracket. That's the information you need to size a harvest.

Frequently asked questions

Do I have to rebuy the same investment?

No. You can buy anything. Many people rebuy the same fund to keep their allocation unchanged.

Can I harvest gains in an IRA?

No. Gains inside IRAs and 401(k)s aren't taxed when realized. Harvesting only applies to taxable accounts.

What if I'm in the 15% bracket?

Then there's no 0% room, and harvesting means paying 15% now. That can still make sense if you expect to pay more later, but the case is weaker.