If you're familiar with tax loss harvesting, you may recognize its close cousin – tax gain harvesting or capital gains harvesting.
Tax loss harvesting is when you realize previously unrealized losses (sell stock that is down) to lower your realized capital gains on the year. It's one of the most popular year end tax moves you can make to reduce your taxable income.
Capital gains harvesting is when you take advantage of your taxable income situation and realize some unrealized gains (sell stock that is up) because you will be favorable taxes on that gain.
As always, consult with a financial professional before making any decisions.
How does capital gains harvesting work?
If you are sitting on large unrealized capital gains and expect to be in a lower tax bracket this year than in the future, you can sell those assets, realize the capital gain, and pay a lower rate.
This is most effective when realizing long term capital gains (gains on assets you've held for over a year) while you are in the 0% long term capital gains tax bracket.
For 2024, these are the income brackets for the 0% long term capital gains tax rate:
| Tax rate | Single | Married filing jointly | Married filing separately | Head of Household |
|---|---|---|---|---|
| 0% | $0 – $47,025 | $0 – $94,050 | $0 – $47,025 | $0 – $63,000 |
| 15% | $47,026 – $518,900 | $94,051 – $583,750 | $47,026 – $291,850 | $63,001 – $551,350 |
| 20% | $518,901+ | $583,751+ | $291,851+ | $551,350+ |
For 2025, they will be:
| Tax rate | Single | Married filing jointly | Married filing separately | Head of Household |
|---|---|---|---|---|
| 0% | $0 – $48,350 | $0 – $96,700 | $0 – $48,350 | $0 – $64,750 |
| 15% | $48,351 – $533,400 | $96,700 – $600,050 | $48,351 – $300,000 | $64,751 – $566,700 |
| 20% | $533,401+ | $600,051+ | $300,001+ | $566,701+ |
In 2024, if you are single and have no taxable income, you could harvest $47,025 of capital gains without paying any taxes. Remember, taxable income is your adjusted gross income minus any deductions (standard or itemized).
The idea is that because of your income, you can now realize a gain and reset its basis without being taxed on it. With taxable gain harvesting, there's no worry for a wash sale rule or anything like that. You can sell and buy back the asset immediately.
Is it worth it?
Like many similar tactics, it depends on your situation.
The benefit is in how much gain you're shielding from the dreaded 15% long term capital gains rates. You're saving 15% in long term capital gains tax but limited based on your current income.
If you're single and you made just $10,000 in taxable income, then you can shield $38,350 in long term gains. That's worth $8,752.50. You're also resetting the basis of the holding (assuming you buy back in) without any risk.
Whether that's worth your time depends on how much your time is worth!
Is there a catch?
You have to be very careful at the income crossover points.
In 2025, if you're single and your taxable income is $48,349, then you pay 0% on long term capital gains.
If you income was just a few dollars higher, such as $48,352, then you'll pay 15% on long term capital gains.
And since you'll have to make this decision before the end of the calendar year, it can be tricky to play too close to the limits.
It would be tragic if you forgot a few dollars of interest from some obscure bank you rarely use.
But other than that, there's no catch.
Jim, I enjoy reading your articles, even though sometimes they do not pertain to me directly. There is always good information included. This time you mentioned Capital Gains, which is not something that I’m concerned with as frequently. However, this time I am contemplating the sale of a rental house. I understand that there are a lot of conditions that affect this capital gains harvesting. My question: If I sell a rental house (owned for 20+ years) within the next six weeks, would the sale of this house be considered as Capital Gains? I have never sold a rental house… Read more »
If you sell something for more than what you paid for it (plus improvements), then it would be considered capital gains.
Capital gains harvesting is a tax strategy where you sell investments with unrealized gains to take advantage of lower tax rates, particularly the 0% long-term capital gains tax bracket.