Capital Gains Harvesting in the 0% Bracket Years

A low-income year can create a narrow opportunity to reset basis, diversify, and reduce future tax—but only when every item that moves taxable income and modified adjusted gross income is counted.

July 20, 2026

Some of the best tax-planning years arrive when income temporarily falls. This often happens after retirement but before required minimum distributions begin. It can also follow a business sale, a sabbatical, a career transition, or a year in which compensation is unusually low. When a household has appreciated investments in a taxable account, that window may allow us to realize long-term capital gains at a 0% federal rate.

The strategy is called capital-gains harvesting. We intentionally sell an appreciated investment, recognize the gain, and either reinvest the proceeds or use them to improve the portfolio. The sale creates a new tax basis. If the recognized gain fits inside the 0% long-term capital-gains bracket, the current federal tax on that gain can be zero.

I view this as a use-it-or-lose-it planning opportunity. An unused 0% bracket does not carry forward. At the same time, “0%” describes only the federal income-tax rate on the qualifying gain. The transaction still raises adjusted gross income, can affect other tax calculations, and may create state tax. Good harvesting is therefore a full-return decision, not a brokerage-account decision.

For 2026, the 0% long-term capital-gains ceiling is $49,450 of taxable income for single filers and married taxpayers filing separately, $98,900 for married couples filing jointly and qualifying surviving spouses, and $66,200 for heads of household.¹ These are taxable-income ceilings. They are not separate amounts of gain that every taxpayer can realize tax-free.

Ordinary taxable income generally gets the first claim on the brackets. Qualified dividends and net long-term capital gains then stack on top. Existing qualified dividends use the same preferential-rate space as harvested gains. Short-term gains do not qualify; they are taxed at ordinary-income rates. Special rules also apply to collectibles, certain qualified small-business stock, and unrecaptured Section 1250 gain from depreciable real estate.^2,3

Figure 1 shows the 2026 ceiling for each major filing status. The basic standard deduction is $16,100 for a single taxpayer or married person filing separately, $32,200 for a married couple filing jointly, and $24,150 for a head of household.¹ Deductions can create more room between gross income and taxable income, but the correct harvesting amount cannot be found by looking at a bracket table alone.

Consider a married couple with $70,000 of other taxable income and no qualified dividends or capital-loss carryforward. Their remaining 0% capital-gains room is $28,900: the $98,900 ceiling less $70,000. If they harvest a $35,000 net long-term gain, the first $28,900 falls in the 0% bracket and the remaining $6,100 falls in the 15% bracket. The federal capital-gains tax on the harvested gain would be $915, before any other interaction. Figure 2 illustrates the stacking calculation. Crossing the ceiling does not cause the entire gain to become taxable at 15%; only the portion above the ceiling moves to the next rate.

The amount realized in the sale is not the amount that uses the bracket. Gain is generally the sale proceeds less adjusted basis. If an investment worth $100,000 has a $60,000 adjusted basis, selling it produces a $40,000 gain, not a $100,000 gain. Lot selection matters because different purchases of the same security may carry very different bases and holding periods.^2,4

Figure 1: The 2026 taxable-income ceilings for the 0% long-term capital-gains rate. Qualified dividends and net long-term gains share the bracket.

Figure 2: An illustrative joint-filer example. Only the portion above the $98,900 ceiling moves into the 15% capital-gains bracket.

The most direct benefit is a higher basis. Suppose the $100,000 investment in the prior example is sold and repurchased for approximately $100,000. Its basis has moved from $60,000 to roughly $100,000. If it is later sold for $110,000, the new gain is roughly $10,000 instead of $50,000. We used a low-rate year to remove $40,000 of embedded gain from the future tax bill.

Unlike tax-loss harvesting, a gain harvest generally does not require a 30-day wait before repurchasing the same security. The wash-sale rule is a loss-deferral rule. A taxpayer can usually sell an appreciated security and repurchase it immediately, maintaining market exposure while resetting basis.³ The new shares begin a new holding period, however. A later sale within one year can create a short-term gain, and trading costs, bid-ask spreads, fund restrictions, and settlement mechanics still deserve attention.

Harvesting can also support the investment plan. A low-income year may be the right time to trim an oversized position, simplify a portfolio with many legacy tax lots, move from an expensive fund to a lower-cost alternative, or create cash for spending. In that case, the tax window and the portfolio need point in the same direction. The tax opportunity should improve a decision we already have a sound reason to make.

The classic window is early retirement: wages have stopped, but Social Security, pensions, and required distributions have not yet filled the return. Those years may offer several competing uses for low brackets. Roth conversions can reduce future required distributions, while capital-gains harvesting can reduce future taxable gains. Both strategies consume income capacity, and they need to be evaluated together.

The interaction is easy to miss. A dollar of Roth conversion can push a dollar of long-term gain out of the 0% bracket and into the 15% bracket. The conversion may still be worthwhile, but its true marginal cost can include both the ordinary tax on the conversion and the higher rate it causes on capital gains. I would compare the two strategies across several years rather than automatically filling one bracket first.

Other useful windows include a year with unusually large deductions, a temporary reduction in consulting or business income, or a period before a deferred-compensation payment begins. A surviving spouse may also have appreciated assets to reposition, although the single-filer threshold is roughly half the joint threshold. Filing status changes can close the window quickly.

Harvesting deserves an annual review rather than a one-time answer. Interest, dividends, mutual-fund capital-gain distributions, pension payments, business income, charitable deductions, and year-end bonuses can all change the final number. I prefer leaving a reasonable buffer below the ceiling instead of aiming at it to the dollar in November.

The first hidden cost is capital-loss carryforwards. Capital losses generally offset capital gains before the preferential rate is applied. Harvesting a gain in a year with a loss carryforward may use an asset that could have sheltered a future gain otherwise taxed at 15%, 20%, or potentially subject to the 3.8% Net Investment Income Tax.^2,3 Raising basis can still have value, but consuming a valuable loss to offset a gain already headed for the 0% bracket may be a poor trade.

The second cost is income-based benefits and deductions. A 0%-rate gain still enters adjusted gross income. For a household receiving Social Security, higher AGI can cause more of the benefit to become taxable because the combined-income formula includes AGI, tax-exempt interest, and one-half of Social Security benefits.⁵ For a household buying health coverage through the Marketplace, 2026 premium-tax-credit eligibility and the amount of the credit depend on household modified adjusted gross income; in general, eligibility is capped at 400% of the federal poverty line after the temporary expansion ended with 2025.⁶ A gain that creates no regular federal capital-gains tax can still reduce or eliminate a health-insurance subsidy.

Taxpayers age 65 or older have another 2026 interaction. The enhanced senior deduction is as much as $6,000 per eligible person, or $12,000 when both spouses on a joint return qualify, for tax years 2025 through 2028. It begins phasing out when modified adjusted gross income exceeds $75,000 for a single filer or $150,000 for joint filers.⁷ Harvested gains increase MAGI and can reduce this deduction. That phaseout can create a real marginal tax cost inside what appears to be a 0% capital-gains year.

Medicare and NIIT also use income measures that differ from taxable income. Medicare generally determines income-related Part B and Part D premiums from the modified adjusted gross income reported two years earlier.⁸ NIIT applies at 3.8% to the lesser of net investment income or MAGI above $200,000 for single and head-of-household filers, $250,000 for joint filers, and $125,000 for married taxpayers filing separately.⁹ Most households fully inside the 0% capital-gains bracket will remain well below the NIIT threshold, but a taxpayer with very large deductions could have low taxable income and high MAGI. The labels on the two calculations should not be treated as interchangeable.

State tax is a separate decision. Many states do not provide a 0% rate for long-term capital gains, and some do not distinguish long-term gain from ordinary income. Residency, the location and type of the asset, loss carryforwards, and estimated-payment rules can all change the state result. Federal “free” can still mean a state tax bill.

Estate planning can reverse the conclusion as well. Property inherited from a decedent generally receives a basis tied to fair market value at death, subject to important exceptions.⁴ Harvesting gain on an asset likely to be held until death may produce little federal benefit if the embedded gain would otherwise disappear through a basis adjustment. It could still make sense for diversification or cash flow, but the expected holding period and estate plan belong in the analysis.

A sound harvest begins with a projected tax return. We first estimate ordinary income, qualified dividends, expected capital-gain distributions, realized gains and losses, loss carryforwards, and deductions. We then add the other decisions still under our control: Roth conversions, charitable gifts, business payments, retirement distributions, and security sales. Only after those pieces are on the same page can we identify the real 0% capacity.

The next step is lot-level. We confirm basis, acquisition date, embedded gain, and the purpose of each holding. If the objective is a pure basis reset, we may favor lots with meaningful embedded long-term gain and a security we still want to own. If the objective is diversification or spending, the portfolio need may determine which lots are sold. Specific-lot instructions and good records are essential; relying on an account-level average can produce the wrong tax result.

Finally, we compare today’s visible savings with tomorrow’s likely tax. A harvest is most compelling when the gain would otherwise face a meaningfully higher future rate, the asset is expected to be sold during life, income-related benefits are protected, state tax is manageable, and the transaction improves or at least preserves the portfolio. It is less compelling when valuable capital losses will be consumed, an appreciated asset is intended for charity, an estate-basis adjustment is likely, or another strategy has a stronger lifetime benefit.

The takeaway is straightforward: the 0% capital-gains bracket can be valuable, but it is not automatic. The opportunity comes from coordinating the tax return, the portfolio, health-care costs, retirement-income decisions, and the estate plan before a trade is placed.

Our team will continue monitoring the 2026 rules and reviewing low-income years for clients with appreciated taxable assets. When the facts align, capital-gains harvesting can turn an otherwise unused bracket into higher basis, better diversification, and more after-tax flexibility for the years ahead.

All my best,

Brandon VanLandingham, CFA, CMT, CFP

Founder / CIO

Net Investment Income Tax (NIIT): What Triggers It and How to Plan

Reducing Capital Gains on a Highly Appreciated Portfolio

Beyond the Basics: Advanced Tax Planning Techniques for Savvy Taxpayers

[1] Internal Revenue Service, Revenue Procedure 2025-32, Sections 4.03 and 4.14, published in Internal Revenue Bulletin 2025-45 (2026 maximum 0% capital-gains amounts and basic standard deductions), https://www.irs.gov/irb/2025-45_IRB.

[2] Internal Revenue Service, Topic No. 409, Capital Gains and Losses (basis, holding periods, netting, preferential rates, special-rate gains, and capital-loss carryforwards), https://www.irs.gov/taxtopics/tc409.

[3] Internal Revenue Service, Publication 550 (2025), Investment Income and Expenses (most recent final edition available as of July 16, 2026; qualified dividends, capital-gain tax rates, loss netting, and wash-sale rules), https://www.irs.gov/publications/p550.

[4] Internal Revenue Service, Publication 551 (2025), Basis of Assets (adjusted basis, identification of securities, and basis of inherited property), https://www.irs.gov/publications/p551.

[5] Social Security Administration, Must I Pay Taxes on Social Security Benefits? (combined-income formula and benefit-taxation thresholds), June 30, 2025, https://www.ssa.gov/faqs/en/questions/KA-02471.html.

[6] Internal Revenue Service, Questions and Answers on the Premium Tax Credit, Questions 4, 7, and 8, updated February 19, 2026 (2026 eligibility range, reconciliation, and household MAGI), https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit.

[7] Internal Revenue Service, Check Your Eligibility for the New Enhanced Deduction for Seniors, February 27, 2026 (deduction amount, effective years, and MAGI phaseout thresholds), https://www.irs.gov/newsroom/check-your-eligibility-for-the-new-enhanced-deduction-for-seniors.

[8] Centers for Medicare & Medicaid Services, How Income Affects Your Medicare Drug Coverage Premium (use of modified adjusted gross income from the tax return two years earlier), 2026, https://www.medicare.gov/publications/11469-income-and-drug-premiums.pdf.

[9] Internal Revenue Service, Net Investment Income Tax (rate, MAGI thresholds, and included income), last updated July 1, 2026, https://www.irs.gov/individuals/net-investment-income-tax.

This piece is educational. It is not legal, tax, or accounting advice and is not a recommendation to take or refrain from any specific action. Tax law is fact-specific and changes regularly. Please coordinate any decisions discussed here with your attorney, your CPA, and Perissos before acting.

Perissos Private Wealth Management is a Registered Investment Adviser ("RIA"). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Perissos Private Wealth Management renders individualized investment advice to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results.

The information contained in this newsletter is intended to provide general information about market themes. It is not intended to offer investment advice. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement. Information regarding investment products and services is given solely to provide education regarding our investment philosophy and our strategies. You should not rely on any information provided in making investment decisions.

Market data, articles and other content in this material are based on generally available information and are believed to be reliable. Perissos Private Wealth Management does not guarantee the accuracy of the information contained in this material.

Perissos Private Wealth Management will provide all prospective clients with a copy of our current Form ADV, Part 2A (Disclosure Brochure), Part 2B (Supplemental Brochures), and Part 3 (Client Relationship Summary) prior to commencing an advisory relationship. You can also view these documents at any time at adviserinfo.sec.gov or by contacting us requesting a copy.