Before the article, check out the latest on my podcast, <\/em>Personal Finance for Long-Term Investors<\/em><\/strong>:<\/em><\/p>\n Now, here\u2019s today\u2019s article: <\/p>\n I\u2019m pretty good with numbers, so you can please spell out (in some detail?) an example of how tax-gain harvesting works in practice?<\/p>\n -MV<\/p>\n<\/blockquote>\n Let\u2019s do it, MV. Let\u2019s provide the nuts-and-bolts numbers behind tax-gain harvesting.<\/p>\n Tax-gain harvesting is the intentional act of selling an investment with a capital gain while you\u2019re (usually) sitting in the 0% long-term capital gains bracket. Then, you immediately buy that asset back. [It\u2019s different than loss harvesting<\/a>!]<\/em><\/p>\n Why harvest gains?<\/p>\n Because done correctly in that 0% bracket, you realize the capital gain without paying any federal tax on it. That resets your cost basis to a higher level. This leads to two great long-term benefits:<\/p>\n It\u2019s a perfectly clean and legal \u201carrow\u201d in your financial planning quiver. <\/p>\n Most (but not all) retirees face a similar sequence of events in retirement that directly affects their opportunities for good tax planning (e.g tax-gain harvesting, Roth conversions<\/a>, etc). The four common tax planning events that (most) retirees go through are:<\/p>\n Why these events? <\/p>\n Because they directly impact a retiree\u2019s tax return, via extra income and\/or less space in low tax brackets.<\/p>\n Tax gain harvesting is most effective for people with space in their 0% long-term capital gains (LTCG) bracket.<\/p>\n In 2025, the 0% LTCG bracket ends at $48,350 for Single filers, and at $96,700 for Married filing Jointly. In 2026, those same brackets end at $49,450 and $98,900, respectively.<\/p>\n So let\u2019s look at a typical retired couple somewhere in their early-60s. Going back to our \u201c4 big events,\u201d they\u2019re in the following situation: <\/p>\n Let\u2019s say they have $500,000 in a joint taxable brokerage account, much of which is sitting at significant capital gains. They\u2019ve been saving and investing for many years. <\/p>\n They also have significant assets in both Traditional ($1.5M) and Roth ($300K) buckets.<\/p>\n To do effective tax planning, we need to understand their current and future tax situation<\/span>s. In other words, we want to know how their annual taxes will likely evolve over time. Most financial planners use nifty tax planning software to do this, but we\u2019re going to use some rough math today.<\/p>\n What does this couple\u2019s tax situation look like today? It\u2019s pretty simple.<\/p>\n The lower earner is collecting $21,000 per year from Social Security.<\/p>\n Their taxable account is spitting off about $15,000 in income and dividends. Their bank accounts, we\u2019ll say, contribute another $2000 in interest. <\/p>\n \u2026and that\u2019s it, at least as far as \u201cunavoidable income\u201d is concerned. <\/p>\n However, it\u2019s fair to say that many couples would need more than $38,000 in gross income to live. Let\u2019s assume our couple needs another $62,000 per year to meet their lifestyle requirements. That\u2019s $100K in total gross income. For the sake of simplicity, I\u2019ll assume the $62K is all coming from Traditional IRA distributions [but (!) there is a \u201cright\u201d order to withdraw from your retirement accounts<\/a>]. <\/em><\/p>\n If you plug these details into a 1040 tax return, you\u2019d find that their Federal taxable income is $65,350<\/strong>. This means that: <\/p>\n Though we don\u2019t have a perfect crystal ball, we do know a few things that will occur in their future. <\/p>\n These aren\u2019t precise guarantees, but they\u2019re directionally accurate. <\/p>\n Once RMDs kick in, assume they are still filing Jointly, they\u2019ll surely be in the 22% income and 15% LTCG brackets.<\/p>\n Filing Single (after the first spouse dies), they might be in the 24% income + 15% LTCG bracket. <\/p>\n Point being: they would rather pay taxes now (in lower brackets) than later. <\/strong><\/p>\n They are a good candidate for tax planning. <\/p>\n If you\u2019re looking for better answers to your money questions, <\/em><\/p>\n My free weekly newsletter helps busy professionals and retirees avoid costly mistakes and grow lasting wealth to and through retirement. <\/em><\/p>\n Join 4000+ subscribers, 100% free. <\/em><\/p>\n Sign up here: <\/em><\/p>\n We\u2019ve determined this family should pursue some thoughtful tax planning this year. <\/p>\n If you\u2019re curious whether capital gains harvesting or Roth conversions make more sense<\/a>\u2026great question!<\/p>\n<\/blockquote>\n For this family, capital gains harvesting is the better option. <\/p>\n But how much can they \u201charvest?\u201d <\/p>\n As a reminder, their taxable income this year is $65,350<\/strong>, and their 0% LTCG bracket ends at $96,700. <\/p>\n They can realize the difference between those two numbers \u2013 $31,350 \u2013 in long-term capital gains and pay $0 in tax on that. <\/p>\n That\u2019s big. <\/p>\n The most common misunderstanding in capital gains harvesting occurs when people see this table below\u2026<\/p>\n \u2026and they think,\u00a0\u201cSo \u2013 as a couple, we can realize $96,700 in capital gains, and we\u2019ll pay ZERO tax?\u201d<\/em><\/span><\/p>\n That\u2019s false. It\u2019s important to understand how income and capital gains \u201cstack\u201d together. <\/p>\n Ordinary income takes the first space, and only afterward can capital gains stack on top. Thus, very few retirees end up getting the full \u201c$0 to $96,700\u201d of space to realize capital gains taxes at 0%. <\/p>\n Here\u2019s a simple example, going from from left to right. We look at Ordinary Income, less Deductions, then apply Income Tax, then<\/em> stack Long-Term Capital Gains on top, then<\/em> apply LTCG tax rates. <\/p>\n In this case, our couple harvested $31,350 in capital gains at 0% tax and reset their basis higher. Without this smart tax planning maneuver, we know that some, if not all<\/strong>, of that $31,350 would have eventually been taxed at 15%. <\/p>\n $31,350 x 15% = $4700<\/strong><\/p>\n Rinse and repeat, year over year. It\u2019s nothing to scoff at! <\/p>\n That\u2019s a reasonable, real-world example of how tax gain harvesting works in practice. <\/p>\n Thank you for reading! Here are three quick notes for you: <\/p>\n First<\/strong> \u2013 If you enjoyed this article, join 1000\u2019s of subscribers who read Jesse\u2019s free weekly email, where he send you links to the smartest financial content I find online every week. 100% free, unsubscribe anytime.<\/p>\n Second<\/strong> \u2013 Jesse\u2019s podcast \u201cPersonal Finance for Long-Term Investors\u201d<\/a><\/strong><\/em> has grown ~10x over the past couple years, now helping ~10,000 people per month. Tune in and check it out.<\/a> <\/strong><\/p>\n![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/09\/The-Best-Interest-Pod-Template-5-scaled.png\")
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Why Tax-Gain Harvest In the First Place?<\/h2>\n
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<\/figure>\n<\/div>\nWho Qualifies for Tax-Gain Harvesting? <\/h2>\n
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A Specific Tax Gain Harvesting Example<\/h2>\n
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<\/figure>\n<\/div>\nTheir Tax Situation Now<\/em><\/h3>\n
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Their Tax Situation In The Future<\/em><\/h3>\n
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\nDo You Want To Learn More?<\/em><\/h3>\n
\nThe Actual Numbers<\/h3>\n
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Why Can\u2019t They Harvest the Full $96,700?! <\/h2>\n
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<\/figure>\n<\/div>\nThe Value of Tax-Gain Harvesting<\/h2>\n