Most investors know that long-term capital gains are taxed more favorably than ordinary income. Fewer realize that there’s a federal bracket where the long-term capital gains rate is zero. Even fewer plan around it deliberately. For households who can model their income year by year, the 0% LTCG bracket is one of the cleanest tax wins available.
The thresholds
For 2025, long-term capital gains are taxed at:
- 0% on gains that fall within taxable income up to $96,700 for married filing jointly (or $48,350 for single)
- 15% between roughly $96,700 and $600,050 (MFJ)
- 20% above that
- +3.8% Net Investment Income Tax above $250K MAGI (MFJ)
The 0% bracket isn’t a tiny edge case. A married couple with modest other income can realize tens of thousands in long-term capital gains completely tax-free at the federal level.
How “taxable income” stacks
Here’s the part most people miss: the 0% bracket is measured against your total taxable income, not just your capital gains. Capital gains stack on top of ordinary income.
Example. Married couple, $40,000 of ordinary income (small pension, part-time work, etc.), no other income.
Standard deduction (2025): $30,000. Taxable income before any gains: $10,000.
The 0% LTCG bracket runs to $96,700 of taxable income. So they have $86,700 of room to realize long-term capital gains at 0% federal tax.
That’s a meaningful number for a retiree with appreciated taxable holdings.
When this opens up
The 0% bracket becomes accessible in a few common scenarios:
Early retirement, before Social Security and RMDs start. A couple retired at 62 with no pension, living off taxable savings, can have very low ordinary income for a few years. Prime 0% LTCG harvesting territory.
Sabbatical year, gap year, or transitional year. Career pauses create low-income windows.
Single-earner households where the earning spouse stops working. One spouse retires; the other still works but at reduced hours.
Business owners between liquidity events. A founder between selling one company and starting the next.
Investors with substantial losses to harvest. Realizing gains and offsetting them with realized losses is the same idea, with extra flexibility.
The “tax gain harvest”
The mirror image of tax-loss harvesting. When you have capital gains room available at 0%, you can:
- Sell appreciated holdings. Realize the gain.
- Pay zero federal tax (assuming the gain falls within the 0% bracket).
- Immediately repurchase the same security. No wash-sale rule applies to gains — only losses.
- Reset your cost basis upward.
The benefit: future gains start from the higher basis. If you sell that holding at a higher tax rate later, less of the appreciation is taxable.
This is an underused move. It works particularly well during the Roth conversion decade — except that Roth conversions consume the same bracket space, so you have to choose between conversions and gain harvesting.
The planning conflict to understand
The 0% LTCG bracket and Roth conversions both compete for the same low-income years. Each dollar of Roth conversion fills the bracket and pushes future gains into the 15% bracket.
The right choice depends on:
- How large is the pre-tax balance? Big balances tilt toward conversions (RMD risk).
- How much appreciated taxable stock is held? Heavy taxable holdings tilt toward gain harvesting.
- What’s the time horizon? Long horizons favor Roth conversions (more years of tax-free compounding).
- Are appreciated holdings going to be sold during life, or held to step-up? If held to step-up, gain harvesting is unnecessary — see The Step-Up in Basis at Death.
State tax — the asterisk
The 0% bracket is federal only. States with their own capital gains tax (California treats LTCG as ordinary income; Tennessee has none) impose their own rate regardless of federal treatment. For Tennessee residents, federal-only is the whole story. For California residents, “0% LTCG” still means roughly 9–13% in state tax.
What to do
If you’re approaching or in early retirement, the planning question is whether each year’s income strategy (which accounts to draw from, whether to convert to Roth, whether to harvest gains) is using the 0% bracket fully where it’s available.
This is one of those things that disappears once RMDs start. The bracket is still there, but RMD income tends to fill it. The window to use it deliberately is finite — and once you’re past it, the opportunity doesn’t come back.
If you’re in or near a low-income year and you have appreciated taxable holdings, we should talk about whether gain harvesting belongs in the plan.
General educational information. The 0% LTCG bracket interacts with Social Security taxation, IRMAA brackets, ACA subsidies, and state taxes — all of which can change the optimal strategy. Coordinate with a tax professional before executing.