Tax laws can feel like a moving target, with new rules and changes popping up all the time. One topic getting a lot of attention is the 0% capital gains rate, especially with recent discussions in Congress. You might be wondering what this tax break is and how you can use it to your advantage.
In this article, Dylan Rudningen, Associate Wealth Advisor, helps us break down what capital gains are, who qualifies for the 0% rate, and how you can make it work for your financial plan.
What Is a Capital Gain?
Before we get into the 0% rate, let’s cover the basics. A capital gain is the profit you make from selling an asset, like a stock, a house, or even livestock. As Dylan explains, “You buy a stock at 100 bucks and you sell it at $110, that’s a $10 gain. And that would be income, and that would be taxed at whatever rate you’re at.”
These gains are taxed in two different ways:
- Short-Term Capital Gains: If you sell an asset you’ve owned for less than a year, the profit is taxed at your regular income tax rate.
- Long-Term Capital Gains: If you hold the asset for more than a year, your profit is taxed at a lower rate: 0%, 15%, or 20%, depending on your income.
Who Qualifies for the 0% Rate?
The 0% long-term capital gains rate is a powerful tool for building wealth. In 2025, you can qualify if your taxable income is below a certain threshold:
- $48,350 for single filers
- $96,700 for married couples filing jointly
If your income falls below these amounts, you can sell appreciated assets you’ve held for over a year and pay zero tax on the profits. However, there’s a catch.
“A big one is gains on those assets do count as income,” Dylan notes. If you’re a married couple with a taxable income of $90,000 and you sell stock for a $10,000 gain, your total taxable income becomes $100,000. This pushes you over the threshold, and you’ll owe taxes on a portion of that gain.
Strategies for Using the 0% Bracket
With careful planning, you can strategically use the 0% bracket to your advantage. This is especially useful during the “bridge years”, or the period after you retire but before you have to start taking Required Minimum Distributions (RMDs) from your retirement accounts.
Tax-Gain Harvesting
During these lower-income years, you can practice what’s known as “tax-gain harvesting.” This involves selling appreciated assets to realize gains tax-free. You can then use the cash or even rebuy the same assets to reset your cost basis, which can reduce your tax bill on future sales.
Balancing with Roth Conversions
Many retirees also use their bridge years to convert money from traditional IRAs to Roth IRAs. While this is a great strategy for creating tax-free income later, it’s important to find a balance.
“Yes, that’s very beneficial to get more Roth assets, but when you’re in that 0% capital gains bracket, finding that happy medium… [gives] yourself a little bit of a buffer to take advantage of selling some of that… appreciated stock,” says Dylan. A large Roth conversion adds to your taxable income and can accidentally push you out of the 0% capital gains bracket.
These Laws Aren’t Forever. How to Plan for the Future
Tax laws are constantly changing. While completely eliminating the 0% bracket seems unlikely, the income thresholds could be reduced in the future. “Tax law is written in pencil, not pen,” Dylan says, quoting tax expert Ed Slott.
So, how do you plan for uncertainty? The key is tax diversification and proactive planning.
- Diversify Your Savings: Use taxable, tax-deferred (like a 401(k) or traditional IRA), and tax-free (like a Roth IRA) accounts. This gives you flexibility no matter what the tax laws look like.
- Take Advantage of the Current Rules: The historically wide tax brackets we have now offer a unique window of opportunity. Dylan calls it a “once-in-a-generation coupon.”
- Work With a Professional: Navigating the moving parts of tax planning, from capital gains to Medicare surcharges, can be tricky. An advisor can help you see the whole picture and avoid costly mistakes.
Take Control of Your Tax Plan
Understanding the 0% capital gains bracket is a great first step toward a smarter tax strategy. By being proactive now, you can build flexibility into your financial plan and prepare for whatever comes next. It’s about more than just filing your taxes each year; it’s about making intentional choices that support your long-term goals.
If you’re ready to move from tax prep to tax planning, talk to a financial advisor at Pinnacle Wealth. We can help you create a strategy that makes the most of today’s opportunities while preparing you for tomorrow.
This blog is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
