Tax-gain harvesting and the 0% capital gains rate

Tax-gain harvesting means selling investments in a taxable account that have gone up, in a year when your income is low enough that the gain falls in the 0% long-term capital gains bracket, and then buying them back. You pay no federal income tax on the gain, and the higher purchase price becomes your new cost basis, so there's less taxable gain when you sell for real later.

It's most useful in early retirement, a career break or any low-income year, which is why it comes up so often in FIRE plans.

This is general education, not tax or financial advice. Tax rules are detailed and your state may tax gains differently. Please check your own situation with a tax professional before acting.

Figures checked October 20, 2026 against IRS Rev. Proc. 2025-32 (2026 inflation adjustments, sections .03 and .14), IRS Topic 409 (reviewed September 24, 2026), IRS Topic 559 (reviewed September 24, 2026) and IRS Publication 550.

How the 0% bracket works

Your long-term capital gains and qualified dividends are stacked on top of your other taxable income, such as wages, interest and withdrawals from pre-tax accounts. Whatever part of the gains fits under the 0% threshold is taxed at 0%. Anything above it is taxed at 15% (or 20% at much higher incomes).

So the question each year is: how much room is left under the threshold after my other income? That room is how much gain you could harvest tax-free.

A made-up example

Nadia and Ben are made up. They're married, retired early, and file jointly. In 2026 they have $40,000 of other income from interest, dividends and a small pre-tax withdrawal.

| Step | Amount | |---|---| | Other income | $40,000 | | Minus the 2026 standard deduction | −$32,200 | | Taxable income before any gains | $7,800 | | 0% bracket ceiling for married filing jointly | $98,900 | | Room left for gains at 0% | $91,100 |

They have an index fund in their taxable account that they bought for $100,000 more than three years ago. It's now worth $190,000, a $90,000 long-term gain. They sell it all, owing no federal income tax on the gain, and buy the same fund right back the same day. Their cost basis is now $190,000 instead of $100,000, so if they sell later, $90,000 less of it is taxable.

The catches

• Stay under the line. If gains push taxable income past the threshold, the part above it is taxed at 15%. Leave some margin for dividends paid late in the year.
• The holding clock restarts. Shares you buy back are new shares. If you sell them within a year, any gain on them is short-term.
• Higher income has knock-on effects. Harvested gains raise your adjusted gross income. That can shrink an ACA marketplace subsidy, which for 2026 has a hard cutoff, and can affect how much of your Social Security is taxed. See healthcare before Medicare.
• State taxes. Many states tax capital gains as ordinary income, with no 0% bracket.
• Taxable accounts only. Gains inside a 401(k), IRA or Roth aren't taxed when you sell, so there's nothing to harvest there.
• The net investment income tax is a separate 3.8% tax that only starts above $200,000 of modified AGI (single) or $250,000 (married filing jointly) (IRS Topic 559), so it rarely matters in a year low enough for the 0% rate.

Tax-gain harvesting or a Roth conversion?

Both use the same thing: a low-income year. They compete for it.

• A Roth conversion moves money from a pre-tax account to a Roth. The amount converted is taxed as ordinary income now, at your low current rate, so it's tax-free later. Getting to your money before 59½ explains the Roth conversion ladder.
• Tax-gain harvesting raises your cost basis in a taxable account, with no federal tax on the gain if it fits in the 0% bracket.

Because ordinary income counts first, every dollar you convert uses up room under the 0% capital gains threshold. A big conversion can push gains you harvest into the 15% band.

People often weigh it like this: if you have large pre-tax balances that could face high required withdrawals later, conversions may matter more. If most of your money is in taxable accounts with big gains, harvesting may matter more. Many people do some of each, filling the standard deduction and low brackets with conversions and using any 0% room left for gains. This is a good one to model with a tax professional. If you're in your early 60s, also see Roth conversions and IRMAA.

A 10-minute check for this year

1. Estimate your taxable income for the year before any gains: income minus your standard deduction.
2. Subtract it from the 0% ceiling for your filing status. That's your room.
3. List taxable-account holdings held more than a year with gains.
4. Leave a cushion for dividends and surprises.
5. Check knock-on effects: health insurance subsidy, state tax, Social Security taxation.
6. Decide how it fits with any Roth conversion you're planning.

Common questions

What is tax-gain harvesting?

It's selling investments that have gone up, in a year your income is low enough that the long-term gain is taxed at 0%, then buying them back. You pay no federal income tax on the gain, and your cost basis goes up, so there's less taxable gain later.

What is the 0% capital gains limit for 2026?

For 2026, long-term capital gains are taxed at 0% while taxable income stays at or under $49,450 for single filers and $98,900 for married couples filing jointly, according to IRS Revenue Procedure 2025-32. Taxable income is your income after deductions, with the gains included.

Does the wash sale rule apply to tax-gain harvesting?

No. The wash sale rule disallows a loss when you buy substantially identical investments within 30 days before or after selling at a loss. It doesn't apply when you sell at a gain, so you can buy the same investment back right away.

Is tax-gain harvesting better than a Roth conversion?

Neither is better in general. Both use up the same low-income room. Conversions shrink pre-tax balances that will be taxed later; gain harvesting raises cost basis in taxable accounts. Many people do some of each, and a tax professional can help you find the mix.

Can tax-gain harvesting affect my ACA subsidy?

Yes. Harvested gains count as income, so they can reduce a marketplace premium tax credit or push you past the 2026 income cutoff for help. If you rely on a subsidy, check the effect before you sell.

Do I have to pay state tax on harvested gains?

Possibly. Many states tax capital gains as ordinary income, without a 0% bracket. Check your state's rules before harvesting.

Next step

Tax moves like this work best inside a clear withdrawal plan. See how long your savings last at your withdrawal rate.

Try the withdrawal rate explorer →