Tax-gain harvesting
Deliberately selling appreciated investments in a low-income year to realize gains at the 0% long-term rate and reset cost basis higher.
0% room = 0% LTCG threshold − ordinary taxable income
Explanation
Long-term capital gains are taxed at 0% federally up to a taxable-income threshold (for 2026, about $49,450 single and $98,900 married filing jointly). Early retirees, people between jobs, or anyone with a low-income year may have unused room under that line.
Tax-gain harvesting fills that room on purpose: you sell investments with long-term gains, pay no federal tax on the gain, and can immediately buy them back. The wash-sale rule applies only to losses, so repurchasing right away is allowed. Your new cost basis equals the higher repurchase price, which reduces the taxable gain when you eventually sell for spending.
Things to weigh:
- Harvested gains increase your AGI. That can affect ACA premium credits, the taxation of Social Security benefits, Medicare IRMAA (with a two-year lookback), state income taxes and financial-aid formulas.
- Because gains stack on top of ordinary income, a Roth conversion in the same year uses up the same room. You often have to choose between gain harvesting and conversions.
- Overshooting the threshold makes the excess taxable at 15%.
In scenarios, the app can harvest gains up to the 0% threshold in low-income years and track the resulting basis increase.
Example
A married couple in 2026 has $70,000 of ordinary income (pension and part-time work) and holds index funds with large long-term gains.
- Taxable ordinary income: $70,000 − $32,200 standard deduction = $37,800
- Room under the 0% threshold: $98,900 − $37,800 = $61,100
They sell funds with $61,100 of long-term gains and rebuy them the same day. Federal tax on the gain: $0. Their basis rises by $61,100.
If they had instead realized that gain in a later year at the 15% rate, it would have cost $61,100 × 15% = $9,165.