Stop Loss Harvesting! Why You Should 'Harvest Gains' Instead (The 0% Tax Bracket Hack)
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| Stop Loss Harvesting! |
If you read any financial blog in December, the advice is always the same: "Sell your losers! Harvest the losses to lower your tax bill!"
Tax-Loss Harvesting is a great strategy for high earners. But if your income happens to be lower this year—maybe you retired recently, took a sabbatical, or are a student—following that advice is a huge mistake.
Instead, you should be doing the exact opposite: Selling your winners.
This strategy is called "Tax-Gain Harvesting," and it allows you to take profit tax-free while permanently lowering your future tax burden.
1. The Magic of the 0% Tax Bracket (2026 Limits)
The US tax code has a special gift for people with moderate income: The 0% Long-Term Capital Gains Bracket.
In 2026, thanks to inflation adjustments, the limits have increased. If your Taxable Income falls below these thresholds, you pay $0 federal tax on your stock profits:
- Single Filers: Up to $49,450.
- Married Filing Jointly: Up to $98,900.
💡 The "Hidden" Higher Limit
Remember, "Taxable Income" is after your Standard Deduction. In reality, you can earn even more tax-free:
- Single Real Limit: ~$65,550 (Includes $16,100 Standard Deduction).
- Married Real Limit: ~$131,100 (Includes $32,200 Standard Deduction).
If your total income is under these lines, you have a golden opportunity to "fill up the bucket" with tax-free gains.
2. How Tax-Gain Harvesting Works
The goal is to increase your "Cost Basis" (the price you bought the stock at) without paying a dime in federal taxes.
The Step-by-Step Play:
- Identify Winners: Find a stock or ETF (like VOO) you bought years ago that has a huge profit.
- Sell It: Sell the shares to realize the capital gain.
- Pay $0 Federal Tax: Assuming your total income stays within the 0% bracket, the IRS charges you nothing.
- Buy It Back Immediately: Repurchase the exact same shares instantly.
*Warning: Check your State Tax rules. While federal tax is $0, states like CA or NY may still tax these gains.
3. The Math: Why This Saves You Money Later
Why go through the trouble of selling and buying? To reset your baseline.
🧮 Scenario: The Apple Stock Example
You bought Apple stock years ago for $10,000. Today it is worth $50,000.
Option A: Do Nothing (Hold)
- Cost Basis: $10,000.
- Future: You sell it in 5 years when it hits $100,000.
- Taxable Gain: $90,000. (Tax at 15% = $13,500 owed).
Option B: Tax-Gain Harvest Today
- You sell at $50,000 today. Gain is $40,000. Tax is $0 (0% bracket).
- You rebuy at $50,000 immediately. Your New Cost Basis is $50,000.
- Future: You sell it in 5 years when it hits $100,000.
- Taxable Gain: $100,000 - $50,000 = $50,000.
- Tax at 15% = $7,500 owed.
Result: You saved $6,000 in future taxes just by clicking "Sell" and "Buy" today.
4. No "Wash Sale" Rule for Gains
You might be asking, "Wait, isn't there a Wash Sale Rule? Don't I have to wait 30 days?"
NO. The Wash Sale Rule only applies to losses. The IRS wants to stop you from claiming a tax deduction and keeping the stock.
But for gains? The IRS is happy to let you realize income (they usually hope you owe tax). They do not care if you rebuy the stock 1 second later. There is no waiting period for harvesting gains.
Don't Waste a Low-Income Year
If you are having a "low income year"—maybe you are between jobs, went back to school, or just retired—don't waste it. That empty space in the 0% tax bracket is valuable real estate.
Use it to reset your portfolio's cost basis. Your future wealthy self will thank you for the tax-free growth.
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