While the maximum capital gain tax rate can be as high as 23.8 percent, most taxpayers pay 15 percent. But there is the possibility to have your capital gains go tax-free…yes, zero percent! In fact, this tax break has been around for more than a decade and comes into play more often than you may think. Here is what you should know:
Qualifying for the 0% capital gains rate
You qualify for long-term gain treatment if you sell stocks, bonds or real estate (and other capital assets) you’ve owned longer than a year.
For 2023, the zero percent rate applies to long-term capital gains for single taxpayers with taxable income up to $46,625 and married filing joint taxpayers up to $89,250. This zero percent rate can apply if you’re having a low income tax year due to:
- Temporary job loss
- A tax loss passed through to you from an S corporation or partnership
- Income fluctuation for a commission-based job
- Retirement
- Moving to part-time employment
But you could also have a higher income and qualify for this zero percent rate. For example, if a married couple earns $116,950 in 2023, their taxable income would equal the $89,250 zero percent rate threshold after subtracting the $27,700 standard deduction for a married couple.
Awareness is the key
While you may not always have the zero percent capital gains tax rate available to you, it is important to note when it comes into play.
Here’s an example: Adam and Eve Johnson recently retire. They have a number of mutual funds they’ve owned for years and have retirement savings accounts. Their current income is $58,700. Should they withdraw money from a retirement account or sell some of their mutual funds? Because they’re aware of the zero percent capital gains, they decide to sell mutual funds with $25,000 in capital gains to get the money tax free!
Plan your own tax moves
So keep the zero percent capital gains rate in mind as the year winds down. Know your projected income for the year and depending on your situation, you might realize capital gains that are subject to no or lower tax rates. Remember other factors often come into play, including the taxability of Social Security Benefits, so call if you would like a review of your situation.
Please call any member of our team at 616-458-1835 if you have questions.