Capital Gains Harvesting Guide
Lock in your investment gains completely tax-free.
0% Capital Gains Calculator (2024)
Enter your expected ordinary income to see how much room you have in the 0% long-term capital gains bracket.
The Mechanics of Capital Gains Harvesting
As detailed in our Tax Optimization FIRE Guide, harvesting capital gains is one of the most powerful strategies available to early retirees living on a modest taxable income.
How it Works
- Identify assets in your taxable brokerage account that have long-term capital gains (held for > 1 year).
- Ensure your ordinary income plus these gains keeps you under the 0% bracket limit.
- Sell the assets.
- Immediately buy the exact same assets back.
Unlike Tax-Loss Harvesting, there is no wash-sale rule for gains. You do not have to wait 30 days to buy back the same index fund.
Why do this?
By selling and rebuying, you are raising your "cost basis" (what the IRS considers your purchase price) for free. When you eventually sell those shares years later when your income might be higher, you will owe significantly less tax because you already locked in a portion of the gains at a 0% rate.
State Taxes Warning
While the federal government offers a 0% rate for long-term capital gains, many state governments do not. If your state taxes capital gains as ordinary income, harvesting gains will generate a state tax bill. Always factor state taxes into your mathematical optimization.