As an investor, it’s essential to stay ahead of the game and capitalize on strategies that could potentially save you money in the long run. One such strategy that is gaining traction in the investment world is tax-gain harvesting.
So, what exactly is tax-gain harvesting? This tactic involves strategically selling profitable assets in your brokerage account during lower-income years to take advantage of the 0% capital gains rate. By doing this, you can rebalance your portfolio and reset your basis for future savings.
Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo, points out that realizing gains at 0% can be very lucrative, especially for married couples filing jointly. In 2024, you may qualify for the 0% capital gains rate with a taxable income of up to $47,025 for single filers or up to $94,050 for married couples filing jointly.
The Benefits of Tax-Gain Harvesting
By utilizing tax-gain harvesting, you can rebalance your brokerage assets without triggering gains. Additionally, you have the opportunity to reset your basis or original purchase price by selling a profitable asset and immediately repurchasing it.
Unlike the wash sale rule that applies to selling assets at a loss, which blocks the tax break if you repurchase a substantially identical asset within a 30-day window, tax-gain harvesting doesn’t have this limitation. This strategy can significantly reduce future gains, especially when you sell later in higher-earning years.
The ‘Sweet Spot’ for Tax-Gain Harvesting
According to Lucas, the ideal time for tax-gain harvesting is typically in October or November when investors can better project their taxable income for the year. It’s important to leave some buffer room to avoid hitting the 15% capital gain bracket when executing this strategy.
Generally, tax-gain harvesting is more attractive during lower-income years, such as early retirement before required minimum distributions. However, Lucas warns that younger retirees with marketplace health insurance may jeopardize premium tax credits with higher income.
At Extreme Investor Network, we understand the importance of maximizing your investment returns and minimizing taxes. By incorporating strategies like tax-gain harvesting into your investment plan, you can potentially save on future taxes and optimize your portfolio for long-term growth. Stay tuned to our blog for more expert insights and tips on personal finance and investing.