Tax Gain Harvesting - End of Year Tax Opportunity
Tax Gain Harvesting
If you have appreciated investments in a brokerage account, whether it be mutual funds, ETFs, or a concentrated individual stock position, you should know about an opportunity that exists within our tax brackets today to potentially recognize long term capital gains on your investments at a 0% tax rate.
Purposely recognizing long term capital gains in the 0% tax bracket is commonly called tax gain harvesting, and it can be an incredibly valuable planning strategy to reduce your taxes in retirement.
In 2023, a married household with taxable income below about $89,000 has the opportunity to take advantage of this. Though note that this exact amount will change each year with inflation.
Who can take advantage of this? Just about anyone who finds themselves in a low income year. Commonly, we see this with those early in their retirement, before RMDs have begun on their retirement accounts and before Social Security has begun.
But this opportunity comes up in many other situations as well. Perhaps younger workers who are experiencing a gap in employment could qualify, or families that want to gift appreciated stock to their lower earning family members should also consider this strategy as well.
Finally, executing this strategy is very easy. You may be familiar with the idea of tax loss harvesting, which has more complicated rules like the wash sale rule, and may require reporting over multiple tax years of tax returns.
This isn’t the case with gain harvesting. You can simply sell these investments, recognize the gain, and immediately repurchase the same security.
Analyzing this is just one part of our work in creating tax efficient withdrawal strategies for our clients. If you are wondering about how to get money you’re your investments in the most tax efficient way, please reach out.
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