While the maximum capital gain tax rate can be as high as 23.8%, most taxpayers pay 15%. But there is the possibility of having your capital gains go tax-free…yes, zero percent! In fact, this tax break has been around for over a decade and comes into play more often than you may think. Here is what you should know:

Zero percent 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 for over a year.

For 2023, the zero percent rate applies to long-term capital gains for single taxpayers with taxable income up to $46,625. The rate applies for married filing joint taxpayers with taxable income up to $89,250. This zero percent rate can also 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, suppose a married couple earns $116,950 in 2023. In that case, their taxable income would equal the $89,250 zero percent rate threshold after subtracting the $27,700 standard deduction for a married couple.

Tax planning and preparation

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 retired. They have several 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!

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. Contact RRBB Advisors if you would like a review of your situation.