Tax-gain harvesting takes advantage of unused low tax rates to increase basis and reduce future taxes. Tax-gain harvesting can reduce taxes significantly more than tax-loss harvesting due to the limited amount of losses that can be deducted and wash sale rules.
I have published on tax-loss harvesting in the past where I outlined the severe restrictions placed on tax-loss harvesting. There are even instances where tax-loss harvesting can increase your taxes!
Tax-Gain Harvesting Review First
A quick review of tax-loss harvesting before examining the benefits of tax-gain harvesting.
First, you can’t just sell a stock at a loss and immediately buy it back. That is a wash sale and the loss is disallowed. Your loss is suspended when you buy an identical or substantially identical stock within 30 days before or after the stock sold at a loss.
You can’t sell a stock at a loss in non-qualified account and then buy it back in your IRA, Roth or traditional, either, within 30 days and still get the deduction. It is still a wash sale and the rules get very complex in these situations and it is possible to lose the tax break and still end up with a lower basis, increasing your taxes at some point in the future.
And don’t even think about shifting the buying to your spouse’s account. The wash sale rule still applies.
Married couples have even more worries! Where you live determines who can use the loss in the event of divorce or death.
Don’t forget that you are only allowed a $3,000 deduction against other income in a year using capital losses.
All these negatives make tax-loss harvesting a bad option for most people. But there is a better way. A way to save a large amount on taxes without all the negative tax consequences!
Tax-Gain Harvesting
Charlie Munger, the right-hand man of Warren Buffet for decades until his recent death, always suggested using inversion as a strategy for understanding a situation. By turning the problem around you get a new view and often a new perspective on how to solve the problem.
Tax-loss harvesting has become so popular that there are companies promoting the automated process of loss harvesting. But all those negatives listed above make the losses harvested limited in value unless you have a current large capital gain to offset.
By flipping the script, using inversion, you uncover a powerful tax strategy few consider.
Wash sale rules only apply to losses. There are no restrictions on reported gains. Any gain realized, harvested, are reported on your tax return, even if your tax bracket is 0%! And the 0% tax bracket for long-term capital gains provides many taxpayers with a real opportunity.
| For 2025 Tax Year | 0% | 15% | 20% |
| Single | Up to $48,350 | $48,351 – $533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701 – $600,050 | Over $600,050 |
| Head of Household | Up to $64,750 | $64,751 – $566,700 | Over $566,700 |
Compare the long-term capital gains rate against the top ordinary tax rate of 35% for 2025.
The table above shows the tax brackets for long-term capital gains. Understand that capital gains rates still consider other income. A good way to visualize how your long-term capital gains will be taxed is to stack all your income, placing your long-term capital gains on the top of the stack. The amount of long-term capital gains that fall below the 15% bracket are taxed at 0%. Amounts over the 0% rate are taxed as indicated in the table above.
A Few Cautions
While long-term capital gains might not be taxed, it can claw more Social Security benefits into income. Many tax credits can also be reduced or eliminated due to the additional long-term capital gains. The earned income credit, Saver’s Credit, and the premium tax credit are common credits affected when tax-gain harvesting is used.
Additional Benefits
Not only do you enjoy a lower tax rate on long-term capital gains, you can instantly buy back the investment without negative tax consequences. Doing so increases your basis in the investment.
Example:
• Sell a stock you held for 10 years for $90,000 with a basis (usually the purchase price) of $50,000.
• If all the long-term capital gain is in the 0% bracket you pay no tax. (There could be state taxes, however.)
• Instantly buy back the stock for $90,000, which is now your new basis.
In the example above you increased the basis of your investment by $40,000 without paying any tax, effectively locking in a tax rate of 0% for that gain.
Why is a higher basis important? Because when you sell in the future you will have a smaller gain. If your income increases, along with your tax bracket, you locked in a 0% tax on those tax gains harvested.
Plus, when you retire you can sell your investments with at a smaller gain which can lower the amount of Social Security benefits clawed into income.
Whereas, tax-loss harvesting has a lot of rules and pitfalls, tax-gain harvesting locks in a higher basis without tax pitfalls or restrictions. Locking in a 0% tax rate on gains is a no-lose situation. The worst that can happen is you break-even.
Another consideration is the changing tax code. Currently, tax rates are historically low, especially for long-term capital gains. Locking these low rates in for some of your gains is smart planning.
Strategies
Armed with tax-gain harvesting as a possible tax strategy, you can now compare and contrast with other powerful tax-reducing strategies.
Consider the Roth conversion. When should you do a Roth conversion? When is it best not to do a Roth conversion?
If your tax bracket is low you may want to convert some of those traditional IRA monies into future tax-free growth by using a Roth conversion on some of the traditional IRA balance.
There is no “one-size-fits-all” template. Your personal facts and circumstances guide the way. Special consideration for future goals play a role. Will you need a large amount of cash early in your retirement for travel? Are your required minimum distributions from traditional IRAs going to be high?
You can use a Roth conversion and tax-gain harvesting in the same tax year. However, each strategy affects the other. For example, more tax-gain harvesting, even at the 0% rate, will still increase your income, potentially causing higher taxes on Roth conversions.
Often it is best to focus on either Roth conversions or tax-gain harvesting. But if you are in retirement or experiencing a low income year, a combination may best meet your goals while keeping your taxes very low.
Each year will require a new review of your tax situation to verify which strategies are best for you. Pay special attention to other benefits. Long-term capital gains can reduce tax credits even when the realized gains are taxed at 0%.
If you receive assistance you also need to pay attention to those details and not just taxes. Common programs include, but not limited to: education programs, reduced cost medical services, utility assistance, food assistance, and more.
Tax-gain harvesting is a power tool for reducing taxes now and in the future. Add this tax strategy to your toolbox to lock in low tax rates on gain. Combine strategies to lower your taxes the most allowed by law.
