Skip to Content
Schedule a Discovery Meeting

Managing Capital Gains Taxes in Retirement: The 0%, 15% and 20% Brackets, the 3.8% Tax and Gain Harvesting

Capital gains in retirement

A brokerage account built over thirty years arrives in retirement carrying decades of unrealized gain. When and how that gain is realized is a decision, and in retirement, when ordinary income is finally under your control, it is a decision with unusually good options.

Published September 11, 2026 by Flames Financial Planning. 9 min read.

Short answer: Long-term gains and qualified dividends are taxed at 0% while your joint taxable income, including the gains themselves, stays at or below $98,900 in 2026 ($49,450 single), 15% up to $613,700, and 20% above, with a further 3.8% on investment income once modified adjusted gross income passes $250,000 joint. Gains stack on top of ordinary income, so the room in the 0% and 15% brackets is whatever ordinary income has not used. Manage gains by realizing them deliberately in low-income years, selling the highest-basis lots first, giving the lowest-basis positions to charity, and leaving positions you will never need for the step-up in basis at death.

The schedule

How Long-Term Gains Are Taxed in 2026

Gains on assets held more than a year, and qualified dividends, have their own rate schedule. It is keyed to taxable income, the same measure as the ordinary brackets, but the breakpoints are different.

Rate on long-term gains and qualified dividendsJoint taxable income (2026)Single
0%up to $98,900up to $49,450
15%$98,900 to $613,700$49,450 to $545,500
20%over $613,700over $545,500
plus 3.8% net investment income taxMAGI over $250,000MAGI over $200,000

Sources: IRS, Rev. Proc. 2025-32 (full text), section 3.03; IRS, Topic no. 559, Net investment income tax. Short-term gains (assets held a year or less) and non-qualified dividends are taxed as ordinary income at the regular brackets. The net investment income tax thresholds are set in statute and not indexed.

The 3.8% tax deserves a note of its own. It applies to the smaller of your net investment income or the amount by which MAGI exceeds the threshold, and the threshold has been $250,000 for a joint return since the tax began, with no inflation adjustment. A couple with $60,000 of dividends and interest and $220,000 of MAGI pays nothing; the same couple with a $100,000 gain pays 3.8% on $70,000 of it. The gain is taxed at 15% and, in effect, 18.8% at once.

The stacking rule

Gains Sit on Top of Ordinary Income

The most useful and least understood feature of the schedule is how the two kinds of income combine. Ordinary income (wages, pensions, IRA withdrawals, Roth conversions, interest, Social Security) fills the ordinary brackets first. Long-term gains and qualified dividends are then stacked on top, and the capital-gain rate is read off where the stack lands.

An example. A retired couple, both over 65, has $75,500 of ordinary income before deductions: after the $35,500 standard deduction that is $40,000 of taxable ordinary income. The 0% capital-gain bracket runs to $98,900, so they can realize $58,900 of long-term gains this year and pay no federal tax on any of it. Every dollar of gain beyond that is taxed at 15%. And every additional dollar of ordinary income they take, say from an IRA, is taxed at its own bracket rate and pushes a dollar of gain from 0% to 15%, so its true cost is the bracket rate plus 15 points.

Why gains and conversions compete

A Roth conversion and a realized gain use the same bracket room. In a year when the household wants to do both, each dollar of conversion costs its bracket rate plus the capital-gain rate it displaces. For a couple in the 22% bracket with gains in the 0% band, that is 37 cents, not 22. The two are planned as one decision, and often assigned to different years.

The rule also explains a surprise that catches many retirees: Social Security. Because up to 85% of benefits become taxable as other income rises, and gains count as other income for that formula, a large gain in a year when benefits are being drawn can pull more of the benefit into income, which then pushes the gain higher in the stack. The years before claiming, when the household controls its income, are where large gains are cheapest, for the same reason they are where conversions are cheapest.

The moves

Seven Ways to Manage Gains on Purpose

  1. Harvest gains in the 0% years. In a year when taxable income is low (before Social Security, before required distributions, or after a large deduction), sell appreciated positions up to the top of the 0% bracket and buy them back immediately. There is no wash-sale rule for gains, only for losses, so the same position can be repurchased the same day with a higher basis and no tax paid. This is the opposite of loss harvesting and, for a retired household, usually worth more.
  2. Sell by lot. When you sell part of a position, tell the custodian which shares. Selling the highest-basis lots realizes the least gain per dollar raised; the default method at many custodians realizes the most. A position bought over twenty years has lots with wildly different bases.
  3. Give the lowest-basis positions, not cash. Appreciated stock held more than a year and given to a public charity is generally deductible at fair market value, and the gain is never taxed by anyone. A donor-advised fund accepts the shares and lets the giving be spread over years. Source: IRS, Publication 526, Charitable Contributions.
  4. Leave what you will never need. Property inherited from a decedent generally takes a new basis equal to its fair market value at death, so a position with an enormous gain that the household will not spend is worth more to heirs unsold. Selling it to "clean up the portfolio" pays tax that death would have erased. Source: IRS, Publication 551, Basis of Assets.
  5. Spread a large gain across years. A concentrated position or a business sale that would land in the 20% bracket and the 3.8% tax in one year can often be realized over two or three, keeping each year's stack lower. Where the sale cannot be split, the other levers (conversions, deductions, charitable giving) are moved into the surrounding years instead.
  6. Use losses when they exist. Realized losses offset realized gains without limit, and $3,000 a year of excess loss offsets ordinary income, with the rest carried forward. A loss carryforward from a bad year is an asset; it lets gains be realized later at no cost.
  7. Watch the thresholds two years out. Gains count in full toward the modified adjusted gross income that sets Medicare premiums two years later; above $218,000 of joint MAGI the surcharge tiers begin. A $150,000 gain that crosses a tier costs its 15% or 20% and a Medicare surcharge for a year. See Roth conversions and IRMAA.

The house

Selling a Home in Retirement

The largest single gain many households ever realize is on a house, and it has its own rule.

Gain on the sale of a main home is excluded from income up to $250,000 for a single filer and $500,000 on a joint return, provided you owned and lived in the home for at least two of the five years before the sale and have not used the exclusion in the previous two years. Gain above the exclusion is a long-term capital gain like any other, stacked on top of ordinary income, counted toward the 3.8% threshold and toward Medicare MAGI. Source: IRS, Topic no. 701, Sale of your home.

For a long-held house in a market that has risen steeply, the gain above the exclusion can be several hundred thousand dollars, all in one year. That year should not also be a Roth conversion year or a gain-harvesting year, and where the timing is flexible, a sale before Medicare enrollment or in a year without other income keeps the stack low. Basis matters here too: the cost of improvements over the years adds to it, and records of them are worth keeping.

Two edge cases come up often. A surviving spouse can still use the full $500,000 exclusion if the home is sold within two years of the death, after which the single limit applies. And a home inherited by children takes a basis equal to its value at death, so a parent who is considering selling to simplify the estate should compare the tax on selling now with the tax on selling later, which for the heirs may be zero.

The state layer

Where You Live Changes the Rate

Federal capital-gain rates are the same everywhere; state treatment is not. California and Minnesota tax gains as ordinary income at rates up to 13.3% and 9.85% respectively, so a gain that is taxed at 15% federally can face nearly 30% in total. Washington taxes long-term gains above a standard deduction at 7%, rising to 9.9% on large gains, while having no ordinary income tax. Wisconsin excludes 30% of long-term gains from state income. Texas, Florida, Tennessee and Nevada tax gains not at all. For a household with a large gain and a planned move, which state you are domiciled in when you sell is worth more than most other planning. Each state page carries the rule with its source.

Flames FP approach

How Flames FP Handles This

Flames Financial Planning coordinates investments, taxes, retirement income and estate guidance under a flat quarterly membership, with no fee on assets. Planning includes proactive tax guidance and a planning-focused review of a completed personal return. Premier adds ongoing tax projections, Roth-conversion and capital-gain modeling, retirement-income and withdrawal implementation, and eligible tax-return preparation and filing through an independent tax partner.

Flames Access

$150 per quarter
$600 annualized

Flames Planning

$900 per quarter
$3,600 annualized

Flames Premier

$1,650 per quarter
$6,600 annualized

Memberships are billed quarterly in advance with no annual commitment. See what each includes on the pricing page, read how the pieces fit together on the retirement tax planning overview, or, if you are weighing a subscription firm, see the side-by-side with Facet.

Schedule a Discovery MeetingUse the Free Dashboard

FAQ

Common Questions

What is the 0% capital gains rate for 2026?

Long-term capital gains and qualified dividends are taxed at 0% while joint taxable income, including the gains, is at or below $98,900 ($49,450 for a single filer). Above that they are taxed at 15% up to $613,700 joint ($545,500 single) and 20% beyond.

Do capital gains push me into a higher tax bracket?

Long-term gains do not change the rate on your ordinary income, because they are stacked on top of it and taxed at their own schedule. But they do raise adjusted gross income, which can make more of your Social Security taxable, trigger the 3.8% investment tax, phase out deductions, and raise Medicare premiums two years later. Ordinary income does push gains into a higher capital-gain rate, because it fills the room beneath them.

What is tax-gain harvesting?

Selling an appreciated investment in a year when the gain would be taxed at 0%, then buying it back, so the basis resets higher and no tax is paid. There is no wash-sale rule for gains, so the repurchase can be immediate. It is most useful for retirees in the years before Social Security and required distributions, when ordinary income is low.

How does the 3.8% net investment income tax work?

It applies to the smaller of net investment income (interest, dividends, gains, rents, royalties and similar) or the amount by which modified adjusted gross income exceeds $250,000 on a joint return ($200,000 single). The thresholds are not indexed. Retirement-plan distributions are not investment income, but they raise MAGI and can expose investment income you already have.

Is it better to sell appreciated stock or donate it?

For a household that gives to charity, donating appreciated stock held more than a year is usually better than selling it and giving cash: the deduction is generally the full fair market value and the gain is never taxed. For positions the household will never need and does not intend to give, leaving them for heirs, who receive a basis stepped up to the value at death, is often better than either.

How much home-sale gain is tax-free?

Up to $250,000 for a single filer and $500,000 on a joint return, if you owned and lived in the home for at least two of the five years before the sale and have not used the exclusion in the prior two years. Gain above that is a long-term capital gain.

Keep reading

Related Reading

Primary sources

This article is educational and is not individualized tax, legal or investment advice. Thresholds, rates and premiums are revised every year; the figures here are for tax year 2026 as published by the sources above, and you should confirm the current year’s before acting on any of them. Advisory services are offered through Core Planning, LLC, a Registered Investment Advisor.