With positive returns in the stock market over the last three years, investors are most likely sitting on some unrealized capital gains in their taxable brokerage accounts. Read on if you are thinking about locking in some of those gains and how to minimize federal taxes on them.
First, let’s get some definitions out of the way.
A capital gain is the profit realized from the sale of a capital asset, such as stocks or bonds, for a price greater than what you paid for it, aka its cost basis.
For example, if a stock was purchased for $100 plus a $5 fee and was later sold for $150 with a $5 fee, the cost basis would be $105, and the net proceeds would be $145, resulting in a realized capital gain of $40.
For this gain to be considered long-term, you would need to have held the asset for more than one year. For example, if an asset is purchased on March 20, 2024, a sale on March 20, 2025, would be a short-term transaction, while a sale one day later on March 21, 2025, would be a long-term transaction.
Now, here’s the important part. These gains are subject to special, significantly lower tax rates of 0%, 15%, or 20%. These are typically lower than your ordinary income tax rate, which could be as high as 37%.
The following table details the specific income limits for 2025 to qualify for the various long-term capital gains (LTCG) tax rates.
| Tax Filing Status | 0% Rate Taxable Income | 15% Rate Taxable Income | 20% Rate Taxable Income |
| Single | Up to $48,350 | $48,351 to $533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701 to $600,050 | Over $600,050 |
| Head of Household | Up to $64,750 | $64,751 to $566,700 | Over $566,700 |
| Married Filing Separately | Up to $48,350 | $48,351 to $300,000 | Over $300,000 |
So, to be able to avoid LTCG tax in 2025, you will need to have taxable income of less than $48,300 for single filers and less than $96,700 if you’re married. It’s important to note that we are looking at taxable income, which is typically found at the bottom of your 1040 form (Line 15 on the 2024 Form 1040). Taxable income is calculated as adjusted gross income (AGI) minus standard or itemized deductions. This means an individual can strategically reduce their taxable income to fit within the 0% bracket.
For example, a single filer with a gross income of $65,000 using the standard deduction of $15,750 for 2025 and a 401k contribution of $10,900 could get their taxable income to $38,350, $10,000 below the $48,350 threshold. Therefore, a realized LTCG of $10,000 can be added to the taxable income, which would be taxed at 0% since the total taxable income is below the $48,350 threshold.
The decision to sell some winners and realize LTCGs in 2025 is not an isolated one; it must be coordinated with all other income, deduction, and contribution decisions for the year. Obviously, this strategy works best for those that already have a low taxable income, such as retirees.
Before taking any action, it is recommended to consult with a qualified tax professional, financial advisor, or attorney who can provide personalized guidance.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
