April 22, 2025 • 17 mins
If you’re sitting on large investment gains in a brokerage account and wondering whether it’s worth taking the tax hit, this episode is for you. I walk through a clear framework I use with clients to help them decide when—and if—it makes sense to realize those gains.
I also explain several strategies that can potentially reduce or even eliminate the taxes you might owe, including how to take advantage of the 0% long-term capital gains tax bracket, gifting appreciated assets, and tax-loss harvesting. Whether you're approaching retirement or just looking to be more intentional with your investments, these tools can help you make more informed decisions.
Toward the end, I also point to a related video where I explain how a separately managed account may benefit high-income investors with significant brokerage assets.
Questions answered:
1. When does it make sense to realize investment gains in a taxable brokerage account—and when should you hold off?
2. What strategies can help reduce or eliminate the taxes owed on long-term capital gains?
Submit your request to join James:
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Timestamps:
0:00 - When not to sell
2:40 - Understand risks on both sides
5:54 - Tax strategies
8:55 - Gifting stocks to charities
11:14 - Gifting to family
12:44 - Understanding step-up in basis
14:18 - Capital losses offset capital gains
15:11 - Wrap-up
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Are you worried about taking the tax hit on your
investment gains and unsure whatto do?
Well, in today's episode, I'mgoing to share a very simple
framework that will show youwhen, or even if, you should
realize those gains and the wayyou should go about doing it.
This is another episode ofReady for Retirement.
I'm your host, james Canole,and I'm here to teach you how to
get the most out of life withyour money.
And now on to the episode.
(00:22):
As part of this episode, I'mgoing to share with you simple
ways that you can pay nothing intaxes on some of these gains.
This is from Simple Things liketaking full advantage of the 0%
long-term capital gain taxbracket.
Creative ways to gift money tocharity to offset the tax impact
.
Gifting money to children sothey can realize some of the
gains at their tax bracket.
Understanding when you get astep-up in basis on your
(00:43):
unrealized gains.
And also understanding how taxloss harvesting can help to
offset some of this.
So I'll talk about some ofthose, but before I do so, I
want to go through the generalframework of how you should even
think about the gains that youhave in your portfolio.
You've invested in something,it's grown, and now you're stuck
wondering what do I do?
Do I take the tax hit or do Ikeep it going to avoid taxes and
(01:03):
maintain the same investmentexposure that I already have?
And just in case it's notalready obvious, what I'm
talking about specifically isgains in a brokerage account,
not an IRA, a Roth IRA, a 401k.
All of those gains are eithertax free or tax deferred.
I am talking about gains onthings held in a brokerage
account, where anything that yourealize, any gain that you
realize, is potentially subjectto taxes.
(01:23):
So, to start, let's go throughthe framework of when should you
hold onto your investment andavoid paying gains, versus when
should you sell your investmentand pay taxes on those gains.
And we'll do this framework, orwe'll go through this framework
, before going to some of theways that you can creatively pay
nothing in taxes, potentially,depending on your situation.
So let's start by looking at anexample.
Let's assume that you put moneyinto an investment and you've
(01:45):
put a total of $100,000 intothis investment.
It's now worth $500,000.
There's $400,000 of unrealizedgains here, and if you sell this
, those gains are going to betaxable.
How do you determine what youshould do here?
Well, number one, let's startwith.
When shouldn't you sell thatinvestment?
There's not always a case tosell and pay taxes if we can
avoid doing so or if there's noneed to do so, if that $500,000
(02:08):
investment, so that investmentthat has 400% gains in it, if
you have that investment and youlook at your portfolio and you
know what your portfolio needsto do for you and you understand
or you see that this specificinvestment is a critical part of
that portfolio, there's notnecessarily a need to sell If
that gain is there and this isstill a core part of your
portfolio and you're notoverweight.
(02:29):
So, for example, the instance Isee quite a bit is people who
have invested in large techstocks.
This could be a fund, whetheran ETF or a mutual fund, that
invests in large cap growthstocks, which tend to be
technology stocks, or it couldbe individual holdings.
Maybe you purchased Amazon orTesla or Microsoft or any of
these investments that have donequite well over the past 5, 10,
(02:50):
15 plus years and you have asignificant gain in them.
If you look at that specificinvestment and you say this
investment plays a critical rolein my portfolio and I have a
well-diversified portfoliodesigned to meet my needs and
this investment plays a criticalrole in it, maybe you don't
necessarily need to realizethose gains.
However, if you look at thisinvestment and say it is
significantly overweight or itdoes not play a role in my
(03:13):
portfolio, that's where you haveto understand the risk of both
action and inaction.
So what do I mean by that?
Well, the risk of action, inthis case, selling.
So, for example, maybe you haveall of your money to use an
extreme example in one singlestock.
I don't care how well thatstock is done.
It is incredibly risky if allof your net worth is in one
single stock or all of yourportfolio is in one single stock
, specifically as you approachretirement.
(03:35):
If you are that individual inthat example, we have to
understand what is your maximumdownside by selling and
realizing all of your gains.
Well, the maximum downside isyou pay full taxes on the gains.
Depending on what state you'rein, that's going to be different
At the federal level.
There is a 0%, a 15% and a 20%long-term capital gain tax
(03:56):
bracket, as well as a netinvestment income tax when your
income exceeds certainthresholds.
So at the federal level, ifwe're just looking at federal
long-term capital gain tax rates, the maximum impact is 20%.
20% haircut, not on theentirety of what you sell, but
on the gains.
So if we use another example,maybe you purchase something for
$60,000 and it's now worth$100,000.
(04:18):
If you sell it all, that's abig gain.
That's a 67% appreciation fromthe 60,000 that you had, growing
to $100,000.
But you're not paying 20% taxeson everything.
You're paying 20% taxes on thegains, at the maximum,
potentially 15% if you're not inthe max tax bracket there.
So in this example, a 20% taxon those $40,000 of gains would
(04:40):
be $8,000.
So if you sell your investment,if you sold all of it, that
would turn from $100,000 into$92,000 in this case.
So that's not fun.
That's not fun to know thatyou're going to lock in a loss.
But let's look at thealternative.
What if this $100,000 is in onesingle stock and that single
stock has a lot of gains in itand that prevents you from
selling?
You don't want to have to payany of the taxes.
(05:01):
Well, now, all of a sudden,that stock declines 40%, 50%,
60%, 70%.
The good news is you probablyno longer have a tax liability.
The bad news is you've lost 70%of your investment in that
extreme case.
So when you look at potentialoutcomes.
What we have to understand isthat sometimes I see people
avoiding selling an investmentbecause they're avoiding that
(05:22):
tax hit.
That tax hit is very tangible.
They know it exists.
They know what they're going topay.
What they're not quite takinginto account is what's the risk
of not doing this?
The risk of not doing this inmany cases is significantly
greater than the tax liabilitythe tax that they're going to
pay and so keep that in mind.
Start with understanding whatare the real risks here.
Just because you have along-term gain doesn't mean you
(05:42):
have to sell.
In many cases, it's a greatstrategy to keep that investment
, keep that fund as part of youroverall portfolio and avoid
gains.
But if this begins to make uptoo much of your portfolio or
you're heavily, overlyconcentrated, there's tremendous
risk there, and we can't losesight of the fact that a
downturn will be far moredetrimental to you in that case
than simply realizing some ofthe taxes would be.
(06:04):
So that's a basic framework ofhow should you think about this.
Now let's look at some specificstrategies that could eliminate
this tax bill altogether.
The first strategy is fullyutilizing the 0% long-term
capital gain threshold, thelong-term capital gain tax
bracket.
A lot of people think long-termcapital gains, I'm either paying
taxes at 15% or 20%, and for alot of people that.
(06:25):
But if your taxable income isunder certain thresholds, you
have a 0% tax bracket that youcan take advantage of to realize
long-term capital gains andqualified dividends.
Now, qualified dividends I'mgoing to set aside because you
can't control the timing of whenyou receive these dividends,
but you can control the timingof when you realize a long-term
(06:46):
gain.
For 2025, if your taxableincome is under $96,700, you are
in a 0% long-term capital gaintax bracket, meaning any
long-term capital gain yourealize up until that threshold
is taxed at 0%.
Anything above that thresholdis then taxed at 15, and then
there's another threshold whereanything above that is taxed at
(07:07):
20%.
If you are single, thosenumbers are exactly half above
that is taxed at 20%.
If you are single, thosenumbers are exactly half.
$48,350 is the taxable incomethreshold under which you pay 0%
federal taxes on long-termcapital gains.
Now, be mindful of what I'msaying here Taxable income, not
adjusted gross income, but yourtaxable income.
The difference is if you startwith your adjusted gross income
(07:30):
and then you take a deduction,either.
Your standard deduction, whichare 2025, is 15,000 if you're
single, 30,000.
If you're married, filingjointly, even more.
If you're 65 or older.
What you do is you take youradjusted gross income, remove or
deduct your deduction and thenwhat you're left with is your
taxable income.
So this is actually good newsIf you're married, filing
(07:51):
jointly, and have the standarddeduction, your adjusted gross
income and there's some nuancehere and there's some details
that definitely could changethis.
I'm just saying this for someperspective, not to say this is
a hard and fast number that youshould use because there are
some details that impact thisbut an adjusted gross income of
$126,700 or less.
Generally speaking, you're goingto be in that 0% federal tax
(08:12):
bracket, not a 0% tax bracketfor ordinary income.
So things like interest thatyou receive, ira distributions,
part of your social security,that's all taxed at ordinary
income rates.
This is specifically forlong-term capital gains.
So can you utilize that?
Can you leverage that?
Can you take advantage of beingin that tax bracket?
And something that most peopledo, or many people do, is they
might have gains that exceedthat limit.
(08:33):
So they say, ok, I have$100,000 of gains in my
investment account.
I am maybe, let's say, forsimple math, $50,000 under that
threshold.
Well, if I realize all 100,000of these gains this year, 50,000
of them will be tax free, butthe other 50,000 will be taxed
at the 15% rate.
Great, do you realize half ofthe gains this year and do you
realize the other half of thegains the following year?
(08:55):
How can you be strategic aboutthe timing of when you realize
those gains so that, even if youhave some pretty significant
gains, can you potentially pay0% taxes on those by utilizing
the 0% tax brackets?
Another thing that you can do tooffset some of the taxes you
would owe on a long term capitalgain and keep in mind,
everything I'm talking about inthis episode is a long term
capital gain.
Short term capital gains thoseare taxed to ordinary income
(09:17):
rates and some of thesestrategies don't work with short
term capital gains.
But if you have investmentgains, let's assume you
purchased Apple stock for $1,000and it's now worth $10,000 and
you want to gift $10,000 to acharity what you could do is you
could gift $10,000 cash to thatcharity, and that's great,
that's wonderful.
But what might've been betteris what if you instead look to
(09:38):
gift that Apple stock?
Let's assume for a secondyou're in the 20% tax bracket
federally and you're in a statelike California and I'm going to
round your tax bracket to 10%for easy math.
You're in a 30% combined taxbracket, and that's before
factoring things like netinvestment income tax.
So 30% might actually beconservative in this case.
If you're in a 30% tax bracketand you sell an investment with
(09:59):
$9,000 in gains, $2,700 of thosegains are going to be paid in
taxes, so that $10,000investment doesn't really
represent $10,000 to you.
It represents doesn't reallyrepresent $10,000 to you.
It represents, or it's theequivalent of $7,300 to you in
terms of its after-tax value.
So what if, in this case,instead of gifting $10,000 in
cash, what if you gifted that$10,000 in Apple stock or any
(10:23):
investment stock?
Well, what that does is youdon't pay any taxes on the gains
, you get the full tax deductionof the $10,000 gift and the
charity doesn't pay any taxes onthe gains either.
So they get the full $10,000and something that to you was
worth $7,300 after taxes nowbecomes worth the full $10,000.
To take this a step further, ifyou say, well, I really like
(10:43):
that Apple stock and this is nota recommendation for owning
Apple stock, I'm just using thisas an example If you say, well,
I don't want to get rid of that.
Take the $10,000 of cash youotherwise would have gifted to
charity and repurchase Applestock.
You now own the same exactnumber of shares, except now
you've stepped up your costbasis.
(11:04):
Now the basis on those sharesis $10,000, meaning any future
sale you do of that stock,you're only paying taxes on the
gains above $10,000, no longerpaying gains on the gains above
$1,000, which was the originalcost basis.
So if you do any type ofcharitable giving, it very often
makes sense to gift appreciatedshares of stock as opposed to
(11:24):
gifting cash.
Another thing you can do is youcan gift to family.
So let's assume that you're ina position where you want to
help children with a home downpayment, or you want to give
them funds for something, or youwant to do something.
Well, you could gift cash, likewe talked about in the previous
example.
But what if there's a hugediscrepancy between your tax
bracket and your child's taxbracket?
Well, if, instead of gifting,let's say, $20,000 to your child
(11:45):
in cash, what if you giftedhighly appreciated securities,
knowing that they're in a muchlower tax bracket, potentially
even the 0% tax bracket?
Well, if you gift shares of aninvestment, whatever your cost
basis is assuming there's a gainon those shares you're gifting
or they're getting, therecipient is getting the same
cost basis.
So let's use that Apple exampleagain and let's just double the
(12:06):
values.
You want to give $20,000,.
You purchase $2,000 of Applestock.
It's now worth $20,000.
Well, if you gift that to yourchild, they still have that cost
basis of $2,000 and they nowhave the full value, or they
still have the same fair marketvalue of $20,000.
Well, your tax bracket andagain I'm assuming a pretty
significant variance betweenwhat your tax rate is and what
your child's tax rate is.
(12:27):
But if you were to sell that,you might be paying 20, 25, 30%
total taxes on those gainsversus your child.
They might potentially be inthe 0% tax bracket.
They might potentially be evenin the 15% tax bracket.
So that at least, is a way ofselling at a lower tax bracket
than yours.
If you already have theintention of gifting funds to
(12:49):
family, so that's anotherpotentially creative use of your
long-term capital gaininvestments if you have the
intention of gifting to family.
So the next thing that you needto keep in mind is this concept
of a step up in basis If theseare assets that you intend to
pass on to children orgrandchildren or other relatives
or friends or anyone, therewill be a step up on these
assets upon your passing.
(13:10):
So if we use an extreme example, if you're 89 years old and you
know you're probably not goingto live past 90 and you've got a
lot of money invested andthere's a lot of gains, almost
never would it make a ton ofsense for you to sell all those
gains.
It might.
It probably in many cases makesmore sense for you to say, as
long as I don't need these funds, I'm not going to sell them,
because upon my passing therewill be a step up in basis,
(13:33):
meaning wherever the fair marketvalue of these securities is on
the date of my death, thatbecomes a new cost basis.
So now that becomes tax-free,those assets become tax-free to
my heirs.
And I'm specifically talkinghere again, just as a reminder,
about non-retirement accounts.
This could be business interest, this could be property, this
could be stocks, this could beany other types of investments
(13:54):
that aren't held in IRAs, rothIRAs, 401ks, et cetera.
But keep that in mind.
Now, in other states, incommunity property states, if
one spouse dies and assets arejointly titled meaning you own a
trust account where both of youare grantors and trustees, or
you own a joint investmentaccount, a joint account with
rights of survivorship.
If one spouse passes away, thesurviving spouse gets a full
(14:17):
step up in basis on the entiretyof that.
Now, this will vary dependingon whether you live in a
community property state or acommon law state.
Every state can be a little bitdifferent here, but there'll be
some type of a step up in basis.
So really understand how thatworks in the specific state that
you live in.
And then, finally, the lastthing to know here is that
long-term capital gains can befully offset by capital losses.
So maybe you have a significantgain in one investment and you
(14:39):
know this investment is not agood core piece of your
portfolio.
You want to diversify out of it.
There's a lot of gains, but youhave other investments that
have losses in them.
Can you sell some of thoseinvestments that have losses?
Wait over 31 days to repurchasethose assets so you don't
violate the wash sale rules?
And then what you're doing isyou're realizing those losses to
offset these gains.
(15:00):
This is actually where theconcept of a separately managed
account can be quite useful ifyou are the highest tax bracket
and if you're anticipatingsignificant gains from the sale
of property, real estate, stockinvestments, etc.
I'll actually link out toanother video that I did at the
end of this that shows if youare in those highest tax
brackets and have significantbrokerage assets.
I did a value to show you thevalue of a separately managed
(15:21):
account and how that can tieinto all this.
But as we go through this,that's the basic framework that
I would look at.
To start with, understand thedownside of selling and
realizing losses, but comparethat to the potential downside
of not selling if it's the wronginvestment, and understanding
the loss that could beassociated with that.
So know how this fits in yourplan, understand what you want
to do with these assetslong-term and then start to see
(15:43):
are there strategic things wecan do?
Whether it's taking advantageof long term capital gain, 0%
tax rates, whether it's tax lossharvesting, whether it's
gifting, whether it's charitablegiving, whether it's any of
these things that you can do todiminish or even potentially
eliminate some of the long-termcapital gain taxes you might owe
.
Now I mentioned just a minuteago that I'm going to link to a
video.
Here's a video right here, andin this video I talk about the
(16:05):
value of a separately managedaccount, where, if you're that
individual that's in the highesttax bracket and if you're an
individual that has prettysignificant brokerage assets,
business assets, real estateassets, this video is for you
and you can see how you canpotentially save lots and lots
(16:26):
of money in taxes utilizing someof the advanced tax management
strategies that are associatedwith the right separately
managed account.
Root Financial has not providedany compensation for and has not
influenced the content of anytestimonials and endorsements
shown.
Any testimonials andendorsements shown have been
invited, have been shared witheach individual's permission and
are not necessarilyrepresentative of the experience
of other clients.
To our knowledge, no otherconflicts of interest exist
regarding these testimonials andendorsements.
(16:47):
Hey everyone, it's me again forthe disclaimer.
Please be smart about this.
Before doing anything, pleasebe sure to consult with your tax
planner or financial planner.
Nothing in this podcast shouldbe construed as investment tax,
legal or other financial advice.
It is for informationalpurposes only.
Thank you for listening toanother episode of the Ready for
Retirement podcast.
(17:08):
If you want to see how RootFinancial can help you implement
the techniques I discussed inthis podcast, then go to
rootfinancialpartnerscom andclick start here, where you can
schedule a call with one of ouradvisors.
We work with clients all overthe country and we love the
opportunity to speak with youabout your goals and how we
might be able to help.
And please remember nothing wediscuss in this podcast is
intended to serve as advice.
(17:29):
You should always consult afinancial, legal or tax
professional who's familiar withyour unique circumstances
before making any financialdecisions.
Are you worried about taking the tax hit on your
investment gains and unsure whatto do?
Well, in today's episode, I'mgoing to share a very simple
framework that will show youwhen, or even if, you should
realize those gains and the wayyou should go about doing it.
This is another episode ofReady for Retirement.
I'm your host, james Canole,and I'm here to teach you how to
get the most out of life withyour money.
And now on to the episode.
(00:22):
As part of this episode, I'mgoing to share with you simple
ways that you can pay nothing intaxes on some of these gains.
This is from Simple Things liketaking full advantage of the 0%
long-term capital gain taxbracket.
Creative ways to gift money tocharity to offset the tax impact
.
Gifting money to children sothey can realize some of the
gains at their tax bracket.
Understanding when you get astep-up in basis on your
(00:43):
unrealized gains.
And also understanding how taxloss harvesting can help to
offset some of this.
So I'll talk about some ofthose, but before I do so, I
want to go through the generalframework of how you should even
think about the gains that youhave in your portfolio.
You've invested in something,it's grown, and now you're stuck
wondering what do I do?
Do I take the tax hit or do Ikeep it going to avoid taxes and
(01:03):
maintain the same investmentexposure that I already have?
And just in case it's notalready obvious, what I'm
talking about specifically isgains in a brokerage account,
not an IRA, a Roth IRA, a 401k.
All of those gains are eithertax free or tax deferred.
I am talking about gains onthings held in a brokerage
account, where anything that yourealize, any gain that you
realize, is potentially subjectto taxes.
(01:23):
So, to start, let's go throughthe framework of when should you
hold onto your investment andavoid paying gains, versus when
should you sell your investmentand pay taxes on those gains.
And we'll do this framework, orwe'll go through this framework
, before going to some of theways that you can creatively pay
nothing in taxes, potentially,depending on your situation.
So let's start by looking at anexample.
Let's assume that you put moneyinto an investment and you've
(01:45):
put a total of $100,000 intothis investment.
It's now worth $500,000.
There's $400,000 of unrealizedgains here, and if you sell this
, those gains are going to betaxable.
How do you determine what youshould do here?
Well, number one, let's startwith.
When shouldn't you sell thatinvestment?
There's not always a case tosell and pay taxes if we can
avoid doing so or if there's noneed to do so, if that $500,000
(02:08):
investment, so that investmentthat has 400% gains in it, if
you have that investment and youlook at your portfolio and you
know what your portfolio needsto do for you and you understand
or you see that this specificinvestment is a critical part of
that portfolio, there's notnecessarily a need to sell If
that gain is there and this isstill a core part of your
portfolio and you're notoverweight.
(02:29):
So, for example, the instance Isee quite a bit is people who
have invested in large techstocks.
This could be a fund, whetheran ETF or a mutual fund, that
invests in large cap growthstocks, which tend to be
technology stocks, or it couldbe individual holdings.
Maybe you purchased Amazon orTesla or Microsoft or any of
these investments that have donequite well over the past 5, 10,
(02:50):
15 plus years and you have asignificant gain in them.
If you look at that specificinvestment and you say this
investment plays a critical rolein my portfolio and I have a
well-diversified portfoliodesigned to meet my needs and
this investment plays a criticalrole in it, maybe you don't
necessarily need to realizethose gains.
However, if you look at thisinvestment and say it is
significantly overweight or itdoes not play a role in my
(03:13):
portfolio, that's where you haveto understand the risk of both
action and inaction.
So what do I mean by that?
Well, the risk of action, inthis case, selling.
So, for example, maybe you haveall of your money to use an
extreme example in one singlestock.
I don't care how well thatstock is done.
It is incredibly risky if allof your net worth is in one
single stock or all of yourportfolio is in one single stock
, specifically as you approachretirement.
(03:35):
If you are that individual inthat example, we have to
understand what is your maximumdownside by selling and
realizing all of your gains.
Well, the maximum downside isyou pay full taxes on the gains.
Depending on what state you'rein, that's going to be different
At the federal level.
There is a 0%, a 15% and a 20%long-term capital gain tax
(03:56):
bracket, as well as a netinvestment income tax when your
income exceeds certainthresholds.
So at the federal level, ifwe're just looking at federal
long-term capital gain tax rates, the maximum impact is 20%.
20% haircut, not on theentirety of what you sell, but
on the gains.
So if we use another example,maybe you purchase something for
$60,000 and it's now worth$100,000.
(04:18):
If you sell it all, that's abig gain.
That's a 67% appreciation fromthe 60,000 that you had, growing
to $100,000.
But you're not paying 20% taxeson everything.
You're paying 20% taxes on thegains, at the maximum,
potentially 15% if you're not inthe max tax bracket there.
So in this example, a 20% taxon those $40,000 of gains would
(04:40):
be $8,000.
So if you sell your investment,if you sold all of it, that
would turn from $100,000 into$92,000 in this case.
So that's not fun.
That's not fun to know thatyou're going to lock in a loss.
But let's look at thealternative.
What if this $100,000 is in onesingle stock and that single
stock has a lot of gains in itand that prevents you from
selling?
You don't want to have to payany of the taxes.
(05:01):
Well, now, all of a sudden,that stock declines 40%, 50%,
60%, 70%.
The good news is you probablyno longer have a tax liability.
The bad news is you've lost 70%of your investment in that
extreme case.
So when you look at potentialoutcomes.
What we have to understand isthat sometimes I see people
avoiding selling an investmentbecause they're avoiding that
(05:22):
tax hit.
That tax hit is very tangible.
They know it exists.
They know what they're going topay.
What they're not quite takinginto account is what's the risk
of not doing this?
The risk of not doing this inmany cases is significantly
greater than the tax liabilitythe tax that they're going to
pay and so keep that in mind.
Start with understanding whatare the real risks here.
Just because you have along-term gain doesn't mean you
(05:42):
have to sell.
In many cases, it's a greatstrategy to keep that investment
, keep that fund as part of youroverall portfolio and avoid
gains.
But if this begins to make uptoo much of your portfolio or
you're heavily, overlyconcentrated, there's tremendous
risk there, and we can't losesight of the fact that a
downturn will be far moredetrimental to you in that case
than simply realizing some ofthe taxes would be.
(06:04):
So that's a basic framework ofhow should you think about this.
Now let's look at some specificstrategies that could eliminate
this tax bill altogether.
The first strategy is fullyutilizing the 0% long-term
capital gain threshold, thelong-term capital gain tax
bracket.
A lot of people think long-termcapital gains, I'm either paying
taxes at 15% or 20%, and for alot of people that.
(06:25):
But if your taxable income isunder certain thresholds, you
have a 0% tax bracket that youcan take advantage of to realize
long-term capital gains andqualified dividends.
Now, qualified dividends I'mgoing to set aside because you
can't control the timing of whenyou receive these dividends,
but you can control the timingof when you realize a long-term
(06:46):
gain.
For 2025, if your taxableincome is under $96,700, you are
in a 0% long-term capital gaintax bracket, meaning any
long-term capital gain yourealize up until that threshold
is taxed at 0%.
Anything above that thresholdis then taxed at 15, and then
there's another threshold whereanything above that is taxed at
(07:07):
20%.
If you are single, thosenumbers are exactly half above
that is taxed at 20%.
If you are single, thosenumbers are exactly half.
$48,350 is the taxable incomethreshold under which you pay 0%
federal taxes on long-termcapital gains.
Now, be mindful of what I'msaying here Taxable income, not
adjusted gross income, but yourtaxable income.
The difference is if you startwith your adjusted gross income
(07:30):
and then you take a deduction,either.
Your standard deduction, whichare 2025, is 15,000 if you're
single, 30,000.
If you're married, filingjointly, even more.
If you're 65 or older.
What you do is you take youradjusted gross income, remove or
deduct your deduction and thenwhat you're left with is your
taxable income.
So this is actually good newsIf you're married, filing
(07:51):
jointly, and have the standarddeduction, your adjusted gross
income and there's some nuancehere and there's some details
that definitely could changethis.
I'm just saying this for someperspective, not to say this is
a hard and fast number that youshould use because there are
some details that impact thisbut an adjusted gross income of
$126,700 or less.
Generally speaking, you're goingto be in that 0% federal tax
(08:12):
bracket, not a 0% tax bracketfor ordinary income.
So things like interest thatyou receive, ira distributions,
part of your social security,that's all taxed at ordinary
income rates.
This is specifically forlong-term capital gains.
So can you utilize that?
Can you leverage that?
Can you take advantage of beingin that tax bracket?
And something that most peopledo, or many people do, is they
might have gains that exceedthat limit.
(08:33):
So they say, ok, I have$100,000 of gains in my
investment account.
I am maybe, let's say, forsimple math, $50,000 under that
threshold.
Well, if I realize all 100,000of these gains this year, 50,000
of them will be tax free, butthe other 50,000 will be taxed
at the 15% rate.
Great, do you realize half ofthe gains this year and do you
realize the other half of thegains the following year?
(08:55):
How can you be strategic aboutthe timing of when you realize
those gains so that, even if youhave some pretty significant
gains, can you potentially pay0% taxes on those by utilizing
the 0% tax brackets?
Another thing that you can do tooffset some of the taxes you
would owe on a long term capitalgain and keep in mind,
everything I'm talking about inthis episode is a long term
capital gain.
Short term capital gains thoseare taxed to ordinary income
(09:17):
rates and some of thesestrategies don't work with short
term capital gains.
But if you have investmentgains, let's assume you
purchased Apple stock for $1,000and it's now worth $10,000 and
you want to gift $10,000 to acharity what you could do is you
could gift $10,000 cash to thatcharity, and that's great,
that's wonderful.
But what might've been betteris what if you instead look to
(09:38):
gift that Apple stock?
Let's assume for a secondyou're in the 20% tax bracket
federally and you're in a statelike California and I'm going to
round your tax bracket to 10%for easy math.
You're in a 30% combined taxbracket, and that's before
factoring things like netinvestment income tax.
So 30% might actually beconservative in this case.
If you're in a 30% tax bracketand you sell an investment with
(09:59):
$9,000 in gains, $2,700 of thosegains are going to be paid in
taxes, so that $10,000investment doesn't really
represent $10,000 to you.
It represents doesn't reallyrepresent $10,000 to you.
It represents, or it's theequivalent of $7,300 to you in
terms of its after-tax value.
So what if, in this case,instead of gifting $10,000 in
cash, what if you gifted that$10,000 in Apple stock or any
(10:23):
investment stock?
Well, what that does is youdon't pay any taxes on the gains
, you get the full tax deductionof the $10,000 gift and the
charity doesn't pay any taxes onthe gains either.
So they get the full $10,000and something that to you was
worth $7,300 after taxes nowbecomes worth the full $10,000.
To take this a step further, ifyou say, well, I really like
(10:43):
that Apple stock and this is nota recommendation for owning
Apple stock, I'm just using thisas an example If you say, well,
I don't want to get rid of that.
Take the $10,000 of cash youotherwise would have gifted to
charity and repurchase Applestock.
You now own the same exactnumber of shares, except now
you've stepped up your costbasis.
(11:04):
Now the basis on those sharesis $10,000, meaning any future
sale you do of that stock,you're only paying taxes on the
gains above $10,000, no longerpaying gains on the gains above
$1,000, which was the originalcost basis.
So if you do any type ofcharitable giving, it very often
makes sense to gift appreciatedshares of stock as opposed to
(11:24):
gifting cash.
Another thing you can do is youcan gift to family.
So let's assume that you're ina position where you want to
help children with a home downpayment, or you want to give
them funds for something, or youwant to do something.
Well, you could gift cash, likewe talked about in the previous
example.
But what if there's a hugediscrepancy between your tax
bracket and your child's taxbracket?
Well, if, instead of gifting,let's say, $20,000 to your child
(11:45):
in cash, what if you giftedhighly appreciated securities,
knowing that they're in a muchlower tax bracket, potentially
even the 0% tax bracket?
Well, if you gift shares of aninvestment, whatever your cost
basis is assuming there's a gainon those shares you're gifting
or they're getting, therecipient is getting the same
cost basis.
So let's use that Apple exampleagain and let's just double the
(12:06):
values.
You want to give $20,000,.
You purchase $2,000 of Applestock.
It's now worth $20,000.
Well, if you gift that to yourchild, they still have that cost
basis of $2,000 and they nowhave the full value, or they
still have the same fair marketvalue of $20,000.
Well, your tax bracket andagain I'm assuming a pretty
significant variance betweenwhat your tax rate is and what
your child's tax rate is.
(12:27):
But if you were to sell that,you might be paying 20, 25, 30%
total taxes on those gainsversus your child.
They might potentially be inthe 0% tax bracket.
They might potentially be evenin the 15% tax bracket.
So that at least, is a way ofselling at a lower tax bracket
than yours.
If you already have theintention of gifting funds to
(12:49):
family, so that's anotherpotentially creative use of your
long-term capital gaininvestments if you have the
intention of gifting to family.
So the next thing that you needto keep in mind is this concept
of a step up in basis If theseare assets that you intend to
pass on to children orgrandchildren or other relatives
or friends or anyone, therewill be a step up on these
assets upon your passing.
(13:10):
So if we use an extreme example, if you're 89 years old and you
know you're probably not goingto live past 90 and you've got a
lot of money invested andthere's a lot of gains, almost
never would it make a ton ofsense for you to sell all those
gains.
It might.
It probably in many cases makesmore sense for you to say, as
long as I don't need these funds, I'm not going to sell them,
because upon my passing therewill be a step up in basis,
(13:33):
meaning wherever the fair marketvalue of these securities is on
the date of my death, thatbecomes a new cost basis.
So now that becomes tax-free,those assets become tax-free to
my heirs.
And I'm specifically talkinghere again, just as a reminder,
about non-retirement accounts.
This could be business interest, this could be property, this
could be stocks, this could beany other types of investments
(13:54):
that aren't held in IRAs, rothIRAs, 401ks, et cetera.
But keep that in mind.
Now, in other states, incommunity property states, if
one spouse dies and assets arejointly titled meaning you own a
trust account where both of youare grantors and trustees, or
you own a joint investmentaccount, a joint account with
rights of survivorship.
If one spouse passes away, thesurviving spouse gets a full
(14:17):
step up in basis on the entiretyof that.
Now, this will vary dependingon whether you live in a
community property state or acommon law state.
Every state can be a little bitdifferent here, but there'll be
some type of a step up in basis.
So really understand how thatworks in the specific state that
you live in.
And then, finally, the lastthing to know here is that
long-term capital gains can befully offset by capital losses.
So maybe you have a significantgain in one investment and you
(14:39):
know this investment is not agood core piece of your
portfolio.
You want to diversify out of it.
There's a lot of gains, but youhave other investments that
have losses in them.
Can you sell some of thoseinvestments that have losses?
Wait over 31 days to repurchasethose assets so you don't
violate the wash sale rules?
And then what you're doing isyou're realizing those losses to
offset these gains.
(15:00):
This is actually where theconcept of a separately managed
account can be quite useful ifyou are the highest tax bracket
and if you're anticipatingsignificant gains from the sale
of property, real estate, stockinvestments, etc.
I'll actually link out toanother video that I did at the
end of this that shows if youare in those highest tax
brackets and have significantbrokerage assets.
I did a value to show you thevalue of a separately managed
(15:21):
account and how that can tieinto all this.
But as we go through this,that's the basic framework that
I would look at.
To start with, understand thedownside of selling and
realizing losses, but comparethat to the potential downside
of not selling if it's the wronginvestment, and understanding
the loss that could beassociated with that.
So know how this fits in yourplan, understand what you want
to do with these assetslong-term and then start to see
(15:43):
are there strategic things wecan do?
Whether it's taking advantageof long term capital gain, 0%
tax rates, whether it's tax lossharvesting, whether it's
gifting, whether it's charitablegiving, whether it's any of
these things that you can do todiminish or even potentially
eliminate some of the long-termcapital gain taxes you might owe
.
Now I mentioned just a minuteago that I'm going to link to a
video.
Here's a video right here, andin this video I talk about the
(16:05):
value of a separately managedaccount, where, if you're that
individual that's in the highesttax bracket and if you're an
individual that has prettysignificant brokerage assets,
business assets, real estateassets, this video is for you
and you can see how you canpotentially save lots and lots
(16:26):
of money in taxes utilizing someof the advanced tax management
strategies that are associatedwith the right separately
managed account.
Root Financial has not providedany compensation for and has not
influenced the content of anytestimonials and endorsements
shown.
Any testimonials andendorsements shown have been
invited, have been shared witheach individual's permission and
are not necessarilyrepresentative of the experience
of other clients.
To our knowledge, no otherconflicts of interest exist
regarding these testimonials andendorsements.
(16:47):
Hey everyone, it's me again forthe disclaimer.
Please be smart about this.
Before doing anything, pleasebe sure to consult with your tax
planner or financial planner.
Nothing in this podcast shouldbe construed as investment tax,
legal or other financial advice.
It is for informationalpurposes only.
Thank you for listening toanother episode of the Ready for
Retirement podcast.
(17:08):
If you want to see how RootFinancial can help you implement
the techniques I discussed inthis podcast, then go to
rootfinancialpartnerscom andclick start here, where you can
schedule a call with one of ouradvisors.
We work with clients all overthe country and we love the
opportunity to speak with youabout your goals and how we
might be able to help.
And please remember nothing wediscuss in this podcast is
intended to serve as advice.
(17:29):
You should always consult afinancial, legal or tax
professional who's familiar withyour unique circumstances
before making any financialdecisions.
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