If you plan on selling investments in 2025, you need to know about one of the most powerful tax-saving tools available: the 0% long-term capital gains tax bracket.
Yes, you read that right. It’s possible to realize significant profits from your stocks, real estate, or other assets and pay a federal income tax rate of zero. This isn’t a loophole; it’s a feature of the tax code designed for savvy investors. This guide will break down exactly how it works and the steps to take advantage of it in 2025.
First, What Are Long-Term Capital Gains?
A capital gain is the profit you make from selling an asset for more than you paid for it. For tax purposes, these gains are split into two types:
- Short-Term Capital Gains: Profit from an asset you held for one year or less. These are taxed at your ordinary income tax rate.
- Long-Term Capital Gains: Profit from an asset you held for more than one year. These qualify for preferential tax rates, including the coveted 0% rate.
This article focuses exclusively on long-term capital gains.
The 2025 Income Thresholds for 0% Capital Gains Tax
The key to unlocking the 0% rate is your taxable income. For the 2025 tax year, you can pay 0% tax on long-term capital gains if your taxable income is at or below these projected thresholds:
Important: Your capital gains are included as part of your taxable income. This means the profit you take from a sale could push you over the threshold.
The Secret: How Gross Income Above $100K Can Still Qualify
Here’s the part many people miss: your taxable income is not your total salary or gross income. It’s your income after you’ve taken deductions.
In 2025, the standard deduction is projected to be:
- $15,000 for single filers
- $30,000 for married couples filing jointly
This creates a massive opportunity. Let’s see it in action.
Example: A Married Couple Earning $125,000
Imagine a married couple has a combined gross income of $125,000. This is well above the $96,700 threshold. However, watch what happens after they take the standard deduction:
- Gross Income: $125,000
- Standard Deduction: -$30,000
- Taxable Income (before gains): $95,000
Because their taxable income is now $95,000, they are below the $96,700 threshold. This means they have a “$1,700 gap” ($96,700 – $95,000) where they can realize long-term capital gains and pay $0 in federal tax on that profit.
While $1,700 is a good start, you can plan ahead to make this gap much larger. For instance, if this couple’s income was lower, or if they were retired with no W-2 income, they could potentially realize up to $96,700 in pure profit completely tax-free.
Strategic Tax-Gain Harvesting
This strategy is known as tax-gain harvesting. It’s the practice of selling appreciated assets to intentionally realize gains in a year when your income is low enough to fall within the 0% bracket.
This is especially powerful for:
- Retirees: You have more control over your income and can keep it low.
- Low-Income Years: A gap year, starting a business, or any year with temporarily reduced income.
- Portfolio Rebalancing: If you need to sell some winning stocks anyway, doing it in a low-income year is ideal.
⚠️ Pitfalls to Avoid
Before you start selling, be aware of these common mistakes:
- Forgetting State Taxes: The 0% rate is for federal taxes. Your state may still tax your capital gains.
- Gains Pushing You Over the Threshold: Remember, the gains themselves count as income. If you realize $20,000 in gains, that $20,000 gets added to your taxable income and could easily push you into the next bracket (15%).
- Miscalculating Your Taxable Income: Your taxable income includes all sources—W-2s, interest, dividends, etc. Always do a full-year tax projection before selling.
Premium Tax Credit consideration
Generally, if capital gains are required to be reported on your tax return, they are counted toward your Modified Adjusted Gross Income (MAGI) for the purpose of calculating the premium tax credit, even if they are not ultimately taxed. Eligibility for the premium tax credit is based on MAGI, not taxable income.
All net capital gains—the profits from selling assets—are included in your MAGI calculation. This includes both short-term and long-term gains. The favorable zero tax rate for some long-term capital gains does not exclude them from counting toward your MAGI.
The primary exception for non-taxable capital gains is the exclusion for the sale of a primary residence.
Main home sale: You may be able to exclude up to $250,000 of gain (or up to $500,000 for those filing jointly) from the sale of your main home.
MAGI impact: Since this excluded gain is not reflected on the front page your 1040, it is not included in your MAGI for the premium tax credit.
It’s possible for the gain on the sale of a primary residence to exceed the exclusion amount yet still fall within the 0% capital gains tax bracket. In that case, the gain would appear on the first page of Form 1040 and be included in MAGI.
Frequently Asked Questions (FAQ)
Q: Do capital gains count as income? A: Yes. For tax purposes, capital gains are included in your gross income and, after deductions, your taxable income.
Q: What is the next capital gains tax bracket after 0%? A: For 2025, the next long-term capital gains bracket is 15%, which applies to taxable incomes up to $597,950 for married couples filing jointly.
Q: Does the 0% rate apply to short-term capital gains? A: No. Short-term gains (from assets held one year or less) are always taxed as ordinary income, at your marginal tax rate.
Disclaimer: This article is for informational purposes only and is not financial or tax advice. Tax laws are subject to change. Always consult with a qualified tax professional or financial advisor before making any investment decisions.
