Tax-gain harvesting is a lesser-known strategy that can be incredibly beneficial for investors looking to rebalance their portfolios while saving on future taxes. This tactic involves strategically selling profitable assets in your brokerage account during lower-income years, such as early retirement or periods of unemployment.
One of the main benefits of tax-gain harvesting is the ability to rebalance your brokerage assets without triggering gains. This can be especially advantageous when done strategically, as it allows you to reset your “basis” or original purchase price. By selling a profitable asset and immediately repurchasing, you can take advantage of the 0% capital gains rate, particularly if you are married and filing jointly.
To qualify for the 0% capital gains rate in 2024, you may need to have a taxable income of up to $47,025 if you are a single filer or up to $94,050 for married couples filing jointly. These rates are calculated based on your taxable income, which is determined by subtracting standard or itemized deductions from your adjusted gross income.
According to experts, the optimal time for tax-gain harvesting is typically in October or November when investors can more accurately forecast their taxable income for the year. It is crucial to leave some buffer room to avoid hitting the 15% capital gain bracket, especially if you are selling assets in higher-earning years.
While tax-gain harvesting is often more attractive in lower-income years, such as early retirement, it is essential to consider potential implications for younger retirees with marketplace health insurance. Higher income from harvesting gains could jeopardize premium tax credits, so it is crucial to weigh the pros and cons carefully.
Overall, tax-gain harvesting can be a valuable strategy for investors looking to optimize their portfolio and minimize future tax liabilities. By strategically selling profitable assets during lower-income years, you can take advantage of the 0% capital gains rate and rebalance your holdings without triggering gains. It is essential to plan ahead, consider timing, and consult with a financial advisor to determine the best approach for your individual circumstances.