As year-end approaches, taxpayers have several planning opportunities to consider that may help reduce their overall tax bill. One often-overlooked opportunity is the 0% federal tax rate that applies to certain long-term capital gains and qualified dividends. For eligible taxpayers, this provision may offer an opportunity to realize investment gains before December 31 without incurring federal capital gains tax.
Taking Advantage of the 0% Capital Gains Tax Rate
The zero percent long-term capital gains tax rate may present an opportunity for taxpayers to realize investment gains while incurring little or no federal capital gains tax. By strategically managing income and recognizing gains in years when taxable income falls within the applicable thresholds, investors may be able to reduce the embedded tax liability in their portfolios.
The One Big Beautiful Bill Act also introduced a charitable contribution deduction beginning in 2026 for taxpayers who do not itemize. Married couples filing jointly may deduct up to $2,000 in qualifying cash contributions, potentially creating additional room to realize long-term capital gains at the 0% federal tax rate.
The following example illustrates how this strategy may work:
Consider a retired married couple, both aged 65 or older, with gross income of $100,000. The couple claims the standard deduction, takes advantage of the additional deductions available to qualifying seniors and makes $2,000 in qualifying cash charitable contributions.
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As long as the couple in this example reports income at or below the threshold where the zero percent rate applies (taxable income of $98,900) there would be no federal tax on the long-term capital gain. At a 15% tax rate this results in a potential tax savings of almost $7,000. From a planning perspective, this is a use-it-or-lose-it opportunity for taxpayers who want to take advantage of the 0% capital gains rate before year-end. For those who intend to continue owning an appreciated investment, one strategy may be to sell shares to recognize the desired long-term capital gain and subsequently repurchase the investment. However, one should consider the potential for market price movement during the period between the sale, repurchase and trading costs, as even a short time out of the market could affect investment returns. Unlike tax-loss harvesting, the wash sale rule does not apply to sales resulting in a gain. Therefore, investors can generally repurchase the same security immediately without jeopardizing the recognized gain. Taxpayers should consult with qualified investment and tax professionals before considering this type of strategy.
Bill Cass, Director of Wealth Planning
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