MML #047: Tax-Gain Harvesting: Why You Might Want to Increase Your Taxable Income

Last week we reviewed how tax-loss harvesting gets all the attention this time of year. Everyone loves the idea of using losses to lower their tax bill. But there's another strategy that doesn't get nearly enough airtime, and for some of you, it could be even more valuable: tax-gain harvesting.

Yes, you read that right. Sometimes it makes sense to intentionally realize capital gains and pull income into the current year. Before you think I've lost it, let me explain why this can be a smart move.

The 0% Capital Gains Sweet Spot

Here's what most people miss: the tax code has built-in opportunities for paying zero tax on long-term capital gains. For married couples filing jointly in 2025, you can have up to $96,700 in taxable income and pay 0% on capital gains. Zero.

Now, taxable income is what's left after you take your deductions. And for couples both age 65 or older in 2025, those deductions add up quickly:

• Standard deduction: $31,500
• Additional deduction for being 65+: $3,200 (that's $1,600 each)
• New senior bonus deduction: $12,000 (that's $6,000 each, subject to income limits)

Total deductions: $46,700

Do the math and a couple could have adjusted gross income of $143,400 and still be in the 0% capital gains bracket. That's over $10,000 per month in spending—pretty comfortable for many couples in retirement.

When This Strategy Shines

Let's say you're recently retired. You've delayed Social Security to maximize your benefit. You're not taking IRA distributions yet. Your income for the year comes out to $110,000 from pension income and some dividends.

You're sitting $33,400 below that $143,400 threshold. Does it make sense to realize some capital gains? Absolutely worth exploring. You'd increase your taxable income, but if you stay within that 0% bracket, you won't pay a dime in additional capital gains tax.

This strategy works particularly well in the early years of retirement when you have the most control over your income. Before required minimum distributions kick in. Before Social Security starts. While you're spending from after-tax brokerage accounts.

The Real Advantage

Unlike tax-loss harvesting, there's no wash sale rule for gains. If you have an investment that's appreciated and you still like it, you can sell it, realize the gain tax-free, reset your cost basis, and immediately buy it right back. You stay fully invested and you've just permanently eliminated future capital gains tax on all that appreciation.

Think about that for a second. If you have an investment position that's doubled in value, you can lock in that gain without paying tax, and when you buy it back, your new cost basis is the current higher price. Future gains are only taxed on growth above that new level.

Making It Work

The key is estimating your total income for the year and understanding where you land in the tax brackets. This requires some planning—you need to know your expected income from all sources and calculate your available deductions.

If you find yourself with room in the 0% bracket, look at your brokerage account for appreciated positions. Start with investments you'd like to hold long-term but that have significant unrealized gains. Realize enough gains to fill up that 0% space without pushing yourself into the next bracket.

Lastly, this strategy only applies to non-retirement accounts (or sometimes called “brokerage” or “taxable” accounts. Retirement accounts already have preferential tax treatment. 

The Bottom Line

While counterintuitive, sometimes the smartest move is strategically pulling income forward when rates are low or brackets are favorable. If you're in retirement or close to it, tax-gain harvesting deserves a spot in your year-end planning conversation.

You've got about five weeks left to make this happen for 2025. Review your income projection, calculate your available bracket space, and talk to your tax advisor about whether this strategy fits your situation.