Capital Gains: What You Need to Know and How to Plan for Them
Capital gains affect your investment returns—and your tax bill. Whether you're an average investor or a high-income earner, understanding how gains are taxed and how to plan around them can save you money.
Here’s what you need to know, plus planning strategies to consider.
What Are Capital Gains?
A capital gain is the profit you make when you sell an asset—like stocks, real estate, or a business—for more than you paid. Gains are taxed in two ways:
Short-term capital gains: Assets held for one year or less. Taxed as ordinary income (same rate as your paycheck).
Long-term capital gains: Assets held longer than a year. Taxed at preferential rates (0%, 15%, or 20%) depending on your income.
Example: You buy a stock for $10,000 and sell it a year later for $15,000. You have a $5,000 capital gain. If held over 12 months, you get long-term treatment.
Long Term Capital Gain Brackets
Short Term Capital Gain Brackets (Ordinary Income Brackets)
Related: Important Numbers for 2025
1. Strategic Tax Deduction Creation (Tax Loss Harvesting)
Sell losing investments to reduce your taxable capital gains.
How it works:
Sell an investment at a loss.
Use that loss to offset current year gains (short- or long-term).
Buy a fund with similar goals & targets (but different enough to avoid a wash)
If losses exceed gains, deduct up to $3,000 against ordinary income.
Carry forward any excess losses to future years.
Example: You have $12,000 in gains and $20,000 in losses. You can:
Offset all $12,000 in gains.
Deduct $3,000 against ordinary income.
Carry forward $5,000 to next year.
Wash Sale Rule: You can’t repurchase the same or “substantially identical” investment within 30 days before or after the sale. Doing so disallows the loss for tax purposes.
Best use cases:
You’ve had a volatile year in markets - i.e. Right now
You actively manage a taxable portfolio.
You want to rebalance without increasing your tax bill.
Considerations:
Focus on being strategic. The loss can help with taxes, but you also want to reinvest the funds into a similar investment, so if the market or holding rebounds, you are still able to capture the growth back towards the upside. (Ex: sell VUG and buy QQQ)
2. Harvesting Gains in the 0% Capital Gains Bracket
If your taxable income is low, you can realize gains and pay zero tax.
How it works:
Long-term capital gains are taxed at 0% up to $44,625 (single) or $89,250 (married filing jointly) in 2025.
You can sell appreciated assets up to that threshold, realize gains tax-free, and reinvest.
This resets your cost basis, reducing future tax.
Example: A retired couple has $50,000 in taxable income. They can sell stocks and realize up to $39,250 in gains ($89,250 limit minus $50,000 income) tax-free.
Best use cases:
Early retirees before Social Security or RMDs kick in.
Years with a gap in income (sabbatical, business loss, etc.).
Young professionals with low current earnings and high future income potential.
Considerations:
Gains stack on top of ordinary income. Run the math carefully—going $1 over the 0% bracket starts triggering the 15% rate.
Consider Roth conversions in low-income years too. You can often do both.
3. Managing Capital Gains as a High-Income Earner
Higher earners face a stacked tax situation:
15% or 20% long-term capital gains tax
3.8% Net Investment Income Tax (NIIT) applies above $200,000 (single) or $250,000 (married joint)
Large gains can push you into Medicare surtax thresholds or increase income-based premiums
Planning moves:
Donor-Advised Funds (DAFs): Contribute appreciated stock instead of cash. You avoid capital gains entirely and get a charitable deduction at fair market value. Useful in high-income years or post-liquidity events.
Gifting Appreciated Assets: Give assets with embedded gains to family members in lower tax brackets. This can shift income and avoid capital gains if they’re under the 0% threshold. Be aware of the Kiddie Tax for minors.
Installment Sales or Deferred Compensation: Spread a large gain over several years to avoid bunching income into one high-tax year.
Qualified Opportunity Zones (QOZs): If you’ve sold something with a gain, you can reinvest in a QOZ fund to defer and possibly reduce your capital gain taxes.
Real Estate Exchanges (1031): Sell investment property and roll gains into another property. Postpone taxes indefinitely, although this doesn’t apply to primary homes or stocks.
Timing of Sales: Control when you sell appreciated assets. If your income will drop in retirement or after a business sale, delay selling to get a lower rate.
Related: 4 Options for Tax-Smart Giving
Considerations:
You may want to pair gain realization with other deductions (like charitable giving, large expenses, or deferred income).
Coordinate with your CPA and advisor—especially before selling real estate, company stock, or a business.
Other Considerations
Capital gains are not taxed separately from your income—they stack on top. A large gain can push other income into higher brackets.
Mutual fund capital gain distributions can surprise you. Own them in tax-deferred accounts or monitor closely in taxable ones.
Use asset location: Put your highest-growth or dividend-generating investments in taxable accounts or Roths when possible.
Related: Guide to the 3 Tax Funnels: Where Should Your Next Investment Go?
Final Thoughts
Capital gains taxes are one of the few taxes you can plan for with precision. The key is to take control of when and how you recognize those gains—and to pair that with your overall income picture.
If you’re planning a big sale, building wealth in taxable accounts, or want help managing gains proactively, it’s worth running the numbers now—not after the tax bill shows up.
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About the author: Finn Price, CPFA, CEPA, is a business owner and wealth manager at Railroad Investment Group. He helps successful entrepreneurs & individuals with concentrated stock positions in their 30s, 40s and 50s build, organize, protect and transfer their wealth.
Note: this article is general guidance and education, not advice. Consult your money person or your attorney for financial, tax, and legal advice specific to your situation.
Securities and advisory services offered through LPL Financial, a registered investment Advisor, Member FINRA/SIPC.
