Tax-gain harvesting, a lesser-known strategy compared to tax-loss harvesting, can be a beneficial approach for investors looking to rebalance their portfolio or reduce future taxes, especially for those in the 0% capital gains bracket. While tax-loss harvesting is often used during market downturns, tax-gain harvesting involves strategically selling appreciated assets from a brokerage account.
For investors falling within the 0% capital gains bracket, which is applicable to long-term capital gains (assets owned for more than a year), tax-gain harvesting can provide advantages. This bracket allows the sale of profitable assets up to a certain limit without triggering capital gains taxes. This offers an opportunity to either use the proceeds or rebalance the portfolio.
Tax-gain harvesting also allows investors to increase an asset’s purchase price or “basis,” which can reduce future taxes. By selling an asset and immediately repurchasing it at a higher price, investors can reset the basis without incurring additional costs. Unlike the wash sale rule that applies to selling losing assets and repurchasing within 30 days, this rule doesn’t apply to harvesting gains.
This strategy can also be useful in specific scenarios, such as avoiding the “kiddie tax” when a child’s investment income surpasses a certain threshold or utilizing a deceased spouse’s carry-over investment losses while still filing jointly.
However, it’s crucial to consider the entire financial picture for the year before engaging in tax-gain harvesting. Other factors, such as potential year-end mutual fund payouts that can significantly affect taxable income, should be taken into account.
While minimizing taxes is important, financial planners stress the need to align this strategy with overall financial goals. Tax-gain harvesting should be pursued while keeping broader financial objectives in mind.
Read More: Click Here