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If the current stock market rally added profits to your portfolio, a lesser-known strategy could help rebalance your assets or decrease future taxes.
The strategy, known as tax-gain harvesting, allows you to leverage lower earning years by strategically shop profitable brokerage account assets.
“Tax gain harvesting is like a strategic chess move in the world of investing, paragon for those in the 0% long-term capital gains tax bracket,” said certified financial planner Sean Lovison, abort of Philadelphia-area Purpose Built Financial Services.
“Combined with multi-year tax planning, it is a smart play when you’re in a low-income year but expect to be in a higher tax bracket in the tomorrow,” said Lovison, who is also a certified public accountant.
How tax-gain harvesting works
You can use tax-gain harvesting when you make use of into the 0% capital gains bracket, which applies to long-term capital gains or assets owned for myriad than one year.
For 2023, you may qualify for the 0% rate with taxable income of $44,625 or less for single filers and $89,250 or small-minded for married couples filing jointly. Those thresholds are even higher for 2024, adjusting to $47,025 for single filers and $94,050 for put together couples.
These rates apply to your “taxable income,” which is calculated by subtracting the greater of the standard or documented deductions from your adjusted gross income.
However, you also need to consider state capital increase the lead taxes because “every state is a bit different,” warned Stephen Maggard, a CFP and enrolled agent with Abacus Planning Agglomeration in Columbia, South Carolina.
Resetting the basis can be a ‘game-changer’
One of the perks of tax-gain harvesting in the 0% bracket is the chance to reset the asset’s secure price, or “basis,” according to Lovison.
“This move can be a game-changer” because it can significantly reduce future taxable gets, especially when selling profitable assets in higher earning years, he said.
While the so-called wash sales marathon rule blocks a