The gap between rich and poor in America is expanding explosively. Should the wealthy pay more?
Income inequality is widening in the United States, sparking a national debate over whether the ultra-rich should be subject to a wealth tax.
Tax loss harvesting is a popular way for many Americans to lower their taxes each year, but it also has a less popular but powerful sibling: tax gain harvesting.
Tax gain harvesting is the strategic sale of assets that have increased in value to minimize future taxes. This is the opposite of loss recovery, where you sell an underwater asset to apply capital gains or losses against ordinary income of up to $3,000 each year.
Experts say that by using tax gain harvesting during periods of low income, you can not only avoid paying taxes on your gains, but also potentially permanently lower the taxes you might have to pay later if you buy back the same investment and it appreciates in value. Tax gain harvesting is not subject to wash sale rules like tax loss harvesting, which prevents you from immediately buying back the same investment.
Emily Shacklett, CPA, wealth advisor and managing director at Hightower Signature Wealth, said the strategy is “particularly compelling in years of lower income, such as before Social Security kicks in, before RMDs (required minimum distributions), when you lose a job, or during an early retirement bridge period.” “There may be years when you have less income, but that’s a phenomenal time in your life to recognize capital gains.”
What benefits does tax gain harvesting provide?
“Long-term capital gains are taxed at a 0% federal rate in years when taxable income falls below a certain level,” said Kevin Knull, CEO of TaxStatus, which provides financial data from the IRS to professionals. “Investors in such a position can intentionally sell stocks or fund shares that have appreciated in value and immediately buy back the same investment without paying any federal taxes on the proceeds.”
In 2026, individuals with taxable income up to $49,450 or married couples filing jointly with taxable income up to $98,900 will pay a 0% federal capital gains rate. Taking the standard deduction and, for seniors, tiering your deductions, can also help lower your taxable income.
Explaining how this works, Knull says:
Let’s say you and your husband are both 67 years old, retiring in 2026, and living on $70,000 a year from pensions and IRA withdrawals. They also have a stock fund in a regular brokerage account that they bought a few years ago for $50,000 and is now worth about $126,400.
| Pension and IRA income | $70,000 |
| Basic deduction (married couple, both over 65 years old) | – $35,500 |
| Senior citizen exemption ($6,000 per person, 2025-2028) | – $12,000 |
| Taxable income before stock sale | $22,500 |
| Top of Capital Gains 0% Tier (2026, Joint Filers) | $98,900 |
| Long-term benefits realized at 0% federal tax rate | $76,400 |
Because their taxable income starts at $22,500, the couple could sell the entire fund and realize a long-term gain of $76,400, paying zero federal taxes. Their total taxable income falls right at the 0% cap of $98,900.
If you repurchase the Fund on the same day, your cost basis or purchase price will be reset from $50,000 to $126,400, helping to reduce subsequent taxable gains. Their income is also below the level that would trigger a temporary reduction in the senior citizen exemption or a Medicare surcharge, but state income taxes may still apply depending on where they live.
According to the IRS, the new senior citizen deduction will be phased out if your modified adjusted gross income (MAGI) exceeds $75,000 for single filers and $150,000 for joint filers. According to the Centers for Medicaid and Medicare Services, Medicare surcharges begin when an individual’s MAGI reaches $109,000 or $218,000 for joint filers.
For all these reasons, “tax gain harvesting is the opposite (of tax loss harvesting), and for many retirees, tax revenue harvesting is more valuable,” Knull said.
Not just adults
According to investment platform Wealthfront, tax gain harvesting works best when income is low or zero, and children are ideal for this strategy.
Wealthfront last month launched a custodial account that automatically sells high-value investments to realize gains while a child is in a low-tax or 0% federal tax bracket and buys alternative exchange-traded funds to maintain a portfolio’s target risk and return. A subsequent increase in the purchase price increases the cost basis of the investment and reduces the amount of gain realized when the investment is later sold.
“It’s definitely an interesting concept and we’ve adopted it for some of our clients who have custodial accounts, but we didn’t put it on autopilot because of concerns around the child tax,” Shacklet said.
The child tax is an IRS rule that makes a child’s unearned income, such as interest, dividends, and capital gains, taxable above a certain threshold at the parent’s marginal tax rate rather than at the child’s lower tax rate. The idea is to prevent people from shuffling money to their children to avoid higher tax rates.
To combat this, Wealthfront only provides tax-free growth of up to $1,350 each year, so you don’t owe any federal taxes and don’t have to file a return. Your child must file a tax return if their annual unearned income, such as interest, dividends, or capital gains, reaches $1,350. This is because any amount above this will be subject to the child’s lower marginal tax rate. Amounts above $2,700 are subject to the parent’s marginal tax rate.
“It’s not a bad idea, but always stay aware of the situation,” says Shacklet.
Are there any disadvantages to tax gain harvesting?
Experts said tax gainers need to consider state taxes. Most states tax capital gains, with rates ranging from 0% to over 13%. California taxes capital gains at the same rate as income.
“Basically, the (zero tax) strategy works for federal purposes because the tax rate is 0%, and capital gains are exempt in states that don’t have income taxes,” said Richard Pong, a certified public accountant in San Francisco.
Although Wealthfront’s automatic collection of tax gains in custodial accounts is set up to avoid triggering state tax reporting requirements, “it is important to note that state and local tax laws vary widely and may impose different or additional requirements beyond federal regulations,” said Alex Michalka, Wealthfront’s vice president of investment research. “Therefore, it is always wise to consult a tax professional regarding the specific tax implications of your situation.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
