How to pay 0% capital gains taxes with a six-figure income in 2023
Explore how 2023 tax changes may allow 0% capital gains tax for high earners.
Source: CNBC
- The IRS raised the 0%, 15% and 20% long-term capital gains tax brackets for 2023 based on inflation.
- You may be in the 0% bracket, even with six figures of joint income with a spouse, depending on taxable income.
- Experts say the 0% capital gains bracket can be a “really good” tax-planning opportunity.
Planning to sell some investments this year? It’s less likely to affect your 2023 tax bill, experts say.
Here’s why: The IRS made dozens of inflation adjustments for 2023, including the long-term capital gains brackets, applying to investments held for more than one year.
This means you can have more taxable income before reaching the 15% or 20% brackets for investment earnings.
“It’s going to be pretty significant,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
Here’s your capital gains tax bracket
With higher standard deductions and income thresholds for capital gains, it’s more likely you’ll fall into the 0% bracket in 2023, Lucas said.
For 2023, you may qualify for the 0% long-term capital gains rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly.
The rates use “taxable income,” calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
For example, if a married couple makes $100,000 together in 2023, their taxable income may easily fall below $89,250 taxable income after subtracting the $27,700 married filing jointly standard deduction.
By comparison, you’ll fall into the 0% long-term capital gains bracket for 2022 with a taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly.
‘A really good tax-planning opportunity,’ says advisor
With taxable income below the thresholds, you can sell profitable assets without tax consequences. And for some investors, selling may be a chance to diversify amid market volatility, Lucas said.
“It’s there, it’s available, and it’s a really good tax-planning opportunity,” he added.
Whether you’re taking gains or tax-loss harvesting, which uses losses to offset profits, “you really have to have a handle on your entire reportable picture,” said Jim Guarino, a CFP, certified public accountant and managing director at Baker Newman Noyes in Woburn, Massachusetts.
That includes estimating year-end payouts from mutual funds in taxable accounts — which many investors don’t expect in a down year — and may cause a surprise tax bill, he said.
“Some additional loss harvesting might make a lot of sense if you’ve got that additional capital gain that’s coming down the road,” Guarino said.
Of course, the decision hinges on your taxable income, including payouts, since you won’t have taxable gains in the 0% capital gains bracket.
Questions people ask
What are the 0% capital gains tax thresholds for 2023?
For 2023, single filers can have up to $44,625 in taxable income and married couples filing jointly can have up to $89,250 in taxable income and still qualify for the 0% long-term capital gains tax rate.
How is taxable income used to determine your capital gains bracket?
Taxable income is your adjusted gross income minus standard or itemized deductions. The capital gains brackets use this final taxable income figure, not gross income, to determine whether your investment profits are taxed at 0%, 15%, or 20%.
Can a six-figure earner pay 0% capital gains taxes in 2023?
Yes. If a married couple makes $100,000 in gross income but has enough deductions, such as the $27,700 standard deduction, their taxable income could fall below $89,250, potentially making them eligible for the 0% long-term capital gains tax bracket.
Why might some investors have a surprise capital gains tax bill?
Unexpected year-end payouts from mutual funds in taxable accounts can increase your taxable income and push you above the 0% capital gains bracket. Loss harvesting may help offset these gains, but you must consider your entire reportable financial picture.
What is a common tax planning opportunity mentioned for 2023?
With higher income thresholds for the 0% capital gains bracket, some investors can sell appreciated assets without owing capital gains tax. This can be a chance to diversify investments without a tax hit, if total taxable income stays within the new limits.