Capital gains get their own favorable tax rates, and retirees are often positioned to use them better than anyone.
How Are Capital Gains Taxed in Retirement?
Profits from selling investments held longer than a year are long-term capital gains, taxed at preferential federal rates of 0%, 15%, or 20% based on your taxable income. Assets held a year or less are short-term gains, taxed as ordinary income. For 2026, single filers with taxable income below roughly the inflation-adjusted threshold pay 0% on long-term gains; the rate steps up to 15% and then 20% at higher incomes. Because many retirees have lower taxable income, especially before Required Minimum Distributions begin, they frequently land in the 0% bracket, allowing them to realize gains without owing federal capital gains tax.
How Can I Use the 0% Capital Gains Bracket?
In low-income years, you can intentionally sell appreciated investments up to the top of the 0% long-term gains bracket and owe no federal tax on those gains, a strategy called capital gains harvesting. This resets your cost basis higher, reducing future taxable gains. It pairs well with retirement timing, since the gap between leaving work and age 73 often features low ordinary income. Be careful, though: realized gains still count toward the income that determines how much Social Security is taxed and whether Medicare IRMAA surcharges apply. Sizing your gains to stay under those thresholds keeps the benefit intact.
How Do Capital Gains Interact With Medicare?
Capital gains raise your modified adjusted gross income, which Medicare uses to set IRMAA surcharges on Part B and Part D premiums. A large one-time gain, like selling a home or stock, can increase your premiums two years later. Spreading sales across years or staying under IRMAA thresholds protects you. The licensed agents at 1-800-MEDIGAP (1-800-633-4427) can explain how your income affects Medicare costs so a big sale doesn't bring an unexpected premium increase.