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The Secret to Zero Capital Gains Tax

Taxable income matters when aiming for the 0% long-term capital gains bracket.

By Doug Amis, CFP

There’s a certain mystique when it comes to tax planning, as it encompasses the sometimes-straightforward math of accounting and the often-backward approach of tax law. Hidden in the depths of the tax code is a 0% tax rate for those willing to mine its riches. That might seem like a mirage or too good to be true, but I’m going to show you how retirees can find a source of tax alpha and keep more of their dollars.

Doug “Buddy” Amis, CFP®, is President, CEO, and Owner of Cardinal Retirement Planning, Inc. ( To request a copy of The Complete Cardinal Guide to Planning For and Living In Retirement Workbook, a free workbook co-authored by Amis, email

Doug Amis

The Elusive 0% Long-Term Capital Gains Tax Rate

The IRS publishes hundreds of thousands of pages of manuals and rules allowing some of the most valuable rules to hide. One of the most valuable rules for retirees and planners alike is the 0% long-term capital gains tax rate. To understand the components of this rate opportunity, we start with “capital gains.” “Gains” is relatively straightforward, but what is “capital”? Capital, in this instance, means capital assets.

What Are Capital Assets?

The IRS makes it pretty clear that “almost everything you own and use for personal or investment purposes is a capital asset.” If you own a capital asset and sell it for a gain, you have income that is classified as a capital gain. The IRS is going to assess a capital gains tax on that income, so one of the first things they need to know about it is how long you’ve owned the asset. What counts as “long-term?” Generally speaking, assets owned for at least one year have a long-term holding period and assets owned for less than one year are short-term. (Inherited assets will typically have the long-term holding period assigned to them, even if you sell them less than a year after inheriting them.)

Why do long-term and short-term holding periods matter? They are assessed at different tax rates, with lower, preferential tax rates on those deemed long-term. You may have heard before that capital gains are taxed at these “lower” and “preferential” rates, but let’s take that one step further; If you are a married couple filing jointly or a single filing taxpayer, you can expect a 0% long-term capital gains rate if your taxable income is under $83,350 or $41,675, respectively, in 2022. After that, the long-term capital gains rate increases to 15%, then 20%. Higher earners might even pay an additional 3.8% net investment income tax (NIIT) on these gains too. The percent you pay is determined by your overall income, specifically your taxable income.

Finding Your Tax Bracket

There are a few types of income to which the IRS pays special attention, and they each have different definitions. Knowing the difference between your adjusted gross income (AGI), modified adjusted gross income (MAGI), and taxable income (TI) is important when building a retirement plan that makes use of the 0% long-term capital gains bracket. It’s only taxable income that determines your long-term capital gains bracket.

The IRS will consider all of your earned and unearned income: after excluding non-taxable income and your deductions (standard or itemized, depending on your situation), you have your taxable income. If you look on line 15 of your Form 1040, you will find the number there. This is the figure you will need to use to capture the 0% long-term capital gains tax bracket.

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Blue Chip Stocks

Consider a couple, both age 62, with a portfolio of stocks, bonds, and cash reserves. If they are like most couples, the majority of their retirement savings are in pre-tax retirement accounts, and only a portion of their savings are invested outside of retirement accounts in brokerage accounts. The money outside of retirement accounts in taxable investments like stocks, bonds, mutual funds, real estate, and other capital assets, are the assets retirees need to monitor to take advantage of the 0% long-term capital gains tax rate.

Let’s say this couple owns stocks currently valued at $250,000, due to wise investments in blue-chip companies that they’ve held for years. Though the initial seed investment is a small percentage, let’s say 20% or $50,000, the stocks have grown, so there is $200,000 of unrealized long-term capital gain on top of that basis of $50,000.

Like many retirees, this couple might have a base level income in retirement due to pensions. In our example, we’ll project $48,000 as the base income and assume it’s fully taxable. This couple is positioned perfectly to take advantage of the 0% long-term capital gains tax rate. This couple can expect to receive a 0% long-term capital gains tax rate on partial sales of stock and on qualified dividends. This can amount to a substantial amount of cash flow and an excellent source of tax alpha. Here’s why:

  • The pension is fully taxable, but at $48,000 and married filing jointly, their taxable income is going to be well under $83,350.
  • If we assume the couple can only take the standard deduction, $25,900, their taxable income is in the range of $22,000 (Pension - Standard Deduction).
  • The couple could realize almost $60,000 in gains and qualified dividends before they start paying the 15% capital gains tax rate.

Using our blue-chip stocks example, the couple could sell 30% of their holdings in one calendar year and still qualify for the 0% long-term capital gains tax rate. Selling 30% would generate $75,000 of cash flow because the proportional amount of basis is tax-free as well. That’s about 150% of their pension and it can be tax-free! This type of return can be called tax alpha. Tax alpha is like traditional investment alpha, it’s the additional gain you get from an effective strategy.

Consider on the other hand a scenario where a couple has already withdrawn too much from their pre-tax IRA and a 15% capital gains tax is paid on the $60,000 gain (the tax would be $9000). That tax savings — $9,000 — is how much tax alpha is realized thanks to the 0% long-term capital gains strategy. Viewing it mathematically, it’s a 13.6% difference! Instead of receiving $66,000 ($75,000 minus $9,000 of long-term capital gains taxes), the couple can receive the full $75,000.

Forging Your Own Path

Financial professionals, if they were to tout a 13.6% guaranteed return, could be smacked by the governing authorities. But tax alpha is not a return on investments, it is a return on your own dollars. By minimizing taxes to 0%, the couple in our example squeezes more out of their retirement funds. Becoming more tax-efficient allows this couple to keep more money in their retirement accounts and hopefully, earn compound interest without taking on a riskier portfolio strategy. This is especially important because the traditional advice is to withdraw from accounts starting with pre-tax retirement funds, then taxable brokerage accounts, and then tax-free Roth accounts. To get this 13.6% tax alpha, the couple needs to go against the typical advice and find the gem in the tax code that works for them specifically, not the average couple.

I can’t stress enough how important it is to have a personal financial plan. Don’t just go with the general flow. There are treasures hidden and waiting to be discovered. A professional guide can help you find them.

About the Author: Doug Amis, CFP®

Doug “Buddy” Amis, CFP®, is President, CEO, and Owner of Cardinal Retirement Planning, Inc. ( To request a copy of The Complete Cardinal Guide to Planning For and Living In Retirement Workbook, a free workbook co-authored by Amis, email

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