How to Invest in Stocks During a Market Rally Without Earning Any Capital Gains

• Harvesting tax gains from a successful year in the stock market can help rebalance your portfolio and reduce future tax liabilities.
• In 2024, you may be eligible for the 0% long-term capital gains rate if your taxable income is up to $47,025 as a single filer or $94,050 as a married couple filing jointly.
• By selling a profitable asset and then immediately repurchasing, you can reset your "basis" or original purchase price to zero.

In a robust year for the stock market, a lesser-known approach could help restructure your portfolio and minimize future tax liabilities.

Tax-gain harvesting is a strategy that involves selling profitable brokerage account assets during lower-income years, such as early retirement or periods of unemployment, to minimize taxes.

The S&P 500 has experienced a more than 18% increase in value from January to August 26th, with August seeing particularly strong growth as investors anticipate interest rate cuts from the Federal Reserve in September.

Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, stated that often when we engage in this activity, we aim to achieve those benefits with no cost.

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Capital gains brackets apply to long-term investments, while short-term investments are subject to regular income taxes.

Filing together as a married couple can be very lucrative, Lucas stated.

In 2024, you may be eligible for a 0% capital gains tax rate if your taxable income is less than $47,025 as a single filer or $94,050 as a married couple filing jointly.

The rates apply to "taxable income," which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

In 2024, a married couple with a combined income of $120,000 could still fall below the $94,050 taxable income threshold after deducting the $29,200 standard deduction.

Reset your basis for future savings

Experts suggest that tax-gain harvesting provides several advantages, such as rebalancing your brokerage portfolio without incurring gains.

CFP Sean Lovison, founder of Philadelphia-area Purpose Built Financial Services, previously advised that one can reset their "basis" or original purchase price by selling a profitable asset and then immediately repurchasing.

The wash sale rule prevents a tax break when selling assets at a loss and then rebuying a "substantially identical" asset within a 30-day window before or after the sale, but this rule does not apply to harvesting gains.

Reducing future gains through this move can be a game changer, especially when you sell later in higher-earning years, according to Lovison, a certified public accountant.

The 'sweet spot' for tax-gain harvesting

According to Lucas from Moisand Fitzgerald Tamayo, the ideal time for tax-gain harvesting is typically in October or November when investors can better predict their yearly taxable income. To avoid falling into the 15% capital gain bracket, it is recommended to leave some "buffer room built in there."

In lower-income years, such as early retirement before required minimum distributions, tax-gain harvesting is typically more attractive. However, younger retirees with marketplace health insurance may put their premium tax credits at risk if their income increases, Lucas cautioned.