Capital gains tax in retirement is often lower than retirees expect, because long-term gains and qualified dividends are taxed on a separate 0%, 15%, or 20% schedule that depends on total taxable income, and a low-income year can let some gains be taxed at 0%. This guide covers how those gains can be managed and sequenced, along with the related Medicare, Social Security, and surtax interactions to weigh.
In 2026, a retiree can have taxable income up to the “maximum zero rate amount” and pay 0% federal tax on long-term capital gains: $49,450 for single filers and $98,900 for married filing jointly (Source: IRS Rev. Proc. 2025-32). Above the 15% ceiling ($545,500 single, $613,700 joint), the rate becomes 20%. Gains inside 401(k)s and IRAs are taxed differently, as ordinary income when withdrawn.
How capital gains are taxed differently in retirement
Long-term capital gains and qualified dividends are taxed at 0%, 15%, or 20% based on your taxable income, a separate schedule from the ordinary income rates that apply to wages, pensions, and traditional retirement withdrawals (Source: IRS Topic no. 409, 2025). This split matters in retirement because income sources stack in a specific order, and where the gain lands determines the rate.
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There is no special capital gains exemption for people over age 65. The same 0/15/20% brackets apply at every age. What changes in retirement is the income mix: many households drop into lower taxable-income years between the end of work and the start of required distributions, and those years can be used to realize gains at favorable rates.
A 28% maximum rate applies to collectibles and to qualified small business stock under section 1202, and a 25% maximum applies to unrecaptured section 1250 gain, which is depreciation recapture on real property (Source: IRS Topic no. 409, 2025). These higher categories are exceptions to the 0/15/20% structure.
The 2026 capital gains brackets by filing status
For 2026, taxable income at or below the “maximum zero rate amount” is taxed at 0% on long-term gains; income above the “maximum 15% rate amount” is taxed at 20%; everything in between is 15% (Source: IRS Rev. Proc. 2025-32). The table below shows the exact 2026 figures. For a fuller rate reference across all categories, see the Q3 Advisors 2026 capital gains tax rate page.
| Filing status (2026) | 0% up to (taxable income) | 15% up to | 20% above |
|---|---|---|---|
| Single | $49,450 | $545,500 | $545,500 |
| Married filing jointly / surviving spouse | $98,900 | $613,700 | $613,700 |
| Head of household | $66,200 | $579,600 | $579,600 |
| Married filing separately | $49,450 | $306,850 | $306,850 |
| Estates and trusts | $3,300 | $16,250 | $16,250 |
These are 2026 figures. Some retirement guides still show 2022 or 2023 brackets, so it is worth checking the tax year on any table you rely on. The thresholds are indexed for inflation each year under section 1(j)(5)(B) (Source: IRS Rev. Proc. 2025-32).
Short-term versus long-term gains
A gain is long-term if you held the asset more than one year before selling, and long-term gains qualify for the 0/15/20% rates (Source: IRS Topic no. 409, 2025). A short-term gain, from an asset held one year or less, is taxed as ordinary income at rates of 10% to 37% (Source: IRS Rev. Proc. 2025-32, ordinary rate tables made permanent by OBBBA section 70101).
| Feature | Short-term gain | Long-term gain |
|---|---|---|
| Holding period | One year or less | More than one year |
| Tax rate (2026) | Ordinary: 10%-37% | 0%, 15%, or 20% |
| Qualifies for 0% bracket | No | Yes |
The holding-period distinction can decide whether a sale near the one-year mark is taxed at ordinary rates or at the lower long-term schedule, which is why timing a sale can matter.
Where the gains live: taxable accounts versus retirement accounts
Capital gains rates only apply to assets sold in a taxable brokerage account. Inside a 401(k), 403(b), or traditional IRA, no capital gains tax is triggered when investments are sold within the account; instead, distributions you include in income are taxed as ordinary income when withdrawn, regardless of the underlying gains (Source: IRS Pub 590-B, 2025). The portion representing after-tax basis is tax-free.
Roth IRA qualified distributions are tax-free entirely. A distribution qualifies if it is made after the five-year period beginning with your first Roth contribution year and after age 59½, or due to disability, death, or a first home up to $10,000 lifetime (Source: IRS Pub 590-B, 2025). This is one reason Roth balances are treated differently in withdrawal planning.
The practical takeaway: a stock fund held for decades in a traditional 401(k) does not receive long-term capital gains treatment on withdrawal. The same fund held in a taxable account can, and in a low-income year may fall in the 0% band.
Cost basis, step-up, and the difference between realized and unrealized gains
A gain is only taxable once it is realized, meaning the asset is sold; an unrealized gain, on an asset you still hold, is not taxed (Source: IRS Topic no. 409, 2025). Your gain equals the sale price minus your cost basis, generally what you paid plus reinvested amounts.
At death, inherited assets generally receive a step-up in basis to fair market value on the date of death, which can eliminate the built-in unrealized gain for heirs. This makes the decision of whether to sell an appreciated asset during retirement or hold it a meaningful one, because holding may pass a stepped-up basis to heirs.
The 0% window: capital gains harvesting before RMDs begin
Some retirees have low-income years between leaving work and starting required minimum distributions at age 73. In 2026, a married couple can hold taxable income up to $98,900 and pay 0% on long-term gains (Source: IRS Rev. Proc. 2025-32). Deliberately realizing gains within that space is often called capital gains harvesting.
Capital gains harvesting is the practice of selling appreciated assets in a low-income year to realize gains that fall inside the 0% band, then optionally repurchasing to reset a higher cost basis. Because the wash-sale rule applies to losses and not gains, an immediate repurchase after a gain sale is permitted (Source: IRS Topic no. 409, 2025). This is described here for education, not as a recommendation.
The standard deduction lifts the taxable-income floor before the 0% ceiling applies. For 2026, the standard deduction is $32,200 for joint filers and $16,100 for single filers, with an additional $1,650 per person age 65 or older ($2,050 if unmarried and not a surviving spouse) (Source: IRS Rev. Proc. 2025-32). A temporary OBBBA senior deduction of $6,000 per eligible individual age 65+ also applies for 2025 through 2028, phasing out above $75,000 MAGI ($150,000 joint) (Source: IRS newsroom, One Big Beautiful Bill Act, 2025).
A worked example: fitting gains into the 0% bucket
Consider a hypothetical married couple, both age 68, in tax year 2026, before required minimum distributions start. This example illustrates the mechanics of how gains stack on top of ordinary income, and it is not a projection of any individual result or a recommendation to act. In this simplified case, their income stacks in the following order:
- Pension: $30,000
- Taxable portion of Social Security: assume $10,000 counted as taxable
- Subtotal ordinary income: $40,000
- Less 2026 standard deduction ($32,200) plus two age-65 additions ($3,300): deductions of $35,500
- Taxable ordinary income: about $4,500
With roughly $4,500 of taxable ordinary income, the couple sits far below the $98,900 joint zero-rate ceiling. The remaining room, about $94,400, is space in which long-term gains could be realized and stacked on top at 0% federal rate (Source: IRS Rev. Proc. 2025-32). Gains that push total taxable income above $98,900 would begin to be taxed at 15%. Once required minimum distributions begin at 73, that ordinary income fills the same space and shrinks the room for 0% gains, which is why the pre-73 years are often described as a planning window.
Related costs: NIIT, IRMAA, and the Social Security torpedo
Realizing a large capital gain can trigger costs beyond the headline 0/15/20% rate. Three of them can raise the effective cost of a gain above its stated rate: the 3.8% net investment income tax, higher Medicare premiums through IRMAA two years later, and additional taxation of Social Security benefits. Each is described below with its statutory or agency source so the interactions can be weighed together.
Net investment income tax (the 3.8% surtax)
The net investment income tax adds 3.8% on the lesser of net investment income or the amount by which modified adjusted gross income exceeds a threshold: $250,000 for joint filers, $200,000 single or head of household, and $125,000 married filing separately (Source: IRS Topic no. 559). Capital gains count as net investment income. This is why the effective top rate on gains can reach 18.8% (15% plus 3.8%) or 23.8% (20% plus 3.8%).
These NIIT thresholds are statutory and are not indexed for inflation; they have been fixed since 2013 (Source: 26 U.S.C. section 1411, Cornell LII). Because they never rise, more households drift over them each year. For more detail, see the Q3 Advisors net investment income tax 2026 reference.
IRMAA: the Medicare premium cliff
A large realized gain can raise your Medicare premiums two years later. Higher-income beneficiaries pay an income-related monthly adjustment amount (IRMAA) on Medicare Part B and Part D, based on MAGI from the tax return two years prior (Source: Medicare.gov, CMS). The 2026 standard Part B premium is $202.90 per month with a $283 annual deductible (Source: Medicare.gov, 2026); IRMAA is charged on top of that standard premium for those over the tiers.
Because IRMAA works in tiers, a gain that pushes MAGI a single dollar past a threshold can raise premiums for a full year. See the Q3 Advisors Medicare IRMAA 2026 brackets page for the current tier amounts.
The Social Security tax torpedo
Realizing capital gains can make more of your Social Security benefits taxable. Under IRC section 86, up to 50% of benefits become taxable once “combined income” exceeds a base amount ($25,000 single, $32,000 joint) and up to 85% above the adjusted base amount ($34,000 single, $44,000 joint) (Source: 26 U.S.C. section 86, Cornell LII). These thresholds are not inflation-indexed. A capital gain raises the income used in that formula, so a gain can indirectly increase tax on benefits. The Q3 Advisors Social Security tax torpedo page explains this interaction.
Coordinating gains with RMDs, Roth conversions, and withdrawal order
Required minimum distributions consume bracket space. Under SECURE 2.0 (2023), RMDs begin at age 73 for those born 1950 to 1959, and age 75 for those born 1960 or later (Source: IRS RMD FAQs). Once RMDs start, that ordinary income fills the lower brackets first, leaving less room for 0% gains. The excise tax for a missed RMD is 25%, reduced to 10% if corrected in time (Source: IRS RMD FAQs).
The correction window for the reduced 10% excise tax generally runs to the end of the second year after the year of the shortfall (Source: IRS RMD FAQs). See the Q3 Advisors required minimum distributions 2026 guide for the current mechanics.
Low-income years before 73 are also when some retirees consider Roth conversions, which move money from a traditional account to a Roth and are taxed as ordinary income in the conversion year. Filling a low bracket with a conversion can reduce future RMDs, though a conversion adds to taxable income and can compete with the same space used for 0% gains.
Withdrawal sequencing is the order in which accounts are tapped. A common framework is to draw from taxable accounts first, then tax-deferred, then Roth, though the ordering that minimizes lifetime tax depends on each household’s brackets, RMDs, IRMAA position, and Social Security. Qualified charitable distributions (QCDs) let those 70½ and older send IRA money directly to charity, which can satisfy part of an RMD without adding to taxable income (Source: IRS RMD FAQs).
Tax-loss harvesting and the home-sale exclusion
Capital losses offset capital gains, and if losses exceed gains, up to $3,000 of net loss can be deducted against ordinary income each year, with the remainder carried forward (Source: IRS Topic no. 409, 2025). Selling losing positions to offset realized gains is called tax-loss harvesting; the wash-sale rule disallows a loss if you buy a substantially identical security within 30 days.
Selling a primary home can qualify for a large exclusion. A single filer may exclude up to $250,000 of gain and a married couple up to $500,000, generally if you owned and used the home as your main residence for at least two of the five years before the sale (Source: IRS Topic no. 409, 2025). Gain above the exclusion is taxed as a capital gain.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
These answers summarize how federal long-term capital gains rules generally apply in retirement, using 2026 figures from the sources listed below. There is no special over-65 exemption; the 0/15/20% schedule applies at every age, and taxable income determines the rate. The responses are educational, not personalized advice, and state rules can differ. Confirm current figures with the cited IRS materials or a tax professional.
Do you pay capital gains tax after age 65?
Yes, the same 0/15/20% long-term capital gains schedule applies at every age; there is no special over-65 capital gains exemption (Source: IRS Topic no. 409, 2025). What can change after 65 is taxable income. In a low-income year, gains that fall below the 2026 zero-rate ceiling ($49,450 single, $98,900 joint) can be taxed at 0% (Source: IRS Rev. Proc. 2025-32).
How can I avoid capital gains tax in retirement?
Approaches the rules allow include realizing long-term gains in a year when taxable income stays under the 0% ceiling, offsetting gains with capital losses, using the up-to-$500,000 home-sale exclusion, holding appreciated assets for a step-up in basis at death, and gifting appreciated shares (Source: IRS Topic no. 409, 2025). This is educational information, not a recommendation for any individual.
At what income is capital gains tax 0%?
For 2026, long-term gains are taxed at 0% when total taxable income stays at or below the maximum zero rate amount: $49,450 for single filers, $98,900 for married filing jointly, and $66,200 for head of household (Source: IRS Rev. Proc. 2025-32). Gains stack on top of ordinary income, so other income counts toward reaching that ceiling.
Can you offset capital gains with capital losses?
Yes. Capital losses offset capital gains dollar for dollar, and if net losses remain, up to $3,000 can be deducted against ordinary income each year, with any excess carried forward to future years (Source: IRS Topic no. 409, 2025). The wash-sale rule disallows a loss if a substantially identical security is bought within 30 days of the sale.
Does selling my home count toward capital gains tax?
Selling a primary residence can produce a capital gain, but a single filer may exclude up to $250,000 and a married couple up to $500,000, generally if the home was owned and used as a main residence for at least two of the five years before the sale (Source: IRS Topic no. 409, 2025). Gain above the exclusion is taxed as a capital gain.
What’s the difference between short-term and long-term capital gains?
A short-term gain comes from an asset held one year or less and is taxed as ordinary income at rates from 10% to 37%. A long-term gain comes from an asset held more than one year and is taxed at the lower 0%, 15%, or 20% rates (Source: IRS Topic no. 409, 2025; Rev. Proc. 2025-32). The holding period is the deciding factor.
Do qualified dividends stack the same way capital gains do?
Yes. Qualified dividends are taxed at the same 0%, 15%, or 20% rates as long-term capital gains and stack on top of ordinary income in the same way (Source: IRS Topic no. 409, 2025). In a low-income year, qualified dividends that fall under the 2026 zero-rate ceiling can be taxed at 0% (Source: IRS Rev. Proc. 2025-32).
Are taxes on capital gains different by state?
The 0/15/20% rates described here are federal. States set their own rules, and many tax capital gains as ordinary income while some have no income tax at all. State treatment can meaningfully change the total tax on a sale, so the state of residence in the year of sale is a relevant factor. Confirm current rules with your state tax authority or a tax professional.
Sources
IRS Topic no. 409, Capital gains and losses: https://www.irs.gov/taxtopics/tc409
IRS Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
IRS Topic no. 559, Net investment income tax: https://www.irs.gov/taxtopics/tc559
26 U.S.C. section 1411 (NIIT statute): https://www.law.cornell.edu/uscode/text/26/1411
26 U.S.C. section 86 (Social Security benefit taxation): https://www.law.cornell.edu/uscode/text/26/86
IRS Pub 590-B (IRA distributions): https://www.irs.gov/publications/p590b
IRS Required Minimum Distributions FAQs: https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
IRS newsroom, One Big Beautiful Bill Act (senior deduction): https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors
Medicare.gov, Medicare costs (2026 Part B premium, IRMAA): https://www.medicare.gov/basics/costs/medicare-costs
