Taxes directly affect how much of your hard-earned money that you keep, and one of the last things you want to worry about in your retirement years is taxes. A key tax area often overlooked by retirees that deserves your attention is capital gains tax.
When making seemingly straightforward financial decisions like selling a stock you’ve held for many years, or downsizing your longtime family home, you may run into significant tax implications. In retirement, capital gains can intersect with other areas like tax brackets, Social Security benefits, and Medicare premiums to RMDs and home sales. Capital gains tax can help to preserve, or unexpectedly reduce your retirement nest egg. Below are a few things you should consider.
Understanding short/long term capital gains:
Short-term capital gains: Profits from the sale of assets held for one year or less. These gains are taxed at your ordinary income tax rates, anywhere from 10% to 37%, depending on taxable income and filing status. You can view more information about the 2025 income tax brackets here.
Long-term capital gains: Profits from assets after being held for more than one year. These gains benefit from lower tax rates, ranging from 0% to 20%. If you are a retiree in a lower tax bracket than when you were working, you may benefit from a more favorable tax bracket while realizing long-term capital gains. The rates for tax year 2024 are listed below:
Capital gains rate of 0%
- $47,025 for single filers and married filing separately
- $94,050 for married filing jointly and qualifying surviving spouse
- $63,000 for head of household
Capital gains rate of 15%
- $47,026 to $518,900 for single filers
- $47,026 to $291,850 for married filing separately
- $94,051 to $583,750 for married filing jointly and qualifying surviving spouse
- $63,001 to $551,350 for head of household
Capital gains rate of 20%
- Over $518,900 for single filers
- Over $291,850 for married filing separately
- Over $583,750 for married filing jointly and qualifying surviving spouse
- Over $551,350 for head of household
Social Security and Capital Gains:
Capital gains could also affect tax on your Social Security benefits. Keep in mind that up to 85% of Social Security benefits can be subject to tax depending on your overall income, and this is including capital gains. The calculation that determines how much of your Social Security benefits are taxable includes realized gains, and this means that if you have significant capital gains in a single year, they could push more of a retiree’s Social Security benefits into taxable territory.
Talk with a TFG CPA for ideas on how to manage this, the goal is to maintain a lower overall taxable income and reduce the impact of taxes on Social Security benefits. Considering spreading out capital gains realizations over multiple years is a good starting point.
Required Minimum Distributions (RMDs):
RMDs from traditional retirement accounts add an additional layer of complexity to planning for capital gains, since RMDs are taxed as ordinary income and can push retirees into higher tax brackets. Required minimum distributions are generally required to be taken once a retiree reaches age 73.
To mitigate this, consider the following strategies in addition to talking to a TFG CPA.
- Realize capital gains in years with lower RMDs to spread out the tax impact
- Use Qualified Charitable Distributions (QCDs) to satisfy RMD requirements without increasing taxable income. If you are 70 ½ or older, you can make a QCD of up to $105,000 from your IRA directly to a charity, and these distributions count toward RMDs and are excluded from taxable income.
- Explore Roth conversions in lower-income years to reduce future RMDs.
Capital Gains on Home Sales:
The capital gains tax exclusion enables homeowners who meet specific requirements to exclude up to $250,000, or up to $500,000 for married couples filing jointly, of capital gains from the sale of their primary residence. However, there are a number of exceptions and exclusion rules to be aware of. Visit our article here for more information: (insert article link)
Contact Us: You’ve saved and invested for a secure retirement, and now it’s time to reap the rewards. But it takes some planning and strategizing to make the most of your savings. Our TFG CPAs can help you understand short-term and long-term capital gains, current tax rates and strategies that can help lower your tax burden to help you allocate more resources toward your lifestyle, family, and other long-term goals. Call us at 855-542-7537.
