Sell Concentrated Stock in the 0% Gains Bracket

The decision: David and Maria’s $200K of Microsoft stock

David and Maria are 58 and 56, retired early in Phoenix, Arizona, and file jointly. David spent 22 years at a tech company and walked away with $300,000 of a single stock position carrying $200,000 of embedded long-term gain. Their only taxable income now is $80,000 a year of taxable ordinary income (a small pension plus interest, after the $31,500 MFJ standard deduction). They are terrified of a single-stock crash but equally terrified of a tax bill if they sell.

Here is the resolution. Their taxable ordinary income of $80,000 sits under the 0% long-term capital gains ceiling of $96,700 for MFJ in 2026. That leaves $16,700 of room. They sell $16,700 of long-term gain this year, pay $0 federal tax, and — because the wash-sale rule does not touch gains — rebuy the same shares the same afternoon. Their basis steps up by $16,700. Arizona taxes the gain as ordinary income at its flat 2.5% rate, so the only cost is roughly $418 of state tax. They repeat every year. The single-stock risk drains out of the portfolio one tax-free slice at a time.

What the 0% capital gains bracket actually is

Long-term capital gains — profit on assets held more than one year — are taxed on their own rate schedule, separate from your wages and pension. For 2026 the brackets are:

The brackets are tied to taxable income, not gross income. That distinction is the whole game. Your standard deduction ($31,500 MFJ / $15,750 single for 2026) comes off first, then your ordinary income fills the bottom of the stack, and your long-term gains sit on top. The 0% rate applies to gains that land in the income range below the ceiling.

How the “stacking” works — the part most people get wrong

Capital gains stack on top of ordinary income; they do not blend with it. Walk through David and Maria’s stack:

1. Ordinary income (pension + interest), after the $31,500 standard deduction: $80,000. This fills the bottom of the income stack and is taxed at ordinary 10% and 12% rates.
2. The 0% LTCG ceiling for MFJ is $96,700 of taxable income.
3. Room remaining under the ceiling: $96,700 − $80,000 = $16,700.
4. They realize $16,700 of long-term gain. It stacks from $80,000 to $96,700 — entirely inside the 0% band. Federal tax on the gain: $0.

Critically, realizing the gain does not push their ordinary income into a higher bracket. The $80,000 of ordinary income is taxed at ordinary rates whether or not they sell stock. Gains have their own ladder. The only thing the gain “uses up” is the 0% capital-gains room. The dollar that lands at $96,701 is taxed at 15%, not 0% — so the room is a hard ceiling, not a suggestion.

The rebuy: why wash-sale doesn’t stop you

Tax-loss harvesting has a famous trap: the wash-sale rule (IRC §1091) disallows a loss if you buy a substantially identical security within 30 days before or after the sale. Gain-harvesting is the mirror image, and the wash-sale rule does not apply to gains at all. The statute only addresses disallowed losses. Sell at a profit and you can rebuy the identical shares the same minute.

That rebuy is the entire point. When David and Maria sell $16,700 of gain and immediately repurchase, their cost basis on those shares jumps to the current market price. Every future sale starts from that higher basis, so the embedded gain shrinks. They keep their economic exposure unchanged for the moment — same shares, same dollars — while permanently converting $16,700 of pre-tax gain into post-tax, higher-basis stock. No 30-day wait, no parking in a similar-but-different fund, no tracking error.

Multi-year unwind: the math on a $200K gain

One year of harvesting barely dents a concentrated position. The strategy is a campaign, not a single trade. Here is David and Maria’s path if they harvest only at the 0% rate:

Twelve years is a long campaign, and concentration risk is acute the whole time. Most people accelerate it. In any year they want out faster, they fill into the 15% bracket too: a slice of gain between $96,700 and, say, $200,000 of taxable income costs 15 cents on the dollar. Paying $0 on the first $16,700 and 15% on the next chunk still crushes the alternative of holding a single stock through a 40–50% drawdown, or selling the whole block in one year and handing the IRS roughly $27,500 (the first $16,700 still lands at 0% even in a lump sale; the remaining $183,300 of gain at 15% is about $27,495).

The OBBBA backdrop

The brackets above reflect the TCJA-rate structure that OBBBA made permanent as of 2026, so the 0% bracket is not scheduled to vanish at year-end the way pre-2026 commentary warned. That stability is what makes a 12-year harvesting campaign plannable. Re-check the inflation-adjusted ceiling each January — the $96,700 MFJ figure rises with inflation — but the 0% band itself is durable.

What most people miss

• The 0% room resets every year and cannot be banked. Unused room this year is gone forever. A retiree who waits “until the market recovers” forfeits a clean shot at 0% — the room is a use-it-or-lose-it annual allowance, not a lifetime cap.
• Gains fill the room before you notice. Mutual-fund capital gains distributions, a Roth conversion (ordinary income that eats your room from below), or a part-time job can quietly consume the space. Run the number in November when the year is mostly known.
• The 3.8% NIIT is a separate ceiling. Net investment income tax (IRC §1411) adds 3.8% on investment income once MAGI tops $250,000 MFJ ($200,000 single). A big 15%-bracket harvest can cross that line, turning a 15% gain into 18.8%. The 0% harvest never does, because $96,700 is far under $250,000.
• State tax usually still applies. Most states tax capital gains as ordinary income with no 0% break. David and Maria pay Arizona’s flat 2.5% on the $16,700 (about $418). In a no-income-tax state (Florida, Texas, Washington, Nevada, and five others) the harvest is genuinely free. Washington is the outlier — it levies 7% on long-term gains over $250,000.
• Hold-period and lot selection matter. Only gains on shares held more than one year get the 0%/15%/20% schedule. Use specific-lot identification to sell your highest-basis long-term lots first, controlling exactly how much gain you realize.

The four-step playbook

1. Project taxable income in November. Add up ordinary income, subtract the standard deduction ($31,500 MFJ), and find the gap to $96,700. That gap is your 0% room.
2. Sell long-term lots to fill the room. Use specific-lot identification, target gain (not proceeds) up to the ceiling, and stop short so a small estimate error does not spill into the 15% band.
3. Rebuy immediately to reset basis. No wash-sale wait applies to gains. Repurchase the identical shares the same day; your basis steps up to the new price.
4. Document the lots and basis. Keep the trade confirmations. Your 1099-B and Form 8949 will report the sale; the gain shows on Schedule D and washes out to $0 tax inside the 0% band.

When to skip the 0% harvest and just pay 15%

The 0% rate is not always worth orchestrating your whole year around. Skip the gymnastics and accept the 15% rate when:

• Your taxable income already exceeds $96,700 MFJ in most years — there is no 0% room to harvest into, and contorting income downward costs more than the 15% you would save.
• The concentration risk is severe enough that a 12-year drip is reckless. A position that is 80% of net worth in one volatile stock justifies paying 15% to get diversified in two to three years rather than twelve.
• You would have to forgo a Roth conversion to preserve the room. Filling the 0% capital-gains band with cheap Roth conversion income is often the higher-value use of a low-income year.

The decision lever

The single number that drives this strategy is the gap between your taxable ordinary income and the 0% ceiling — $96,700 MFJ or $48,350 single for 2026. Every low-income year that gap is open, it is a one-time allowance to convert appreciated stock into higher-basis stock at a 0% federal rate, with an immediate rebuy that the wash-sale rule cannot block. Calculate the gap each November, harvest gain up to the ceiling, rebuy the same shares, and repeat. A concentrated position that looks like an untouchable tax bomb becomes a multi-year, tax-free unwind — and the years you let the room expire are the only ones you can never get back.