Expanded deductions for older Americans are changing the tax-planning equation for retirees, according to Jeffrey Levine, chief planning officer at Focus Partners Wealth.
In an interview as part of the Focus on Finance Forum series, Levine explained that many retirees may now qualify for the 0% long-term capital gains tax bracket because of larger standard deductions and enhanced senior deductions. That shift could reduce the value of tax-loss harvesting strategies for some households.
At the same time, Levine said tax-loss harvesting remains a valuable planning tool for investors who expect to realize large capital gains in future years or who want more flexibility managing concentrated stock positions.
Below is a transcript of the interview with Levine, edited for brevity and clarity.
Why tax-loss harvesting matters year-round
Robert Powell: A reader wrote recently that they were interested in something called tax-loss harvesting and wondering when to do it and what time of year is best.
Jeffrey Levine: That’s a great question as we kick off the year. A lot of people think about tax-loss harvesting only in the context of year-end planning, but it’s something you can do on a regular and ongoing basis.
Levine explained that investors may lose the opportunity to capture losses if they wait too long and the investment rebounds. He used the example of a $100,000 investment falling to $90,000 early in the year before recovering later.
He noted that investors cannot immediately repurchase the same investment because of the wash-sale rule, which generally requires waiting more than 30 days before buying it back.
“Losses are very valuable,” Levine said. “If you have something that has gone down in value, then you want to make the most of it.”
How capital losses offset gains
Robert Powell: You don’t do this in a vacuum. Maybe you have banked unrealized capital gains and can use capital losses against gains you realize later in the year.
Jeffrey Levine: Losses give you optionality without a potential tax impact. They can make it easier for investors to rebalance portfolios or reduce exposure to concentrated stock positions without creating a large tax bill.
Levine explained that capital losses first offset capital gains. If losses exceed gains, investors can generally use up to $3,000 annually to offset ordinary income, with remaining losses carried forward into future tax years.
He used an example of an investor with $50,000 in losses and $20,000 in gains. The gains would be fully offset, and the investor could deduct another $3,000 against ordinary income, carrying the remaining $27,000 forward.
When harvesting losses may backfire
Robert Powell: Does the possibility that someone might pay 0% taxes on capital gains factor into the equation?
Jeffrey Levine: There are some reasons not to capture capital losses. One of them would be if you are going to be in the 0% long-term capital gains bracket.
Levine explained that paying taxes at a 0% rate can actually be preferable to continuing to defer taxes indefinitely because gains realized at a 0% rate effectively become permanently tax-free.
He said retirees are increasingly likely to qualify for the 0% capital gains bracket because of larger deductions available under current law.
Why more retirees may qualify for 0% capital gains taxes
Levine said married couples age 65 and older may now benefit from:
- Standard deductions exceeding $30,000
- Additional age-based standard deductions
- Enhanced senior deductions of $6,000 per person under the One Big Beautiful Bill Act
According to Levine, some married retirees with total income of roughly $140,000 or less may still qualify for the 0% long-term capital gains bracket.
He added that retirees with substantial itemized deductions could potentially have even higher income and still remain eligible for 0% capital gains treatment.
What retirees should consider before selling investments
Robert Powell: If I do decide to do some tax-loss harvesting early in the year and later learn that I’m in the 0% bracket for capital gains, can I carry that loss forward?
Jeffrey Levine: If you capture the loss, the first thing that happens is the loss offsets your gains. So if those gains otherwise would have been taxed at 0%, you may have wasted losses that could have been more valuable later.
Levine said the decision ultimately depends on an investor’s broader tax picture and future plans.
Should you do this? Maybe yes, maybe no. It really depends upon your personal situation.”
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