The federal government lets you sell appreciated investments — stocks, mutual funds, real estate you’ve held long enough — and pay exactly zero in capital gains tax. Not a reduced rate. Zero.
The income limit for married couples filing jointly in 2026 is $98,900 in taxable income. If you and your spouse are below that number after all your deductions, every dollar of long-term capital gains you realize is tax-free at the federal level.
Most business owners have no idea this bracket exists. The ones who do know about it rarely plan around it.
What “taxable income” means here
This is where most people get confused. The $98,900 threshold applies to your total taxable income — not your gross income, not your AGI, but your income after the standard deduction (or itemized deductions) and after any above-the-line adjustments.
For 2026, the standard deduction for married filing jointly is $32,200. That means a married couple can have up to $131,100 in adjusted gross income and still stay within the 0% bracket on long-term gains — before factoring in retirement contributions, health insurance deductions, or any other above-the-line write-offs.
Run the math for a self-employed couple with $90,000 in net business income:
- Gross income: $90,000
- Less half of self-employment tax: ~$6,300
- Less standard deduction: $32,200
- Taxable income: ~$51,500
That couple could realize up to $47,400 in long-term capital gains this year and pay zero federal capital gains tax on all of it.
Why business owners are particularly well-positioned for this
Business owners often have income that fluctuates year to year. The year you take a sabbatical, transition between businesses, or have an unusually low-revenue quarter — that’s potentially a 0% bracket year.
S-Corp and partnership owners also have the ability to control some of their compensation timing. If you’ve built up appreciated investments over years of compound growth, a year when your taxable income runs low is the exact moment to harvest those gains.
Some specific scenarios worth running the math on:
You’re selling a business and rolling into consulting. Your final year at your old business might be lower income than usual. If you also hold appreciated stock, that may be the year to sell.
You have a large retirement account and haven’t started drawing yet. If you’re between retirement accounts and Social Security, your taxable income may be low enough to realize gains at 0%.
You have appreciated index funds you’ve held for years. If your income dips below the threshold any year, selling and immediately repurchasing resets your cost basis — and you owe nothing on the gain. This is sometimes called “gain harvesting.”
The catches worth knowing about
This is long-term only. Assets held for one year or less are taxed as ordinary income. To get the 0% rate, you need to have held the investment for more than 12 months. Selling too early erases the advantage.
New York doesn’t match the federal rate. New York taxes capital gains as ordinary income — there’s no preferential long-term rate. So a 0% federal bill still comes with a New York bill. For most NY residents, the combined state-and-city rate on those gains will run 6% to 14%, depending on your income and whether you’re in New York City.
Watch the NIIT if income climbs. The Net Investment Income Tax (NIIT) is an additional 3.8% that applies when your modified AGI crosses $250,000 for married filers. If you’re near that threshold in a good-income year, the 0% federal rate may not actually save you as much as it looks.
The gains count toward the threshold. Capital gains are income. If your taxable income before gains is $60,000 and you realize $80,000 in gains, you’ve pushed your total to $140,000 — well above the $98,900 ceiling. The first $38,900 of gains falls in the 0% bracket; the rest gets taxed at 15%. You still come out ahead of not planning, but you need to know the stacking math before you sell.
This connects to Roth conversions, too
The 0% capital gains bracket and the Roth conversion strategy share the same logic: use a low-income year to move appreciated assets at the lowest possible tax cost. If you’re in a year where taxable income is low, it may also be a good year to convert a traditional IRA balance to Roth — filling the bracket with income that would otherwise be taxed at higher rates later.
See filling the bracket with Roth conversions for how that math works.
This post is for general informational purposes only and does not constitute tax, legal, or financial advice. Capital gains tax rules, thresholds, and their interaction with other income sources are complex and vary by situation. State tax treatment differs from federal. Consult a qualified tax professional before making any investment or tax decisions based on this content. Geiger Tax & Accounting, Amityville, NY · (631) 532-5622 · info@geigertax.com.