I’m 26 and a grad student. I’ve been investing for about 9 years and have 50k in different ETFs. If I take out all 50k in 2025 and put it right back in, can I avoid paying capital gains tax? My total income, including market gains, will be under 44k. Does capital gains count as part of income, or am I misunderstanding something?
If your federal tax rate on capital gains is 0%, then yeah, it makes sense. You can sell and reinvest right away since the wash sale rule doesn’t apply to gains.
But keep in mind that your state might still tax it. Even if you pay some state tax, it’s probably worth it to reset your cost basis.
@Mal
Wouldn’t it be better to wait until December to make sure no unexpected income pushes you over the limit? Even a minimum wage summer job could mess up the calculations.
Greg said:
@Mal
Wouldn’t it be better to wait until December to make sure no unexpected income pushes you over the limit? Even a minimum wage summer job could mess up the calculations.
Yeah, this only works if you’re 100% sure you’ll stay in the 0% capital gains tax bracket.
Greg said:
@Mal
Wouldn’t it be better to wait until December to make sure no unexpected income pushes you over the limit? Even a minimum wage summer job could mess up the calculations.
Even if that happens, only the part that goes over the limit gets taxed, so it’s not a huge deal.
@Mal
Good point, I should check state rules. I’m in Massachusetts. Another question—does capital gains count as income? If I go over the 44k limit, does that mean all of my capital gains get taxed at 12%, or just the portion that’s over the limit?
@Monica
Capital gains tax rates work differently than ordinary income tax rates. Short-term gains (held less than a year) are taxed like regular income, while long-term gains have their own brackets.
You don’t pay taxes on the original amount you invested, just on the gains. If your total income, including gains, stays under the 0% threshold, you won’t owe federal capital gains tax. But once you go over that limit, only the portion above it is taxed at 15%.
@Monica
Yes, capital gains are counted as part of your taxable income. But tax brackets are marginal, so only the part that goes over the limit gets taxed at the higher rate.
If you bought any of those ETFs less than a year ago, they’d be taxed as short-term gains, which means ordinary income tax rates. But for long-term gains, this strategy can work.
Juliet said:
If you bought any of those ETFs less than a year ago, they’d be taxed as short-term gains, which means ordinary income tax rates. But for long-term gains, this strategy can work.
Exactly. Make sure you’re only dealing with long-term gains. And don’t forget about state taxes.
If you’re on Marketplace health insurance, be careful—this could push up your AGI and mess with your premium subsidies. Even if you don’t owe federal tax, you could end up paying more for health insurance.
@Franklin
Also, if your income goes too high, you could lose Medicaid eligibility.
Yes, as long as your income is under the limit and it’s long-term gains, you should be able to take it all out tax-free and reinvest it. Just double-check state taxes.
One thing to watch out for: if any of your gains came from reinvested dividends, those might count as short-term gains if they’ve been held for less than a year.
Why not just keep it invested?
Dawson said:
Why not just keep it invested?
The whole point is to sell and rebuy to reset the cost basis while avoiding tax.
If you sell and rebuy the same stock, doesn’t that count as a wash sale?
Brice said:
If you sell and rebuy the same stock, doesn’t that count as a wash sale?
No, the wash sale rule only applies to losses. If you’re selling for a gain, you can buy back the same stock immediately.
You don’t have to withdraw the money to realize capital gains—you just need to sell and rebuy. Look up ‘wash sale rule’ so you understand how it works.
Sydney said:
You don’t have to withdraw the money to realize capital gains—you just need to sell and rebuy. Look up ‘wash sale rule’ so you understand how it works.
There’s no wash sale rule for gains, so you can sell and rebuy right away.
So if someone had no other income, could they cash out $63,350 in gains tax-free?