Living Off $45k in Sold Stocks: Can You Pay 0% Long-Term Capital Gains Tax?

Someone on Reddit asked whether you can avoid long-term capital gains tax by living off a limited amount of sold stocks (e.g., $45,000 per year) with no other income, so that income + realized capital gains puts you in the 0% long-term capital gains bracket. In their example: retire at 45, $0 other income + $45,000 realized long-term gains = $45,000 total, which is within the $0 to about $48,350 bracket for 0% long-term capital gains (single filer, 2024). Yes. If your total taxable income (including the realized long-term capital gains) stays below the threshold for the 0% long-term capital gains bracket, you do not owe federal long-term capital gains tax on that amount. So $45,000 in long-term gains with no other income would fall in the 0% bracket and you would owe $0 federal long-term capital gains tax on that withdrawal (subject to caveats: only long-term gains, other income adds to total, state tax may apply).

Bottom line: Yes. If your total taxable income (including realized long-term capital gains) stays below the threshold for the 0% long-term capital gains bracket, you do not owe federal long-term capital gains tax on that amount. In your scenario: $0 other income + $45,000 realized long-term gains = $45,000 total. For a single filer in 2024, the 0% bracket for long-term capital gains generally goes up to about $48,350 (the threshold can change each year). So $45,000 would fall within that bracket and you would owe $0 federal long-term capital gains tax on that withdrawal. Caveats: Only long-term gains get the 0%/15%/20% rates; short-term gains are ordinary income. Any other income (Social Security, interest, etc.) adds to your total and can push you out of the 0% bracket. State tax often applies to capital gains. For advice tailored to your retirement income and state, consult a tax professional. Margen can help you model different withdrawal amounts and bracket outcomes.

---

Question from Reddit

If you choose to live off only 45k of sold stocks do you avoid long term Capital Gains taxes?

Discussion

Hi all!

I (25M) have an alright understanding of general personal finances but have run into a question while trying to learn about capital gains tax. This is my understanding, can someone please confirm or explain what I am missing?

It seems like the capital gains tax rate you fall into is determined by Income + Realized capital gains = one of the rate brackets.

So if someone were to retire at 45 and live off of 45k in sold stocks every year it seems like they would have essentially gotten out of paying capital gains tax. ($0 of income + 45k realized capital gains = $45k which is within the $0-$48,350 bracket for 0% capital gains rate)

Am I missing some other tax or implication? If not it seems like this method would let you have tax free growth on stocks even in a non-tax incentivized account (at least until you wanted to start pulling more out)? Not saying this is my plan of course, just a theoretical scenario.

Thanks!

Source: Reddit

---

Analysis

The user is asking whether they can avoid long-term capital gains tax by living off a specific amount of realized long-term gains ($45,000) in a year with no other income. This involves how capital gains are taxed and how total taxable income (ordinary income + net capital gains) determines the capital gains rate bracket.

---

Answer

Yes. If your total taxable income (including the realized long-term capital gains) stays below the threshold for the 0% long-term capital gains bracket, you do not owe federal long-term capital gains tax on that amount. In your scenario: $0 other income + $45,000 realized long-term gains = $45,000 total. For a single filer in 2024, the 0% bracket for long-term capital gains generally goes up to about $48,350 (the threshold can change each year). So $45,000 would fall within that bracket and you would owe $0 federal long-term capital gains tax on that withdrawal.

Why

Your capital gains rate is determined by your total taxable income: ordinary income (wages, interest, etc.) plus your net capital gains (and other items that make up taxable income). If that total is below the 0% long-term capital gains threshold, the long-term gains are taxed at 0%. So in your hypothetical: retire at 45, no other income, live off $45,000 of long-term gains from sold stocks each year. You effectively withdraw and use that money with no federal long-term capital gains tax on it, as long as you stay under the threshold.

Caveats

• Long-term vs. short-term: Only long-term gains (generally, assets held more than one year) get the 0%/15%/20% rates. Short-term gains are taxed as ordinary income, so they would use up the 0% "space" and could push you into taxable brackets.
• Other income: Any other income (Social Security, side gig, interest, dividends, etc.) adds to your total. So $45,000 in gains + $10,000 other income = $55,000; you'd need to check whether that still fits in the 0% bracket for your filing status and year.
• State tax: This discussion is about federal tax. Many states tax capital gains as income, so you may still owe state tax on the $45,000.
• Tax-free growth: In a taxable (non-retirement) account, you're right that you can have growth that is taxed only when you sell, and if you sell in years when your total income is in the 0% LTCG bracket, you can realize gains with no federal LTCG tax. So it can feel like "tax-free" withdrawal up to that amount each year.

Margen can help you model income + realized gains and see how much you can withdraw at 0% federal LTCG for your situation and future years.

Related: Capital Loss Carryover in H&R Block: Short-Term vs Long-Term · Prepayments and $184k Stock Gain, Estimated Tax · Selling Company Stock and Yearly Income Bracket · How Do I Enter Capital Loss Carryover in H&R Block?

---

Applicable Sections

Federal / IRS

• Long-term capital gains rates: 0%, 15%, and 20% depend on taxable income; the 0% bracket for single filers is generally up to about $48,350 (2024; amounts are adjusted for inflation). (IRS Topic 409, Tax rates and brackets)
• Taxable income: Ordinary income + net capital gains (and other inclusions) determine which bracket your long-term gains are taxed in.

---

Practical Notes

• Stay in the 0% bracket: Keep total taxable income (including realized long-term gains) below the 0% LTCG threshold for your filing status and year if you want no federal LTCG tax on that amount.
• Only long-term gains get the 0%/15%/20% rates; short-term gains are ordinary income.
• Other income (wages, interest, Social Security, etc.) reduces how much LTCG you can realize at 0%; plan withdrawals with that in mind.
• State tax often applies to capital gains; check your state.
• Margen can help you plan how much to realize each year so you stay within the 0% bracket and prepare your taxes accordingly.

---

Limitations

This answer does not cover state capital gains tax, Medicare surtax on investment income (NIIT), or Social Security taxation. Thresholds and brackets change yearly. For advice tailored to your retirement income and state, consult a tax professional. Margen can help you model different withdrawal amounts and bracket outcomes.