A $40,000 long-term capital gain taxed at 0% increased a retiree’s combined income, triggering taxes on 85% of Social Security benefits.
A retiree realized a $40,000 long-term stock gain taxed at 0% federal rate, yet the transaction raised her combined income to $60,000. This pushed 85% of her $30,000 Social Security benefit into taxable income, adding $25,500 to her taxable earnings.
Despite the 0% capital gains rate, deductions kept her taxable income near $46,350, resulting in a $635 federal tax bill. The retiree’s base income included $5,000 from a traditional IRA and $30,000 from Social Security. The stock, originally purchased for $15,000, was sold at $55,000 and repurchased to reset the cost basis.
Financial planners advise retirees to calculate combined income before selling assets, as spreading gains across multiple years may reduce Social Security tax exposure. The wash-sale rule, which applies to losses, did not affect this gain.