Understanding the capital gains tax for people over 65

As you approach and settle into your retirement years, you may start adjusting your portfolio to add more exposure to bonds and cash than stocks. Selling investments in taxable accounts can mean generating capital gains.

Do you have to pay capital gains tax if you are over 65 years old? Do you have to pay capital gains tax after age 70? Unfortunately, there's no age limit to paying capital gains tax.

However, you can manage and even reduce your tax burden with the right strategies and information. Here are the basics about capital gains tax rules and rates as well as some tax-saving tactics.

Many people search for information on capital gains taxes for seniors because of a now-defunct tax provision. Previously, there was an over-55 home sale exemption that allowed homeowners aged 55 and older to exclude up to $125,000 of capital gains from the sale of their primary residence.

This exemption was repealed in 1997 and replaced. Now all homeowners regardless of age can exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from the sale of their primary residence. To qualify, you need to own and use the property as your primary residence for at least two of the past five years prior to the sale.

Previously, home sellers also could “roll” or carry over their capital gains tax by purchasing their next home within a certain timeframe, thereby deferring the tax due. That rule of carrying over basis also no longer exists.

This change means the benefit is more widely accessible, but it also means that seniors don't have a special capital gains exemption.

Since there is no age exemption to capital gains taxes, it's crucial to understand the difference between short-term and long-term capital gains so you can manage your tax planning in retirement.

• Short-term capital gains: Profits from the sale of assets held for one year or less. These gains are taxed at your ordinary income tax rates — anywhere from 10% to 37%, depending on your taxable income and filing status.
• Long-term capital gains: Profits from assets sold after being held for more than one year. These gains benefit from lower tax rates, ranging from 0% to 20%.

For most taxpayers, long-term capital gains rates are considerably lower than ordinary income tax rates, so it's beneficial to hold investments for at least a year before selling.

The rate you'll pay on long-term capital gains depends on your filing status and total taxable income.

While the three rates on long-term capital gains have remained unchanged for several years, the amount of taxable income in each bracket changes annually due to inflation.

Short-term capital gains on assets held for one year or less are taxed at your ordinary income tax rate. This varies from 10% to 37%, depending on your income and filing status.

See the current tax brackets

The rates for gains on assets held longer than a year don't align with income tax brackets and instead are divided into three rates that depend on your income.

Here are the current tax brackets for long-term capital gains for each filing status for the 2024 tax year (returns filed in 2025).

You can avoid capital gains tax if your taxable income is less than or equal to:

• $47,025 for single filers and married filing separately
• $94,050 for married filing jointly and qualifying surviving spouse
• $63,000 for head of household

A capital gains tax of 15% applies if your taxable income is:

• $47,026 to $518,900 for single filers
• $47,026 to $291,850 for married filing separately
• $94,051 to $583,750 for married filing jointly and qualifying surviving spouse
• $63,001 to $551,350 for head of household

A capital gains rate of 20% applies if your taxable income exceeds the thresholds set for the 15% capital gain rate.

• Over $518,900 for single filers
• Over $291,850 for married filing separately
• Over $583,750 for married filing jointly and qualifying surviving spouse
• Over $551,350 for head of household

By understanding how your gains may be taxed, you can better strategize your investments and potentially minimize your tax liabilities. Let's look at an example.

In 2024, you have a $1,000 gain from selling a stock you purchased in 2019. Because you owned the stock for longer than one year, you'll owe long-term capital gains on the profit from the sale.

When you file a joint return with your spouse for the 2024 tax year, your total taxable income, including the $1,000 capital gain from the stock sale, is $96,000. Looking at the table above, you fall into the 15% long-term capital gains tax bracket.

However, if you could reduce your taxable income by just $1,950, you could get into the 0% tax bracket and pay nothing on that gain. In the next section, we'll cover a few strategies for doing just that.

You can use several strategies to help reduce your capital gains tax burden.

If you anticipate a decrease in your taxable income, perhaps due to retirement or other changes in your financial situation, consider delaying the sale of investments. Selling when your income is lower can place you in a lower tax bracket and reduce the capital gains tax rate applied to your gains.

Additional taxable income related to Roth conversions, Social Security benefits or pension payments also should be considered along with capital gains taxes within your larger tax picture.

Tax deductions lower your table income, potentially putting you in a lower tax bracket. Work with your tax advisor to ensure you're taking advantage of every tax deduction available to you. For example, you might contribute to a health savings account (HSA), make charitable donations, contribute to a 401(k) or IRA, or claim out-of-pocket medical expenses.

Explore other retirement tax breaks

You can benefit from favorable long-term capital gains tax rates by holding onto investments for more than a year.

If you are 70½ or older, you can make a qualified charitable distribution of up to $105,000 from your IRA directly to a charity. These distributions can count toward your required minimum distributions (RMDs) and are excluded from your taxable income. This strategy can reduce your overall taxable income and potentially lower your capital gains tax burden.

If you have realized capital losses in previous years, you can use them to offset capital gains in the current year. This strategy, known as a capital loss carryover, allows you to deduct capital losses up to the amount of your capital gains plus $3,000 ($1,500 if married filing separately) and reduce your taxable income in those years.

When you inherit an asset, its cost basis—the actual or calculated amount of the asset when it was acquired—is typically "stepped up" to its fair market value at the time of the original owner's death. This means that capital gains during the original owner's lifetime aren't subject to capital gains tax. You may incur little to no capital gains tax if you sell the inherited asset immediately.

By leveraging these strategies, you can minimize your capital gains tax burden and ensure more of your hard-earned money stays with you and your family.

You've saved and invested for a secure retirement, and now it's time to reap the rewards. But it takes some planning and strategizing to make the most of your savings.

Understanding short-term and long-term capital gains, current tax rates and strategies to lower your tax burden may help you allocate more resources toward your lifestyle, family, charitable contributions and other long-term goals.

For personalized guidance on preparing for and navigating your retirement years, meet with a Thrivent financial advisor. They can provide expert advice tailored to your unique financial situation, helping you maximize your investments and secure a comfortable retirement.