0% Tax Rate for Capital Gains and Dividends

Many taxpayers may not realize that they currently qualify for a 0% federal income tax rate on net long-term capital gains (LTCGs) and qualified dividends earned in their taxable accounts. Investment assets such as marketable securities and real estate held outside of tax-favored retirement accounts can benefit from this favorable rate. Here’s a comprehensive look at how you might take advantage of this rate, even if your income is above the threshold.

Understanding Federal Tax Brackets for LTCGs and Dividends

The federal income tax bracket for your net LTCGs and qualified dividends is determined by your taxable income, which includes any capital gains and dividends. Taxable income is calculated by subtracting either your standard deduction or your total itemized deductions from your adjusted gross income.

For 2024, the federal rate brackets for net LTCGs and qualified dividends, based on taxable income, are as follows:

LTCG Tax Rate	Single	Married Filing Jointly	Head of Household
0%	$0–$47,025	$0–$94,050	$0–$63,000
15%	$47,026–$518,900	$94,051–$583,750	$63,001–$583,750
20%	$518,901 and up	$583,751 and up	$583,751 and up

Note: Assuming the current tax rules remain in place for 2025, these brackets will be adjusted for inflation.

Who Can Benefit from the 0% Rate?

The 0% tax rate applies to net LTCGs and dividends that fall within the specified brackets. Surprisingly, you can earn a substantial income and still qualify for this advantageous rate.

Example 1: Married Couple Brittany and Brian are married and file jointly. They have two dependent children and will claim the standard deduction of $29,200 for 2024. They can have up to $123,250 of adjusted gross income (including LTCGs and dividends) and still fall within the 0% rate bracket. Their taxable income would be $94,050 ($123,250 minus $29,200), which is the top of the 0% bracket for joint filers.

Example 2: Single Individual Steven, who is single with no kids, will claim the standard deduction of $14,600 for 2024. He can have up to $61,625 of adjusted gross income (including LTCGs and dividends) and still be within the 0% rate bracket. His taxable income would be $47,025 ($61,625 minus $14,600), which is the top of the 0% bracket for single taxpayers.

Increasing Your Income While Staying Within the 0% Bracket

For taxpayers who itemize deductions, the potential to remain within the 0% bracket increases. Adjusted gross income can include:

Deductible IRA contributions
Health savings account contributions
Self-employed retirement plan contributions
Self-employed health insurance premiums
Alimony payments required by pre-2019 divorce agreements

With these above-the-line deductions, your adjusted gross income could be higher, yet your taxable income might still qualify for the 0% bracket on net LTCGs and qualified dividends.

Set Up Loved Ones to Benefit from the 0% Rate

If your income exceeds the threshold for the 0% rate, you might have family members with lower incomes who could benefit. A thoughtful and tax-smart move would be to gift them appreciated investments. They can then sell these assets and potentially pay no federal tax on the resulting gains, assuming the assets have been held for over a year.

Gifting stocks that pay dividends is another beneficial strategy. If the dividends fall within the recipient’s 0% rate bracket, they will be free from federal income tax.

Important: The “kiddie tax” can affect a portion of an affected child’s or young adult’s unearned income by taxing it at the parent’s marginal federal income rate. This tax applies to individuals up to 23 years old if they are students.

Federal Gift and Estate Tax Consequences

You can give away assets worth up to $18,000 per recipient in 2024 without any federal gift or estate tax consequences under the annual federal gift tax exclusion privilege. Such gifts won’t reduce your unified federal gift and estate tax exemption, which is $13.61 million for 2024.

A married couple can jointly give away up to $36,000 without any adverse federal gift or estate tax consequences. Should you utilize part of your unified gift and estate tax exemption, you can gift even more.

Possibly a Limited Time Offer

It’s essential not to assume that the 0% rate on net LTCGs and qualified dividends will remain unchanged. Future legislation could target this tax break to generate additional revenue for federal spending programs. Consulting with a tax consultant can help you strategically plan to take advantage of the 0% rate, whether for yourself or for a loved one.

Contact BML

Navigating the complexities of tax rates and deductions can be daunting. Yet, with careful planning and strategic advice, you can significantly benefit from the 0% tax rate on net LTCGs and qualified dividends. Whether you are optimizing your own finances or planning for family members, understanding these tax brackets and deductions is crucial.

At Burton McCumber & Longoria, our experienced tax consultants are here to guide you through this process, ensuring that you maximize your potential benefits under current tax laws. Contact us today to discuss your specific situation and learn how you can take full advantage of these favorable tax rates.