How to Pay 0% Capital Gains Taxes With a Six-Figure Income

If you make money, you may also likely owe taxes. Once your income enters the taxable category, you owe Uncle Sam a portion of what you earn. Taxes apply to salaries and wages, certain types of pension income, business income, and even capital gains from investments. Thankfully, the tax code also offers deductions, credits, exclusions, and different tax brackets. These provisions can lower your tax dues. 

So, if you earn a six-figure income, yes, you are likely paying taxes. But that does not automatically qualify you for higher taxes. When it comes to capital gains, there may be opportunities to legally reduce your tax rate, even to 0% in certain situations.

Before you go further, it is important to note that this article is not about tax evasion. Instead, it explains how the tax system works and how to use it responsibly to reduce your tax obligations. Capital gains taxes apply when you sell investments, like stocks, mutual funds, bonds, or real estate, for a profit. The rate you pay depends on how long you held the asset and what your taxable income is in that year. In some income ranges, the long-term capital gains tax rate can be 0%. 

Working with a financial advisor or tax professional can help you ensure your tax rate is 0%. This article can also help you understand how to pay 0% capital gains tax. 

Understanding capital gains, their types, and rates in 2026

Capital gains tax is what you owe when you sell an investment at a profit. If you buy something, say stocks, bonds, real estate, or even a collectible, and later sell it for more than you paid, the profit is called a capital gain. And you owe the government taxes on this gain. If you sell at a loss, though, you do not owe tax. In fact, losses can sometimes help reduce your overall tax bill. Let’s discuss more on this later in the article. 

Coming back to capital gains, there are two main types of taxes:

1. Short-term capital gains
These types of gains apply to investments held for less than one year. These are taxed at your ordinary income tax rate. So, if you are earning a six-figure income, short-term gains can be taxed at relatively high rates. But if you earn a relatively lower salary, your tax rate would be lower, since the U.S. follows a progressive tax system. 

2. Long-term capital gains
Applicable to investments held for more than one year. These are taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income. 

Both short and long-term capital gains taxes apply to capital assets, which can include:

• Stocks 
• Bonds
• Real estate
• Mutual funds 
• Exchange Traded Funds (ETFs)
• Digital assets like cryptocurrencies
• Jewelry 
• Paintings
• Coin collections
• Other investment property

For most long-term investments, the tax rate depends on your filing status and annual taxable income. Here are the tax rates for long-term capital gains in 2026 as per your annual income: 

However, certain assets are taxed differently. For example: 

• Collectibles, such as art, coins, or rare items, are taxed at a maximum rate of 28% on long-term gains. 
• Unrecaptured Section 1250 gains from selling certain real estate are taxed at a maximum 25% rate.
• Section 1202 qualified small business stock may have portions taxed at a maximum rate of 28%, depending on eligibility and exclusions.

Here are the tax rates for short-term capital gains in 2026 as per your annual income:

How to pay 0 capital gains tax on a six-figure income? 

Now, in case of short-term capital gains, the only way to pay 0% tax is if you do not qualify for income tax at all. Even with the minimum tax rate, you will owe 10% tax on your total annual income (including capital gains). 

If you earn up to $49,450, $66,200, or $98,900, you can get a long-term capital gains tax exemption of 0 percent, depending on your filing status.But what happens if you earn more? As you can see in the table above, six figures are subject to a higher tax rate of 15% or 20%. However, there are some 0% capital-gains-tax strategies that can help. 

Here’s how you can avoid capital gains tax with a six-figure income:

Tip #1: Use the standard deduction to lower your overall taxable income

You may reduce capital gains tax by lowering your taxable income with the standard deduction. When you file your tax return, you have two choices:

• Take the standard deduction, or
• Itemize your deductions

You choose whichever option gives you the bigger tax break.

For 2026, the standard deduction amounts are:

When you claim the standard deduction, it reduces the portion of your income that is subject to tax. So, if you earn a six-figure salary but reduce your taxable income enough, you may fall into a lower long-term capital gains bracket, and potentially even the 0% bracket.

There are additional deductions for seniors. If you are 65 or older, you claim higher standard deductions:

• Single filers can claim an additional $2,050
• Married filing jointly can claim an additional $1,650 per qualifying spouse

On top of that, under the One Big Beautiful Bill Act (OBBBA), taxpayers aged 65 and older may qualify for a new $6,000 deduction per qualifying taxpayer. This additional deduction begins to phase out at a 6% rate for those earning over:

• $75,000 (single)
• $150,000 (married filing jointly)

So, seniors with moderate six-figure incomes could reduce their taxable income, and that can directly impact how much they owe in capital gains tax. Long-term capital gains are taxed at 0%, 15%, or 20%, depending on your taxable income. If deductions push your taxable income below the threshold for the 15% bracket, you could legally pay zero percent capital gains tax.

Tip #2: Use capital losses to offset your capital gains

You can reduce capital gains tax by using your losses. This strategy is called tax-loss harvesting. It refers to selling investments that are down in value so you can use those losses to offset gains from other investments. Here’s how it works: 

When you calculate your capital gains tax for the year, you do not just look at total gains. You look at your net gain, too. This is your total gains minus your total losses. So, if you made:

• $5,000 in capital gains
• $5,000 in capital losses

You can offset the entire gain and owe zero capital gains tax for that year.

There is no limit to how much capital loss you can use to offset capital gains in a given year. However, if your capital losses exceed your capital gains, you can use up to $3,000 per year to offset ordinary income or $1,500 if you are married filing separately. And if you still have losses left over, you can carry them forward to future tax years. 

This can be a helpful way to claim a 0 percent capital gains tax exemption. However, hiring a financial advisor can be helpful here, as there are a few rules you need to follow to claim this benefit. For instance, you need to know about the wash sale rule set by the Internal Revenue Service (IRS). As per this rule, if you sell an investment at a loss and then buy the same or a similar investment within 30 days before or after the sale, the loss is disallowed. So, you can’t sell an asset today and buy it back tomorrow or even after a week or two, and claim the loss.

Tip #3: Plan your sales carefully  

You can plan to sell your assets in a year when your income is low to qualify for the zero percent capital gains tax rate.This can be useful for people who may earn a six-figure income but work in a profession where their earnings fluctuate from year to year. 

For example, let’s say you normally earn a six-figure income, but one year your income drops due to a sabbatical, personal reasons, slow business, etc. If your total taxable income falls below the 0% long-term capital gains threshold, that could be the perfect time to sell long-term investments.

This strategy can be useful for business owners with fluctuating income, people between jobs, freelancers, retirees who may not be earning as much as they did before, and anyone having an unusually lower-income year. 

Tip #4: Consider donating to a charity

Instead of selling an investment, you can donate it to charity and claim a tax deduction. And, instead of donating the cash from the sale of the investment, you can consider donating the investment itself to avoid capital gains tax, even with a six-figure income.

If you sell the investment first, you will owe capital gains tax on the appreciation. But when you donate the asset directly to a qualified charity, you generally avoid paying capital gains tax on that gain. In most cases, you do not pay capital gains tax, and the charity does not pay capital gains tax, either.

You may also be eligible for a charitable deduction to certain types of organizations, subject to IRS limits. You can speak to your financial advisor about this in detail. 

Tip #5: Aim for long-term capital gains by holding your investments for more than a year

If you hold your investment for more than one year before selling it, you can unlock the 0% tax rate. Why? Because if you sell earlier, the profit is treated as a short-term capital gain, which is taxed at your regular income tax rate. And if you earn a six-figure income, that rate can be significantly higher than long-term capital gains rates.

Short-term gains are taxed just like a salary. So instead of benefiting from preferential rates, you could end up paying 10%, 12%, 22%, or even more, depending on your income bracket and filing status. But when you hold an investment for more than one year, it qualifies as a long-term capital gain. And long-term gains are taxed at 0%, 15%, or 20%, depending on your taxable income.

With the right income planning and by combining the 0% capital gains tax strategies discussed in this article, you may be able to bring your long-term capital gains rate down to nothing.

Closing notes on claiming a capital gains tax exemption of 0 percent

Paying taxes is the responsible and legal thing to do. But using the right 0% capital-gains tax strategies can be the smart move.

Even if you are in a six-figure income bracket, there are legitimate ways to reduce capital gains tax. You can use provisions that apply to your situation. However, you must make sure you fully understand the requirements, as tax laws can be detailed and nuanced. 

If your tax situation is a bit complicated, it may be better to speak with a qualified financial advisor. You may explore our financial advisor directory to connect with advisors near you who specialize in tax planning. 

Frequently Asked Questions (FAQs) about 0% capital gains tax strategies

1. Do I owe capital gains tax if I make under six figures?

Yes, you may still owe capital gains tax as per your actual taxable income, filing status, and whether your gains are short-term or long-term. 

If your taxable income is below the 0% long-term capital gains threshold, you may not owe tax on qualifying long-term gains. But short-term gains are taxed as ordinary income, regardless of whether you earn six figures or not. 

2. How can I avoid paying capital gains tax if I earn a six-figure income?

You can’t always avoid tax, but you can reduce it legally through smart planning. Some common strategies include:

• Planning your investment sales carefully
• Holding investments for more than one year to qualify for long-term capital gains rates
• Using tax-loss harvesting to offset gains
• Claiming the standard deduction 
• Donating investments to charity
• Working with a financial advisor to plan your taxes efficiently

3. Is it illegal not to pay capital gains tax?

Yes, if you legally owe tax and choose not to pay it, that is illegal. However, tax planning is completely different. Tax planning refers to using the provisions of the tax code to reduce your liability legally. 

It is recommended to consult a qualified tax professional or financial advisor to ensure you are following the right rules while making the most of the opportunities available to you.

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