Dec 17, 2025
Whether it’s real estate or the stock market, the common retirement strategy is to buy early and let the value of your home or your investments grow over the long term.
But what if your home’s value, or that of your shares, has increased so much you’re afraid of a massive tax penalty if you cash in?
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Picture someone like Shane. He and his wife have lived in their home near Dallas for 35 years and paid it off. In that time, it has increased in value by $300,000.
They’d like to sell their home and use the proceeds to buy a smaller condo, investing what’s left to continue funding their retirement, and hold off collecting Social Security for another couple of years.
However, Shane is wondering about just how big the tax bill will be on $300,000 in capital gains accrued over 35 years.
The good news is that long-term capital gains come with a special tax advantage over short-term capital gains, and can play a positive role in retirement finances.
It's important to balance your various income streams and cash out your gains strategically.
The benefits of long-term capital gains
Long-term capital gains are earnings on investments or real estate held for at least a year and a day.
Any earnings on investments held for a shorter time are classified as short-term capital gains.
There's a major difference between them when it comes to taxes. Long-term capital gains are taxed at lower rates than short-term capital gains, which are taxed as ordinary income.
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You can leverage the tax-advantageous aspect of long-term capital gains when it comes to drawing on your nest egg for income.
The amount of tax you pay on long-term capital gains depends on your tax-filing status and your overall income.
Here’s a rundown of long-term capital gains tax rates as of 2025 at the federal level — not including state and local capital gains taxes (1).
2025 Federal Long-Term Capital Gains Tax Rates
If you’re single, your long-term capital gains tax rate will be:
- 0% if your income is $48,350 or less
- 15% if your income is between $48,351 and $533,400
- **20% **if your income is more than $533,400.
If you're married and filing jointly, your long-term capital gains tax rate will be:
- 0% if your combined income is $96,700 or less
- 15% if your income is between $96,701 and $600,050
- 20% if your income is more than $600,050.
If you’re married and filing separately, your long-term capital gains tax rate will be:
- 0% if your combined income is $48,350 or less
- 15% if your income is between $48,351 and $300,000
- 20% if your income is more than $300,000
These are significantly better rates than the taxes levied on short-term capital gains.
For example, if you're married filing jointly with a combined annual income of more than $96,950, you’ll automatically pay a 22% tax on short-term capital gains.
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The tax advantage of long-term capital gains may be one reason to start withdrawing long-term capital gains as retirement income before you claim Social Security.
And as Shane recognizes, the longer you wait to claim Social Security, the larger those monthly benefits will be for life.
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Leveraging long-term capital gains
It's important to consider all your retirement income sources — including 401(k)s and Social Security benefits — as you plot out your tax strategy.
Let's say most years your retirement income is low enough for you to pay 0% taxes on long-term capital gains, but you get a windfall that bumps you into the 15% range in that year.
If you have a Roth IRA, you could tap it for income in the year you get the windfall because Roth IRA withdrawals are tax-free.
Then if your income shrinks the following year, you could return to cashing out long-term gains in a taxable account.
It’s a good idea to talk to a financial advisor or tax professional about the best ways to minimize your tax burden in retirement.
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This could include doing a Roth conversion ahead of retirement so you have some tax-free income at your disposal later on.
You may end up having to pay taxes on retirement savings if you have money in a traditional IRA or 401(k). At a certain point, you'll be forced to take required minimum distributions (RMDs), which are a taxable event.
That said, there are strategies to minimize the tax-related impact of RMDs. One option is to make qualified charitable distributions (QCDs) directly out of your traditional IRA or 401(k), although there is a limit to how much money you can donate (3).
If your retirement income isn't low enough to qualify for a 0% tax rate on long-term capital gains, you can try selling other investments strategically at a loss to offset those gains.
For example, say you're looking at a $10,000 long-term gain that's subject to a 15% tax rate. If you're able to take a $10,000 loss in a taxable account, that negates your tax obligation.
Overall, long-term capital gains can be one of your greatest tax advantages in retirement.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Kiplinger (1); Fidelity (2); IRS (3)
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
