How to Get the 0% Long-Term Capital Gains Tax Rate (Even With Ordinary Income)

When I first heard about the zero percent tax bracket for long-term capital gains, I didn’t believe it. Mind you, I’m not talking about Roth IRA withdrawals, which are always tax-free. I’m talking about capital gains from stocks held in a taxable brokerage account. The IRS not taxing this money sounded too good to be true.

But it is true—the IRS really does let some of your investment gains be taxed at zero percent.

Long-term capital gains actually have their own set of tax brackets, which we briefly covered in previous posts. They’re different from the ordinary income tax brackets, which then led me to wonder: How are long-term capital gains taxed when you have ordinary income? Will they still qualify for zero percent tax?

That’s what we’ll cover today, building upon the previous post about progressive tax brackets and marginal rates. We’ll look at how ordinary income and long-term capital gains are taxed together.

It’s a little confusing—because that’s how the IRS rolls—but I promise it’s understandable. And trust me, you’ll want to learn this because…well, zero percent tax.

QUICK REFRESHER: PROGRESSIVE TAX BRACKETS & MARGINAL RATES

Long-term capital gains taxes also use progressive tax brackets and marginal rates, just like ordinary income. You can read my previous post for a more in-depth explanation, but here’s a quick recap:

• Lower portions of income are taxed at lower rates

• Higher portions of income are taxed at higher rates

• Only the income within each bracket is taxed at the bracket’s rate

• The highest tax bracket you touch never taxes all of your income

When you have both ordinary income—such as from wages—and long-term capital gains, ordinary income is always taxed first. Another way to think of this is to imagine capital gains stacking on top of ordinary income.

If you’re confused already, hang in there. We’ll go through this step by step with examples.

LONG-TERM CAPITAL GAINS TAX BRACKETS FOR 2025

When you hold stocks for more than one year, the IRS rewards you with lower tax brackets. Currently, there are only three brackets: 0%, 15%, and 20%.

Here are the long-term capital gains brackets for the 2025 tax year.

As mentioned, long-term capital gains tax brackets are separate from ordinary income tax brackets. What do we mean by that? Here’s a very simple example.

Imagine you have no ordinary income; you are living off only long-term capital gains. Since you have no ordinary income, ordinary income tax brackets don’t matter. You’ll only be taxed at the capital gains tax rates. And if you had $48,350 in long-term capital gains, per the above chart, you’d pay no taxes.

With me so far? Good. Now, let’s make it a little more complicated and add ordinary income into the mix.

Even though capital gains have their own tax brackets, ordinary income can affect which brackets your gains fall into. This is where the stacking concept comes into play.

THE STACKING RULE: HOW ORDINARY INCOME IS TAXED FIRST (AND AFFECTS CAPITAL GAINS)

The IRS always taxes ordinary income first. Then long-term capital gains sit on top of that income. This is key to understanding how capital gains are taxed when you also have ordinary income.

Picture income in the form of liquids. Ordinary income is water; long-term capital gains are oil. When you pour the two into a glass, they don’t mix. The oil—capital gains—will always float on top of the water. And the more water there is, the higher up capital gains will sit.

Keep that analogy in mind as we go through the examples.

Note: To keep things simple, we're going to ignore the standard deduction. This keeps the focus on how the stacking principle affects long-term capital gains tax brackets. Just know that the standard deduction benefits you by decreasing your taxable income.

EXAMPLE 1: Married filing jointly ($80k ordinary income & $30k capital gains)

First, ordinary income gets taxed—the $80,000 spans across the 10% and 12% tax brackets.

Remember, just because it touches the 12% bracket doesn’t mean the entire $80,000 is taxed at 12%. Only the portion of income within each bracket is taxed at that rate.

• $23,850 taxed at 10%,

• $56,150 taxed at 12%

Next, we stack the $30,000 in long-term capital gains on top. We’ll add the capital gains tax brackets on the chart in yellow. Notice how the ceiling of ordinary income becomes the floor for capital gains. This is key to understanding all of this.

Of the $30,000 in capital gains, $16,700 falls within the 0% bracket. This comes from subtracting the $80,000 of ordinary income from the $96,700 upper limit of the 0% bracket. A little more than half of the capital gains aren’t taxed!

On the chart, this would be the orange area below the lower dotted red line.

The remaining $13,300 in capital gains get pushed into the 15% rate. This is what was meant by how ordinary income can affect the tax brackets that capital gains fall within.

Here’s the full breakdown:

• $80,000 in ordinary income

  • $23,850 taxed at 10%

  • $56,150 taxed at 12%

• $30,000 in capital gains

  • $16,700 taxed at 0%

  • $13,300 taxed at 15%

Let’s take a look at one last example with a single filer.

EXAMPLE 2: Single filer ($50k ordinary income & $10k capital gains)

Same drill: ordinary income gets taxed first.

Then the $10,000 in long-term capital gains are stacked on top.

In this case, the $50,000 of ordinary income pushes all of the capital gains past the 0% threshold. So the entire $10,000 in gains is taxed at the 15% rate.

Here’s the tax breakdown:

• $50,000 in ordinary income

  • $11,925 taxed at 10%

  • $36,550 taxed at 12%

  • $1,525 taxed at 22%

• $10,000 in capital gains

  • All taxed at 15%

WHY THE 0% CAPITAL GAINS BRACKET MATTERS FOR RETIREMENT PLANNING

As you’ve seen, long-term capital gains have their own tax brackets, but ordinary income determines where those gains land.

NOW YOU KNOW:

• Long-term capital gains have their own separate tax brackets—including a zero percent bracket

• Ordinary income affects which brackets capital gains fall into

• Ordinary income is taxed first; long-term capital gains stack on top

• You’re only taxed at each rate for the money that falls within that bracket

Once you understand the stacking rule, everything becomes much clearer. And this knowledge is incredibly useful. Understanding how capital gains are taxed can help you keep most of your capital gains in that coveted 0% bracket, especially in retirement when capital gains play a bigger role in your income.

Combine this knowledge with tax reduction strategies like tax-gain harvesting and Roth conversions, and you can legally keep your tax bill very low.

Paying taxes in retirement is like finishing a race and having a moocher steal some of your post-race meal. You earned your money; it’s up to you to hold onto as much as possible.

In my next post, I’ll share with you what I’m personally doing to reduce taxes in early retirement.

If you enjoyed learning about capital gains tax, drop a comment below.

See you at the finish line!

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Disclaimer: I’m not a licensed financial professional. This blog shares my personal experiences and opinions around money, investing, and early retirement. It’s for informational and educational purposes only—not financial, legal, or tax advice. Always do your own research or consult with a qualified professional before making any financial decisions.