This Reddit Tax Strategy Can Save You Thousands on Investments
Recently, a Reddit question about selling (and then immediately rebuying) a stock offered a useful lesson for investors who might be having a low-income year.
This strategy, known as tax-gain harvesting, involves deliberately selling an investment that has risen in value (thereby realizing the capital gain), and then buying the investment back.
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Done correctly, this can reset your cost basis and potentially reduce a future tax bill.
The Reddit Question
In the r/personalfinance thread, user Sporty-Ladder-34 stated, “I have around 1 year of college left and have some investments from about 5 years ago.” They went to note that “all of the investments are broad ETFs (exchange-traded funds) and have grown so I'm wondering if I'm allowed to sell everything and then buy it right away to avoid paying any capital gains tax while I don't have a job and sit below the $49,950 income limit for single filers for 0% capital gains tax?”
Redditor 90403scompany identified this strategy as “capital gain harvesting,” while others pointed out complications the original had not considered. The discussion eventually landed on the basic idea that if you have appreciated investments and your taxable income is low enough, realizing some of those gains now can reduce future taxes.
How This Tax Trick Works
Let’s set the terms: For 2026, the 0% long-term capital gains rate applies to taxable income up to $49,540 for single filers like Sporty-Ladder-34, per the IRS.
Now, suppose you bought an EFT for $20,000 and now it’s worth $60,000. Selling it creates a $40,000 long-term capital gain. If that gain fits within your available 0% capital-gains bracket, you could owe zero federal income on that gain.
You could then buy the ETF again at roughly its current price, and your new cost basis would be much higher. Per the IRS, that basis is used to calculate gain or loss when you eventually sell.
This can matter years later. If the investment rises from $60,000 to $100,000, the future taxable gain would generally be based on the new $60,000 basis, rather than the original $20,000. At a 15% capital-gains rate, that $40,000 difference could represent $6,000 in federal tax savings.
All that said, not every investor can simply copy this strategy from Reddit. The original poster, who is under the age of 24, found that their age left them vulnerable to the IRS’ “kiddie tax.” Specifically, the IRS states that special rules apply to certain full-time students aged 19 through 23 whose unearned income exceeds $2,700 and whose earned income does not exceed half their support.
The Bottom Line
Tax gain harvesting is a way of taking advantage of tax rules during a year when your income is unusually low. For someone with a large unrealized gain, moving part of that gain into a 0% federal tax bracket can raise the investment’s basis and potentially shrink the taxable gain later. Before trying such a maneuver, though, you should always run the strategy past a tax professional before placing any major trades.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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