In the April 2026 article titled "Managing the Tax Impact of Capital Gains Stacking" I was reminded of a little known "Zone" that applies to only the few that would fill up the 0% LTCG bracket with ordinary income. Here is the text of a comment to that article that explains it:
There is one aspect of the Capital Gains Stacking that was missed and that is the ZONE between the top of the 0% LTCG bracket ($98,900) and the top of the 12% bracket ($100,800) which in 2026 is $1900, but in 2025 it was only $250 so it was barely noticed, especially since tax tables are used and not the exact calculation. This ZONE is a 12% bracket for LTCG, ONLY if you fill up the 0% LTCG with 100% of ordinary income. Here is an example for you to test. A MFJ couple both over 65 have a $60k SS benefit (51k will be taxable), $51.5k RMD, $25k pension, $18.9k Roth Conversion. This gets you to $98,900 taxable ordinary income. Now you have a window of $1900 which if you add $1900 of LTCG you will generate exactly $228 of extra tax for the LTCG (1900 x .12=228). If you mimic the Capital Gains Worksheet properly you will see this is so, as I did, building my one-line tax simulator. In 2025 this zone was only $30 of tax, in 2026 it is $228 tax or $1900 of LTCG taxed at 12%.
A Note should be added in case you think this 12% bracket is permanent for other larger blocks of LTCG. Due to the math involved once you go $1 over the $1900 window, the math creates a second window in which the LTCG is taxed at 22% until it brings the total LTCG for all LTCG above $98,900 back to 15%. That means for most you won't even see it, but it is an interesting quirk created by the split a few years back between the top of the 12% bracket and the bottom of the 15% bracket of Capital Gains and the IRS not wanting you to be taxed at more than the ordinary income of 12% when you are in that window where ordinary income is taxed less than qualified dividends.
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DAVE GILMER
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