Capital gains tax for seniors: what you need to know

Summary

What is capital gains tax?

The US government pulls various tax levers to raise money. Most of us are familiar with income tax reductions, for example, when it comes to our paychecks. However, other levies also exist, including a capital gains tax.

Capital gains tax is triggered when an individual sells an asset that they own for a profit. As a rule of thumb, most of the items that a person owns are considered "capital assets" for tax purposes.

According to the Internal Revenue Service (IRS), “Almost everything you own or use for investment purposes is a capital asset.”

Capital gains tax, therefore, is potentially a wide-ranging levy that extends from real estate and stock market-related investments, such as shares, to physical belongings, such as works of art and cryptocurrencies.

For more information about capital gains tax, including what is considered capital gains and how the tax works, click here.

What’s my capital gains tax bill?

Even if you have generated capital gains, you may end up owing nothing because the tax is calculated on a sliding scale, with different levels set according to the four main categories that apply to filing a tax return.

For example, in 2024, single tax filers with a taxable income of $47,025 or less, joint filers with a combined taxable income of $94,050 or less, and heads of household who earn less than $63,000 pay 0% on qualified long-term gains.

In contrast, however, individuals with taxable income higher than these totals were subject to tax rates of 15% and 20%, respectively.

Long-term capital gains tax rate 2024 (reported on taxes filed in 2025)

Long-term capital gains tax rate 2025 (reported on taxes filed in 2026)

It’s also worth noting that after federal capital gains taxes have been reported, the majority of US states apply their own additional levies in this sphere.

The ones that don’t are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming. However, the remainder apply rates that can vary between 2.5% (Arizona) and 13.3% (California) for taxes filed in 2024.

Do seniors have to pay capital gains tax when selling their homes?

It’s useful to remember that a special case exists in relation to real estate and capital gains tax.

The IRS allows property owners who sell their main home to exclude a certain amount of any profit they make from their reportable income.

For example, single filers and those married filing separately can exclude $250,000 of capital gains, while this figure extends to $500,000 for those married filing jointly.

In the case of the latter, you must both pass the ownership test and use test. In other words, you must have owned and used the property as your main residence for a total period of at least two years out of the five years prior to the sale date.

Generally speaking, you can’t apply this special exclusion if you’ve already used it for another home sale in the two years before the latest property transaction.

Is there a one-time capital gains exemption for seniors?

The real estate scenario applies to all adults, and it’s worth reiterating that there are no age-related exemptions from capital gains tax.

The over-55 home sale exemption was a tax law that allowed over 55s to claim a one-time capital gains tax exclusion on the sale of their home.

Here, over-55s could exclude up to $125,000 of capital gain on the sale of their home.

However, since this tax break was dropped in 1997, there is no capital gains tax exemption specifically for seniors. This means right now, the law doesn’t allow for any exemptions based on your age.

Understanding capital gains and keeping on top of your own tax arrangements or seeking help from a suitably qualified financial advisor means you still have various options to help minimize other potential liabilities.

How can seniors reduce their capital gains tax?

There are strategies you can implement to protect yourself and your retirement by reducing the amount of capital gains tax you pay:

Remember that holding on to an asset for more than a year could at least reduce any capital gains tax liability for which you’ve become liable.

With that in mind, if, say, you’re a frequent stock market investor, keeping tabs on how long you’ve held a position in a particular stock could help reduce a potential tax bill.

Owning a security for at least a year means any profits from selling that stock are treated as a long-term gain with, potentially, a lesser capital gains tax rate to pay.

When it comes to saving for retirement, the IRS encourages people to use so-called ‘tax-advantaged’ accounts instead of taxable brokerage accounts, which can significantly reduce capital gains tax liabilities.

These include popular 401(k) plans aimed at company employees and IRAs, which are suitable for all types of workers, especially those without access to a works pension. The main takeaway is that both types of plans provide significant tax breaks while helping you save for retirement.

This is because most retirement accounts offer an upfront tax advantage. They do this in practice because the IRS allows you to deduct the money that you invest in these accounts from your income taxes in the year that you make the investment. In other words, no tax is paid on the money invested in these accounts.

In these products, investments then grow either tax-free or with the tax-deferred. This means account holders do not have to pay capital gains tax if investments are sold within their plan.

When the time comes, most 401(k) plans and IRAs are subject to ordinary income taxes, except for a little-known but potentially useful tax hack known as ‘net unrealized appreciation’ or NUA.

NUA is a tax break that allows employees to roll over the portion of their 401(k) invested in company stock to a brokerage account at retirement. This allows them to pay tax at a more favorable rate when the shares are eventually sold.

Other types of accounts, including the Roth IRA, also offer savers and investors the opportunity to build wealth without being liable for capital gains.

With these plans, ‘after-tax’ money is invested, and because of their structure, any potential gains build up tax-free. When the money is taken out for a qualifying expense such as retirement, no federal income taxes are due on earnings or the initial investment.

This is a strategy that requires investors to sell their loss-making investments before they potentially rebound in performance to offset capital gains tax liabilities.

It’s an approach that can lower or negate short-term and long-term capital gains taxes.

The thinking is that by strategically realizing losses within an investment portfolio, it’s possible to neutralize the gains produced by other investments, with the overall effect of reducing your taxable income.

Generally speaking, having a diversified investment portfolio makes good financial planning sense.

Different asset types, including stocks, bonds and alternative assets (such as collectibles), may account for varying capital gains tax implications. In turn, this can provide investors with an incentive to diversify.

For example, where stocks are liable for capital gains taxes on realized profits, the interest received from bonds might be taxed as income rather than capital gains, thus potentially spreading the tax load across various tax allowances.

The federal government charges capital gains tax across the country, while the majority of states impose an additional levy in this sphere.

If you’re set against paying extra capital gains tax above federal obligations and are looking to move in retirement, consider relocating to one of the eight states (listed above) that declines, adding to your tax bill in this way.

Get expert financial advice

As capital gains tax applies to so many different asset types, even relatively simple financial planning arrangements can get caught up in a web of potential liabilities.

Financial advisors stay abreast of changes in this sphere and can offer expert support when it comes to enhancing investors' tax efficiency.

Advisors cannot only devise strategies that minimize an individual’s tax liabilities but also navigate the complexity of tax laws, understanding how they apply to different investment types.

This can include helping with a choice of tax-advantaged accounts, monitoring and timing the sale of assets or offsetting capital gains tax liabilities. 

Unbiased can match you with a financial advisor best suited to meet your needs.

Get started here.