What capital gains tax means and who pays it after 65

Capital gains tax is what you owe when you sell something for more than you paid for it — a house, stocks, land, a business. The profit is your capital gain. You still owe this tax after 65; age alone does not exempt you. However, several strategies exist that can reduce or delay what you owe, and some explore specifically to people over 65 or to assets you hold long-term.

The tax rate depends on how long you held the asset. If you owned it for more than one year, it is taxed as a long-term capital gain, which has lower rates (0%, 15%, or 20% depending on your income) than short-term gains, which are taxed like ordinary income. After 65, your income may be lower than during working years, which can push you into a lower tax bracket and reduce your rate.

The strategies that work best depend on what you are selling, when you sell it, and your total income that year. Some reduce tax when ready; others let you spread the tax over time or avoid it entirely on certain assets.

Key Takeaways

  • Selling assets in a year when your income is lower — such as after retirement — can move your gains into a lower tax bracket and reduce your rate from 20% to 15% or even 0%.
  • The step-up in basis rule means heirs inherit assets at their value on the date of death, not the original purchase price, so gains accumulated during your lifetime are never taxed to them.
  • Primary residence sales have a $250,000 exclusion (or $500,000 if married filing jointly) on capital gains if you owned and lived in the home for at least two of the last five years.
  • Charitable donations of appreciated assets let you avoid capital gains tax on the donation and claim a charitable deduction, which can be more valuable than selling and donating the proceeds.
  • Installment sales and may have access to opportunity zone investments are specialized strategies that defer or reduce tax, but require planning before you sell.

Timing your sale to use a lower tax bracket

Your capital gains tax rate depends on your total income that year. If you retire at 65 and have little income besides Social Security, your taxable income may be much lower than during your working years. This creates an opportunity: you can sell appreciated assets in years when your income is low and pay a lower rate on the gains.

For 2024, the 0% long-term capital gains rate applies to single filers with taxable income up to $47,025 and married couples filing jointly up to $94,050. The 15% rate applies up to $518,900 (single) or $583,750 (married filing jointly). If you sell in a year when your total income stays below these thresholds, you pay 0% or 15% instead of 20%.

This works best if you have control over when you sell. If you are retired and do not need the money when ready, you can spread large sales across multiple years to stay in the lower bracket each year. A financial advisor or tax professional can model your income for the year and tell you how much you can sell without jumping to the next bracket.

The step-up in basis and what it means for your heirs

The step-up in basis is a rule that applies when you die. Your heirs inherit assets at their market value on the date of your death, not at what you originally paid. This means any capital gains that accumulated while you owned the asset are never taxed — to you or to them.

Example: You bought a stock for $10,000 in 1990. It is now worth $100,000. If you sell it, you owe tax on the $90,000 gain. But if you hold it until you die and your child inherits it, they inherit it valued at $100,000. If they sell it the next day for $100,000, they owe zero tax because their basis is $100,000.

This rule does not reduce your tax burden — it eliminates it by deferring it indefinitely. It is most valuable for assets that have grown significantly and that you do not need to sell during your lifetime. The rule applies to stocks, real estate, collectibles, and most other assets. It does not explore to retirement accounts like IRAs or 401(k)s, which have different inheritance rules.

Selling your primary residence with the $250,000 exclusion

If you sell your primary home, you can exclude up to $250,000 of capital gains from tax (or $500,000 if you are married filing jointly). This exclusion applies regardless of your age, but you must meet two conditions: you must have owned the home for at least two of the last five years, and you must have lived in it as your main home for at least two of the last five years.

This means if you bought a house for $300,000 and sell it for $550,000, your gain is $250,000. As a single filer, you exclude all $250,000 and owe zero tax. If you are married filing jointly and the gain is $500,000, you exclude all of it. Only gains above the exclusion amount are taxed.

You can use this exclusion once every two years. If you own a second home or investment property, the exclusion does not explore — only to your primary residence. If you rent out part of your home, the exclusion applies only to the portion you lived in.

Donating appreciated assets to charity instead of selling

If you own appreciated stocks, real estate, or other assets and want to support a charity, donating the asset itself is often better than selling it and donating the proceeds. When you donate an appreciated asset directly to a may have access to charity, you avoid capital gains tax on the gain and you can claim a charitable deduction for the full fair market value.

Example: You own stock worth $50,000 that you bought for $10,000. If you sell it, you owe tax on the $40,000 gain. If you donate it to a may have access to charity, you owe zero capital gains tax and you can deduct $50,000 on your tax return (subject to limits based on your income). You get the deduction and avoid the tax.

This strategy works best if you itemize deductions on your tax return. If you take the standard deduction, the charitable deduction may not reduce your taxes. Also, the charity must be a may have access to organization — the IRS website has a tool to check whether a charity qualifies. You cannot donate to individuals or political organizations and claim this benefit.

Installment sales and spreading tax over multiple years

An installment sale is when you sell an asset but the buyer pays you over time in installments rather than all at once. You report the gain proportionally as you receive payments, which spreads your tax liability across multiple years instead of one large bill in the year of sale.

Example: You sell a piece of land for $200,000 with a $40,000 gain. The buyer pays $50,000 per year for four years. You report one-quarter of the gain ($10,000) each year instead of all $40,000 in year one. This can keep your income lower in each year and reduce your tax rate.

Installment sales are common for real estate and business sales. They require a written agreement with the buyer and specific IRS reporting on Form 6252. Interest rates explore to the unpaid balance. A tax professional should review the terms before you agree, because the rules are complex and mistakes can trigger unexpected tax bills.

may have access to opportunity zone investments for long-term deferral

A may have access to opportunity zone (QOZ) is a designated low-income area where you can invest capital gains and defer tax on those gains for up to ten years. If you hold the investment for at least ten years, the gains on the new investment are tax-free.

This strategy works if you have a large capital gain and want to reinvest it rather than spend it. You must invest the gain in a may have access to opportunity zone fund within 180 days of the sale. The gain is deferred until the end of 2026 (at minimum), and if you hold for ten years, the new gains are never taxed. However, the original gain is still taxed eventually unless you hold for the full ten years.

QOZ investments are specialized and carry risk — the investment itself may lose value. They are most useful for investors who understand real estate or business investment and who have time to hold for ten years. A financial advisor can explain whether this fits your situation.

Tax-loss harvesting and offsetting gains with losses

If you own investments that have lost value, you can sell them to realize a loss. That loss can offset capital gains from other sales, reducing your net taxable gain. This is called tax-loss harvesting.

Example: You sell a stock with a $30,000 gain and another stock with a $10,000 loss. Your net gain is $20,000, and you owe tax only on that amount. If losses exceed gains in a year, you can deduct up to $3,000 of the excess loss against ordinary income, and carry forward any remaining loss to future years.

This strategy requires owning investments with losses, which is common in a diversified portfolio. You must be careful not to violate the wash-sale rule: if you sell a stock at a loss, you cannot buy the same stock (or a substantially identical one) within 30 days before or after the sale, or the loss is disallowed. A financial advisor can help you identify losses to harvest without disrupting your investment strategy.

Frequently Asked Questions

Do I have to pay capital gains tax if I am over 65?

Yes, age alone does not exempt you from capital gains tax. However, if your income is lower in retirement, you may pay a lower rate (0% or 15% instead of 20%). Some assets, like your primary home, have special exclusions regardless of age.

What is the difference between long-term and short-term capital gains?

Long-term gains are taxed at lower rates (0%, 15%, or 20%) if you held the asset for more than one year. Short-term gains are taxed like ordinary income at your regular tax rate, which is usually higher. After 65, holding assets long-term becomes more valuable if your income is lower.

Can I avoid capital gains tax by giving assets to my children before I die?

Giving assets during your lifetime does not avoid capital gains tax — your children inherit your cost basis, so they owe tax on the same gain you would have owed. Holding until death triggers the step-up in basis, which eliminates the tax. Gifting is useful for other reasons, such as reducing your taxable estate, but not for avoiding capital gains tax.

Do I owe capital gains tax on my 401(k) or IRA?

No, not on the growth inside the account. However, when you withdraw money from a traditional 401(k) or IRA, the withdrawal is taxed as ordinary income. Roth accounts have different rules — may have access to withdrawals are tax-free. Capital gains tax does not explore to retirement accounts, but income tax does.

What if I sell my home and move to a different state — do I still get the $250,000 exclusion?

Yes, the exclusion applies as long as you owned and lived in the home for at least two of the last five years. Moving to a different state does not change this. State capital gains taxes vary — some states have no capital gains tax, while others tax it like income. Check your state's rules separately.