Understanding how to apply the income tax brackets will help an individual determine their capital gains tax bracket and effectively, how much they can expect to owe in taxes. Capital gains are stacked on top of ordinary income when applying the income tax brackets.

In other words, the last dollar of ordinary income will determine the rate at which the first dollar of net long-term capital gains (and qualified dividends) is taxed.

To determine an individual's ordinary taxable income, the amount of net long-term capital gains is subtracted from the individual's total taxable income (line 15 of 2023 Form 1040). 

For example, an individual with $50,000 of taxable income and $20,000 in net long-term capital gains would have ordinary taxable income of $30,000 ($50,000 minus $20,000). Therefore, $30,001 is the first dollar of their net long-term capital gains.

For a single individual in 2024, the 0% long-term capital gains rate applies on taxable income between $0 and $47,025. In this case, the first dollar of long-term capital gains falls below the top of this threshold, so it is taxed at a 0% tax rate.

Once total taxable income reaches $47,025, any additional net long-term capital gains are taxed at the 15% bracket. Therefore, $17,025 of the net long-term capital gains is taxed at a 0% rate and the remaining $3,976 is taxed at a 15% rate. In this scenario, the individual's low income allowed him to realize a portion of his long-term capital gains tax-free. This is considered a tax gain harvesting strategy.