Let's say the same retired couple had $30,000 in tax-exempt interest, $25,000 of regular income and $100,000 in long-term capital gains and dividends.
watch nowIn this case, their gross income is $125,000 and taxable income is $97,700.
Since the $27,300 standard deduction exceeds the $25,000 of regular income, the $97,700 is entirely long-term capital gains and dividends.
This means $83,350 is taxed at the 0% rate and the couple owes 15% long-term capital gains taxes on the remaining $14,350.
"The benefit is there are zero taxes, whether it's dividends or capital gains" as long as you're below the taxable income threshold, he said.