If you’re considering selling a business, investment property, or a valuable stock that has appreciated significantly, don’t rush to sign the deal.
The tax consequences could be steep.
Capital gains taxes can take a big bite out of your proceeds if you don’t plan. With the right strategies, you can minimize what you owe or even eliminate the tax.
Here’s what you should know before selling.
Know your cost basis
Your capital gain is the difference between your selling and purchase prices. That basis includes what you paid for the asset, plus transaction costs, improvements (if real estate), and any adjustments.
Accurately calculating your basis is step one. For inherited assets, the basis usually gets “stepped up” to fair market value at the decedent’s date of death. For gifted assets, you typically assume the original owner’s basis, which can result in a larger taxable gain upon sale.
Knowing this number helps you understand the size of your gain and the tax bill you might face.
Understand tax brackets
Long-term capital gains (on assets held longer than a year) are taxed at favorable rates: 0%, 15%, or 20%, depending on your income.
For 2025, the 0% rate applies to taxable income up to:
- $48,350 for single filers
- $96,700 for married couples filing jointly
The 15% rate applies to income up to:
- $533,400 for single filers
- $600,050 for married couples filing jointly
Above those thresholds, the rate jumps to 20%.
High-income earners may also owe the 3.8% Net Investment Income Tax (NIIT), bringing the top federal rate to 23.8%. Add state taxes; your total burden could exceed 30% in high-tax states.
Review your holding period
If you’ve held the asset for less than a year, you’ll face short-term capital gains taxes, which are taxed at your ordinary income rate (up to 37%).
Sometimes, it pays to wait. Delaying the sale by just a few months could put you in the long-term bracket, with significant savings.
Harvest losses strategically
If you’ve got unrealized losses in your portfolio, consider realizing them before your big sale.
Capital losses offset capital gains, dollar for dollar. If your losses exceed your gains, you can use up to $3,000 of excess losses to offset ordinary income and carry forward the rest indefinitely.
This strategy, called tax-loss harvesting, is compelling in years when you expect a significant gain.
Consider timing
Income thresholds for capital gains rates are based on your total taxable income. If you’re close to a threshold, reducing other income could keep you in a lower bracket.
You might:
- Delay other income into next year
- Accelerate deductions into the current year
- Max out retirement contributions
Selling in a year when your income is unusually low can also result in significant tax savings.
Gift to family members in lower tax brackets
Gifting appreciated assets to a child, parent, or other relative in a lower tax bracket can be smart, especially if they’re eligible for the 0% capital gains rate.
Be aware of the “kiddie tax,” which applies to unearned income of children under 19 (or full-time students under 24), taxing it at the parents’ rate. This can limit the benefit of gifting to minor children.
For adult children and retired parents, the tax savings can be substantial.
Donate appreciated assets to charity
Giving away appreciated stock or property can unlock two tax benefits:
- You get a charitable deduction for the fair market value (if you itemize).
- You avoid paying capital gains tax altogether.
This works best with assets you’ve held for more than one year. Consider donating directly to a charity, or using a donor-advised fund (DAF) if you want more flexibility.
DAFs allow you to donate now, take the deduction this year, and distribute funds to charities over time.
Explore a charitable remainder trust (CRT)
A CRT is a tax-exempt trust that can help you sell a highly-appreciated asset without immediately triggering capital gains taxes.
Here’s how it works:
- You transfer the asset into the trust.
- The trust sells the asset, tax-free.
- You receive income from the trust for a set term (or life).
- After the term, the remainder goes to charity.
This structure defers the capital gain over many years and can provide a steady income stream. It’s ideal for charitably inclined people who want tax-efficient cash flow.
Use a 1031 exchange (real estate only)
Selling investment real estate? You might qualify for a 1031 exchange, which lets you defer capital gains taxes if you reinvest in another like-kind property.
The rules are strict:
- You must identify a replacement property within 45 days.
- You must close within 180 days.
- The new property must be equal or greater in value and considered “like-kind,” broadly including most real estate held for investment purposes.
This strategy doesn’t eliminate taxes, but it defers them. It can be a valuable tool for building wealth through real estate.
Installment sales
If you’re selling a business, property, or other significant asset, consider structuring the sale as an installment sale.
You receive payments over time instead of getting the full purchase price up front. You pay tax on the gain as you receive it, which may help spread income across multiple years and avoid higher brackets.
Be aware of the taxable consequences of interest income (taxed as ordinary income) and the risk that the buyer could default.
Create a trust for legacy planning
Consider using trusts to hold appreciated assets if your goal is multigenerational wealth transfer.
A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust that allows a grantor to transfer assets to beneficiaries while retaining the right to receive annuity payments for a specified term. This structure enables the grantor to pass on any appreciation of the assets to heirs with minimal or no gift tax implications.
An Intentionally Defective Grantor Trust (IDGT) is a trust that is structured to be considered a separate entity for estate tax purposes but not for income tax purposes.
The grantor retains certain powers or control that cause the trust’s income to be taxed to the grantor. This allows the growth of the trust’s assets to occur outside of the grantor’s taxable estate, helping to preserve estate values while transferring assets to beneficiaries.
Consult your advisory team early
Capital gains planning isn’t one-size-fits-all.
It requires the coordination of your CPA, financial advisor, and estate planning attorney. The best strategies depend on your financial goals, income, and estate plan.
The earlier you plan, the more tools you’ll have. Waiting until the sale is under contract or has already been closed can limit your options.
Selling a highly-appreciated asset is a significant financial milestone. It deserves thoughtful planning, not just a signature on the dotted line.
Disclaimer: There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. All investing involves risk, including loss of principal. No strategy ensures success or protects against loss.