12 Strategies to Help Lower Long-Term Capital Gains Taxes

August 1, 2025

Capital gains taxes can take a noticeable bite out of your investment returns. If you have held an asset for a while and it has grown in value, the IRS will want its share when you sell. The longer you have been investing, the bigger that tax bill can become.

The good news is that with thoughtful planning, there are ways to keep more of your gains in your pocket. This is not about last-minute tax maneuvers. It is about steady, intentional moves you can make throughout the year and even over several years to reduce what you owe.

The rules around capital gains may seem straightforward at first glance, but there are layers to how and when taxes apply. Timing matters. The type of account you hold assets in matters. Even the way you pass investments to the next generation can have a significant impact on your tax bill.

Knowing how and when to take gains, how to offset them, and where to place certain assets can make a meaningful difference in your long-term returns.

In this article, we will go through twelve practical strategies that can help you lower your capital gains taxes while keeping your investment plan on track.

1. Harvest Gains in Years With Lower Income

Not every year looks the same for your income, and those differences can create opportunities to reduce capital gains taxes. If you experience a year where your income is noticeably lower, it might be the ideal time to sell investments that have grown in value.

This can happen in several situations:

• Retiring mid-year. Your salary stops, but you have not yet started collecting retirement income such as Social Security.
  
  
• Taking a career break. Time away from full-time work can lower your taxable income for that year.
  
  
• Shifting to part-time or consulting work. Your earnings may temporarily drop while you adjust to a new schedule.
  
  
• Slower business year. Business owners may have fluctuations in revenue that affect taxable income.

Why does this matter?

Capital gains are taxed on top of your other income. For 2025:

• Married couples filing jointly pay 0% on long-term gains if taxable income is $94,050 or less.
  
  
• Single filers qualify for the 0% rate if taxable income is $47,025 or less.

If your income is normally too high to qualify, a lower-income year might get you there. Even if you do not hit the 0% rate, you may still land in a smaller bracket, keeping more of your gains.

Example: You typically earn $150,000 a year, which puts you in the 15% capital gains bracket. The year after you retire, you only have $35,000 in other taxable income. You could sell $20,000 of long-term appreciated investments and potentially pay zero federal capital gains tax. The difference comes down to timing.

Tip: Keep an annual tax forecast. If you see a lower-income year ahead, plan your gains for that period. Acting before the year ends lets you lock in lower rates while the opportunity is available.

Tip: Keep an annual tax forecast. If you spot a year with lower income ahead, plan your gains for that window. By acting before the year ends, you can take advantage of lower rates while the opportunity is still on the table.

2. Donate Appreciated Assets Instead of Cash

If you plan to make a charitable gift, donating appreciated investments can do more than support a cause you care about. It can also reduce your capital gains tax bill.

How it works:

• When you donate investments like stocks or mutual funds that you have held for over a year to a qualified charitable organization, you do not pay capital gains tax on the growth.
  
  
• You may also be able to deduct the full fair market value of the asset on your federal tax return, depending on your income and giving limits.
  
  

Example: You bought shares years ago for $50,000, and now they are worth $200,000.

• If you sell them yourself, you would owe long-term capital gains tax on the $150,000 gain.
  
  
• If you transfer the shares directly to a qualified charity, there is no capital gains tax for you or the charity. The full $200,000 can be used for their mission, and you may get a deduction for the same amount.

Local impact example in Punta Gorda, Florida: Let’s say you want to support a local nonprofit that helps seniors or preserves nature trails. By donating long-held stock directly, the organization gets the full value of your gift, and you avoid paying capital gains tax.

If you are not sure which charity to choose yet:

• You can donate appreciated assets to a donor-advised fund (DAF).
  
  
• This lets you take the deduction now while giving you time to decide where the funds should go later.
  
  
• The assets can remain invested in the DAF until you are ready to recommend grants to charities.

Tip: Before donating appreciated investments, double-check that the organization is recognized as a qualified public charity by the IRS. Your financial and tax advisor can help review your specific numbers and make sure the donation is structured correctly.

3. Wait for the One-Year Mark Before Selling

One of the simplest ways to help lower your capital gains tax is to pay attention to the calendar. The IRS treats short term and long term gains very differently, and the difference can mean thousands of dollars in your pocket.

If you sell an asset you have owned for less than a year, those profits are considered short term capital gains. They are taxed at the same rate as your regular income, which for high earners can be as much as 37%. But hold that same investment for just one day past the one year mark and your profit is taxed at the long term capital gains rate instead, which could be 0%, 15%, or 20% depending on your taxable income.

Here is an example. Suppose you bought a stock for $50,000, and after 11 months it is worth $70,000. If you sell now, that $20,000 gain is taxed as ordinary income. If you wait until you have held it for one year and one day, it qualifies for the lower long term capital gains rate. For many people, that difference can cut the tax bill on those gains by almost half.

Even waiting a few weeks can make a meaningful impact. This is especially important for people who are close to the income thresholds where capital gains rates change. For 2025, a married couple filing jointly with taxable income of $94,050 or less pays 0% on long term gains, while someone just above that amount pays 15%.

It is not just stocks that follow this rule. Many types of investments, from real estate to certain business interests, can benefit from qualifying for long term treatment. Some assets have different rules. Collectibles like rare coins or fine art can be taxed at rates up to 28%, and qualified small business stock has its own set of special provisions. Checking the specifics before selling is important.

Tip: If you are within weeks of hitting the one year mark, run the numbers or ask your tax advisor to estimate the savings. The extra time could translate into a much lower capital gains tax bill.

4. Use Tax-Loss Harvesting to Offset Gains

Tax-loss harvesting is one of those strategies that sounds complicated, but once you break it down, it’s pretty straightforward. You sell investments that have gone down in value to offset the taxable gains from investments that have gone up. Done right, it can shrink your tax bill now and even help in future years.

Here’s how it plays out:

• Match your gains with your losses: Say you sold stock for a $100,000 gain, but you also sold a mutual fund at a $60,000 loss. When the IRS looks at your taxes, they don’t see a $100,000 gain — they see a $40,000 gain because your losses reduced the total.
  
  
• Cut down your regular taxable income: If your total losses are bigger than your total gains, you can use up to $3,000 of the leftover losses to lower your regular income for the year. That means you might pay a little less tax on things like your paycheck, freelance income, or retirement withdrawals.
  
  
• Carry the rest forward: Let’s say you still have losses left over after offsets and the $3,000 reduction. Those don’t disappear. You can roll them into next year, and the year after that, until they’re used up.

Example

You have $50,000 in gains from selling a tech stock and $70,000 in losses from selling a bond fund that didn’t recover. The $50,000 gain is completely erased for tax purposes. You use $3,000 of the extra loss to lower this year’s taxable income, and you carry the remaining $17,000 into next year.

One important thing to remember: The IRS has a “wash-sale rule.” If you sell something at a loss and buy the same or a nearly identical investment within 30 days before or after the sale, you can’t claim that loss. If you still want similar exposure in your portfolio, you can buy something different in the same sector that isn’t considered identical.

Tip: If you want to maintain similar exposure in your portfolio after selling, consider replacing the investment with something that has similar characteristics but is not substantially identical under IRS rules. This way, you can stay invested while still capturing the tax benefit.

5. Reinvest Gains in Qualified Opportunity Zones

If you sell an investment and make a profit, you don’t always have to pay the capital gains tax right away. One way to delay that bill is by reinvesting the gain into a Qualified Opportunity Fund (QOF) within 180 days of the sale. These funds put money into Qualified Opportunity Zones — areas chosen by the government to encourage economic growth and development.

Here’s why some investors consider this route:

• You can help delay paying taxes on the gain: When you reinvest in a QOF, you push your capital gains tax due date out to whichever comes first: December 31, 2026, or the date you sell your QOF investment. This delay gives your money more time to potentially grow before the IRS takes its share.
  
  
• You might avoid taxes on new growth: If you hold your QOF investment for at least 10 years, any appreciation it earns during that time can be completely exempt from federal capital gains tax. This part only applies to the growth inside the QOF, not the original gain you rolled over.
  
  
• It can help communities while you invest: These funds channel money into areas that need more business development, housing, or infrastructure. While the main draw is the tax benefit, some investors also like knowing their money is funding real projects.

Let’s say you sell commercial property for a $500,000 gain. Instead of paying taxes on it now, you reinvest the gain into a QOF that’s backing new housing projects in a designated Opportunity Zone. You defer the tax bill until 2026, and if you keep the investment for 10 years, any new profit you earn from the QOF can be tax-free.

Important note

QOF investments are long-term and not as easy to sell as stocks or mutual funds. They work better for investors who can commit to tying up money for a decade or more without needing quick access to it. This is why it is highly advisable to work with a fiduciary who can help assess whether this type of investment aligns with your overall financial plan and risk tolerance.

Tip: Before committing to a QOF, review the specific projects it funds. Not all Opportunity Zones offer the same growth potential, and knowing what your money is actually building can help you decide whether the investment is worth the wait.

6. Pass Appreciated Assets Through Your Estate for a Step-Up in Basis

One of the lesser-known ways to reduce capital gains tax for your family is through the step-up in basis rule. When someone passes away, most appreciated assets they own such as real estate, stocks, or other investments get their cost basis reset to the fair market value on the date of death.

That reset can dramatically reduce, or even eliminate, the capital gains tax your heirs might otherwise owe when they sell.

Let’s say you bought a rental property for $400,000 many years ago and it is now worth $1 million. If you sold it during your lifetime, you would pay capital gains tax on $600,000 of profit. If your heirs inherit it, their starting point or cost basis becomes $1 million. If they sell it for that same amount shortly after, there is little to no taxable gain.

This approach does not lower taxes for you directly, but it can be a powerful way to pass along more wealth to the next generation. It is especially valuable for assets you have owned for a long time and that have grown significantly in value.

This strategy can be used for:

• Real estate such as family homes, vacation properties, or rental units that have appreciated over the years
  
  
• Investment portfolios including stocks, bonds, and mutual funds that have gained substantial value
  
  
• Private business interests for those who own shares in a closely held company
  
  

Tip: If your goal is to pass assets to family members, review which holdings have the most appreciation and consider whether holding them until death could provide the biggest tax benefit for your heirs.

7. Spread Large Gains Over Multiple Years

Selling a big asset all at once can cause a surprise tax bill. When you sell in a single year, the gain is added to your other income, which can push you into a higher capital gains tax bracket. It can also trigger the 3.8% net investment income tax if your adjusted gross income is more than $200,000 for single filers or $250,000 for joint filers.

One way to manage this is by breaking the sale into smaller parts over two or more tax years. By spreading the gain out, your income for each year stays lower. That can help you avoid a higher capital gains rate and possibly sidestep the extra NIIT charge altogether.

For example, let’s say you own a piece of land worth $900,000 that you bought decades ago for $200,000. If you sell it all in one year, you could be looking at a large taxable gain of $700,000. But if you arrange to sell half this year and half next year, you might keep your taxable income in a range that avoids the top capital gains rate and reduces the NIIT impact.

This strategy works well with:

• Real estate, including investment properties and undeveloped land
  
  
• Business interests, such as selling shares in a privately held company
  
  
• Large stock holdings, especially if most of your portfolio is concentrated in a single company

It does require planning ahead, as the timing of each sale matters for tax purposes. If you see a big sale on the horizon, it is worth mapping out a schedule that makes the tax impact more manageable.

Tip: Run the numbers before finalizing a sale. The difference between selling in one year versus two could be tens of thousands of dollars in tax savings.

8. Hold Appreciating Assets in Tax-Advantaged Accounts

One of the simplest ways to reduce capital gains taxes is to make sure your fastest-growing investments are inside tax-advantaged accounts. In a regular taxable brokerage account, every time you sell an investment for a profit, the IRS takes a share through capital gains taxes. But accounts like Roth IRAs, traditional IRAs, 401(k)s, and Health Savings Accounts (HSAs) give you a built-in shield from those annual tax hits.

Inside these accounts, you can buy and sell as often as you like without triggering taxes each time. That means your investments can grow without interruptions from tax bills, allowing more of your money to keep compounding over time.

A Roth IRA can be especially powerful. Qualified withdrawals in retirement are completely tax-free, so if you expect a stock, ETF, or other asset to grow significantly, keeping it in a Roth means you could sell it years from now and pay nothing in taxes on the gain. For example, if you bought $20,000 worth of shares in a growing company inside a Roth IRA and it grew to $100,000 over 15 years, every dollar of that $80,000 gain could be yours to keep.

Other accounts can help too:

• Traditional IRA or 401(k) – Your investments grow tax-deferred, meaning you pay taxes when you withdraw in retirement, often at a lower tax rate.
  
  
• Health Savings Account (HSA) – Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.

The key is knowing the rules for each account. Contribution limits, age restrictions, and withdrawal penalties all vary. If you plan carefully, you can match the right investments to the right account type and significantly cut your future tax bill.

Tip: When you have both taxable and tax-advantaged accounts, consider placing your higher-growth investments in the accounts that shelter gains from taxes, while keeping slower-growing or income-producing investments in taxable accounts.

9. Be Strategic With Which Shares You Sell

When you own shares of the same investment bought at different times and prices, you are not locked into selling them in the order you bought them. You can choose exactly which “lots” to sell, and that choice can have a big impact on how much capital gains tax you owe.

This comes down to something called cost basis — the original price you paid for each batch of shares. Selling shares with a higher cost basis means your taxable gain will be smaller. Selling the lower-cost shares means a bigger gain and a bigger tax bill.

Let’s break it down with an example:

• You own 1,000 shares of a company’s stock.
  
  
• You bought them in three separate purchases:
  • 300 shares at $20 each
  • 400 shares at $35 each
  • 300 shares at $50 each
    
    
• The stock is now trading at $60.

If you sell the shares bought at $50, your gain is only $10 per share ($60 – $50). If you sell the shares bought at $20, your gain is $40 per share ($60 – $20).

That difference adds up fast. Selling the $50 lot might mean paying tax on $3,000 of gain for 300 shares, while selling the $20 lot could mean paying tax on $12,000 of gain for the same number of shares.

Most brokerages let you control this by selecting specific identification when placing a sell order. You simply tell them which purchase lot you want to sell from. If you do not choose, they may default to “first in, first out” (FIFO), which might not be the most tax-efficient option.

Tip: If you work with a financial advisor or use a brokerage platform, check your account settings so that specific identification is available and easy to select. Making this choice upfront can help keep more of your gains in your account instead of sending them to the IRS.

10. Offset Gains With Real Estate 1031 Exchanges

If you own investment property and want to sell it, the capital gains tax can take a big chunk out of your profits. A 1031 exchange gives you a way to keep your money working for you instead of sending a portion to the IRS right away. With this strategy, you sell your current investment property and reinvest the proceeds into another like-kind property — and you get to defer the capital gains tax until you eventually sell a property without doing another exchange.

What Is a 1031 Exchange?

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, is a tax-deferral strategy for real estate investors. It allows you to sell an investment property and reinvest the proceeds into another like-kind property without paying capital gains tax at the time of the sale. Instead, the tax is deferred until you eventually sell a property without using another exchange.

The rules are very specific, and timing is everything:

• Identify the new property within 45 days of selling your current one. This means you must give a written list of up to three possible replacement properties to your qualified intermediary (you cannot just pick later).
  
  
• Close on the new property within 180 days of the sale. If you miss either deadline, the exchange fails and you owe tax immediately.
  
  
• The replacement property must be of equal or greater value, and all the proceeds from the sale must go into it — you cannot pocket some of the cash without triggering partial taxes.

Example: Suppose you sell a rental property for $800,000 that you originally bought for $500,000. Without a 1031 exchange, you could owe tax on the $300,000 gain. But if you reinvest the full $800,000 into another qualifying property through a 1031 exchange, you can defer the tax. Over time, investors often use this approach to move from smaller rental homes to larger apartment buildings or from one commercial space to a better-located one, all without paying taxes at each step.

Tip: Because 1031 exchanges have strict rules and must be handled by a qualified intermediary, it is highly advisable to work with a fiduciary or tax professional who understands real estate transactions to make sure everything is done correctly.

11. Use Installment Sales for Business or Property

Selling a business or a piece of investment property in one lump sum can create a massive tax bill in the year of the sale. An installment sale offers a way to break that income into smaller chunks over several years, which can help you avoid jumping into a higher capital gains tax bracket all at once.

With an installment sale, you agree to receive the purchase price in a series of payments rather than all at closing. Each payment is divided into two parts:

• Principal — the return of your original investment in the property or business.
  
  
• Gain — the portion subject to capital gains tax.

By spreading the gain out, you can keep your annual taxable income lower, potentially avoiding higher capital gains rates and even steering clear of the 3.8% net investment income tax if your income stays below the thresholds.

Example: Let’s say you sell a commercial building for $1.5 million that you bought years ago for $600,000. If you took the full payment in one year, you would owe capital gains tax on the $900,000 gain that year — possibly pushing you into the top bracket. But if you structure it as a five-year installment sale, you might recognize only $180,000 of gain per year, keeping your tax rate lower.

This approach can also work when selling a business. For instance, a retiring business owner might sell to a key employee or family member who cannot afford to pay the entire purchase price at once. The buyer gets manageable payments, and the seller spreads the tax hit over time.

Tip: Make sure the installment agreement is clearly documented and includes interest on the unpaid balance, since the IRS requires you to report and pay tax on that interest separately from the capital gain.

12. Relocate or Change Domicile Before Selling

Where you live can have a big impact on how much you owe in capital gains tax. While federal capital gains tax rules apply no matter where you are, state taxes vary widely. Some states, such as California, New York, and Oregon, tax capital gains at rates that match their regular income tax. Others, like Florida, Texas, and Nevada, do not tax capital gains at the state level at all.

If you are already planning a move, whether for retirement, a job change, or lifestyle reasons, it can pay to think about the timing in relation to selling a highly appreciated asset. By becoming a resident of a state with no income tax before the sale, you can eliminate that portion of the tax bill.

Example: Imagine you own an investment property that will net you a $500,000 gain. If you sell while living in California, where the top state income tax rate is over 13%, you could owe more than $66,000 in state tax alone. If you establish residency in Florida before selling, that state tax disappears, and your only obligation would be the federal capital gains tax.

However, this is not just a matter of getting a new driver’s license. States with high income taxes are aggressive about challenging moves they believe are tax-driven. To make a domicile change stick, you must show real proof, such as:

• Selling or renting out your old home.
  
  
• Buying or leasing a primary residence in your new state.
  
  
• Updating your voter registration, driver’s license, and vehicle registration.
  
  
• Moving bank accounts, doctors, and professional services to your new state.

Tip: Plan your move well in advance of the sale, and document everything that supports your new residency. The more evidence you have, the stronger your case if a state tax authority questions your change of domicile.

Closing Thoughts

Lowering capital gains taxes isn’t about finding one “magic” strategy — it’s about layering several approaches that fit your income pattern, investment mix, and long-term goals.

Whether it’s selling in low-income years, donating appreciated assets, using tax-advantaged accounts, or being selective about which shares you sell, each decision adds up. And if you’re in Florida, the lack of state capital gains tax gives you an extra edge, but federal planning is still essential.

The key is to make these moves deliberately, not in a rush. Tax planning works best when it’s part of your overall investment strategy, not an afterthought.