How to Reduce Capital Gains Taxes

This article is general tax education. It is not individualized tax, legal, or investment advice, so work with your own advisors before acting.

Capital gains tax is one of the few taxes with a menu of legal dials: when you sell, what you sell against it, how the deal is structured, and which exemptions apply. Picking the right dial depends on the asset and the year. Sam Prentice designs that sequencing for founders and high earners, then coordinates with their CPA to put it in place.

What determines how much capital gains tax you pay?

Two things dominate: a one-year holding period and your taxable income bracket. An asset held more than one year gets long-term treatment at 0, 15, or 20 percent, while anything held one year or less is taxed as ordinary income, according to IRS Topic 409.

The brackets are wider than most sellers expect. Under the current thresholds in Topic 409, the 0 percent rate applies up to $48,350 of taxable income for single filers and $96,700 for joint filers, and the 15 percent rate runs to $533,400 single and $600,050 joint. The 20 percent rate only starts above those lines. The figures adjust for inflation, so the current year's numbers should be checked before a sale. Timing a sale into a low-income year, or splitting it across two years, is the simplest planning move available.

How does tax-loss harvesting reduce capital gains?

Losses offset gains dollar for dollar, and up to $3,000 of excess loss deducts against other income each year. The remainder carries forward indefinitely, per Topic 409. For someone sitting on a large realized gain, selling losing positions before year-end directly shrinks the taxable number.

The trap is the wash sale rule. A loss is disallowed when substantially identical securities are bought within 30 days before or after the sale, as laid out in IRS Publication 550. Harvesting works when the replacement position is different enough to survive that test.

Can a 1031 exchange defer capital gains on real estate?

Yes, and since 2018 it only works for real estate. No gain is recognized when real estate held for business or investment is exchanged solely for like-kind real estate, under Section 1031. Stock and equipment no longer qualify.

An exchange defers the tax rather than erasing it, because the old basis carries into the new property. The deferral can still end well: under Section 1014, heirs generally receive inherited property at its fair market value at death, which is why exchange-until-the-end sequencing shows up in long-horizon real estate plans.

What is the QSBS exclusion on company stock?

Qualified small business stock can exclude up to 100 percent of the gain, capped at the greater of $10 million or 10 times basis for stock acquired before July 5, 2025. The stock must be originally issued by a domestic C corporation that passes an active-business test, under Section 1202. The 2025 tax law then expanded the rules for newly issued stock, adding earlier partial exclusions and a larger cap, according to The Tax Adviser.

For a founder or early employee, QSBS is frequently the largest single capital gains break available. The mechanics, the new holding tiers, and the pre-sale planning around them are covered in the companion guide to reducing taxes when selling a company.

Do installment sales and charitable trusts spread the gain?

An installment sale recognizes gain as payments arrive, spreading the tax across the years of the note under Section 453. Spreading matters because it can keep each year's income inside a lower capital gains bracket instead of stacking the entire gain into one year.

Charitable structures work differently. A charitable remainder trust pays a stream to the donor or other beneficiaries with the remainder passing to charity, per the IRS overview. Donating appreciated assets rather than cash is the underlying logic: the charity's exemption, the income stream, and the deduction have to be weighed against giving up the asset, which is a fit question, not a default.

Do Qualified Opportunity Funds still defer gains?

Yes: investing an eligible gain in a Qualified Opportunity Fund lets a taxpayer temporarily defer the tax on that gain, per the IRS opportunity zones page. The program was revised by 2025 legislation, so deadlines and benefits for new investments should be confirmed against current guidance.

The honest framing: an opportunity fund is an investment first and a tax tool second. Deferral on a bad investment is still a bad investment, so underwriting quality comes before the tax math.

How does Sam Prentice approach capital gains planning?

Sam Prentice starts from the asset and the timeline, sequences the tools above, and then works alongside the client's CPA and attorney to implement the plan. Wage-income strategy is handled separately, in the guide to offsetting W-2 income. For founders inside his Private Client Engagement, capital gains sequencing is designed as part of the year-long plan rather than as a one-off reaction to a sale.

Sam Prentice pushes clients to define the outcome before picking a strategy: "There's plenty of ways to not pay taxes that don't align with your goals." Getting clear on what the money is for comes first, and the capital gains toolkit gets chosen to serve that outcome.

To talk through which capital gains tools fit your situation, book a discovery call.

Frequently asked questions

How long must an asset be held to get the lower capital gains rate?

More than one year. Gains on assets held one year or less are short-term and taxed at ordinary income rates, while gains on assets held more than one year qualify for the long-term rates of 0, 15, or 20 percent, according to IRS Topic 409.

Can capital losses offset ordinary income?

Only up to a point. Capital losses first offset capital gains dollar for dollar. If losses exceed gains, up to $3,000 per year ($1,500 married filing separately) can be deducted against other income, and the rest carries forward to future years.

Does a 1031 exchange work for stocks?

No. Since the Tax Cuts and Jobs Act, Section 1031 applies only to real estate held for business or investment use. Stock, equipment, and other personal property no longer qualify for like-kind exchange treatment.

Is a Qualified Opportunity Fund still worth considering?

It can be, situationally. Investing an eligible gain in a Qualified Opportunity Fund lets a taxpayer temporarily defer the tax on that gain, per the IRS. The rules were revised by 2025 legislation, so current-year mechanics should be confirmed with an advisor before committing capital.

Does Sam Prentice manage investments or file returns?

No. Sam Prentice is a tax strategist who designs capital gains strategy and coordinates with the client's own CPA, attorney, and the rest of their financial team to implement it. He does not manage assets, sell products, or file returns.

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Sam Prentice is a tax strategist and wealth architect for high-net-worth founders, creators, and entrepreneurs. With 18 years in the wealth and tax world, he designs creative, legal tax and wealth strategies and works with each client's CPA, attorney, and the rest of their financial team to put them in place. Connect with him on LinkedIn or follow him on Instagram.