Capital gains taxes often depend on timing, your total income, and the type of assets you sell. The best way to reduce the tax hit is to plan before the sale happens and coordinate it with your broader tax and investment strategy. Once you sell, most of your options are gone.
Key Takeaways
- Planning before the sale matters most. After the sale, there is very little you can do.
- Income stacking can increase the tax cost. Other income you earn in the same year affects your rate.
- Spreading gains or using offsets may help, depending on your situation.
What Affects Your Capital Gains Taxes
Holding Period Basics
The IRS draws a clear line at one year. If you hold an asset for more than a year before selling, your gain qualifies for long-term capital gains rates of 0%, 15%, or 20%. If you sell within a year, the gain is taxed as ordinary income, which can be as high as 37%.
That difference is significant. For tax year 2025, short-term capital gains are taxed as ordinary income from 10% to 37%, while the top rate for long-term capital gains is 20%. Waiting even a few extra weeks past the one-year mark can move you from an ordinary income rate to a long-term rate that may be meaningfully lower.
The day count matters too. To determine how long you held the asset, you generally count from the day after you acquired it through and including the day you sold it. If you are close to the one-year threshold, it is worth confirming the exact date before you act.
Income Level and Stacking Effects
Your capital gains rate is not decided in a vacuum. It depends on your total taxable income for the year. The long-term capital gains tax rates are 0%, 15%, or 20% depending on taxable income and filing status.
For 2025, the 0% long-term capital gains rate threshold for married couples filing jointly is $96,700, and the 20% rate kicks in above $600,050. Most people land in the 15% range, but additional income sources in the same year can push you higher.
This is what planners call income stacking. If you receive a bonus, take a large IRA distribution, or sell a business in the same year you sell appreciated investments, all of that income adds up. The gain itself can push you into a higher rate bracket, and in some cases it can trigger an additional surtax.
High earners may face a federal effective rate as high as 23.8% when the 3.8% Net Investment Income Tax is layered on top of the 20% capital gains rate.
The NIIT applies when your modified adjusted gross income (MAGI) exceeds $250,000 for married couples filing jointly, $200,000 for single filers, or $125,000 for those married filing separately. Unlike most tax thresholds, these NIIT limits are not indexed for inflation, which means more people cross them over time without any change in their real purchasing power.
State Tax Considerations
Federal rates are only part of the picture. State taxes vary widely and can add substantially to your total bill. California’s top rate on capital gains reaches 13.3%, and New York’s climbs to 10.9%. Some states have no capital gains tax at all.
Nevada is one of those states. There is no state income tax in Nevada, which means Las Vegas-area residents only contend with federal rates. That is a real advantage, but it does not eliminate the need to plan. Federal rates alone, especially when NIIT is involved, can still represent a meaningful portion of your gain.
If you live in a state with income tax, your advisor and CPA should factor state rates into any projection before you sell.
Common Planning Strategies to Discuss
These are not one-size-fits-all. Each one depends on your income, the type of asset, how long you have held it, and what else is happening in your financial picture. Your CPA and advisor should evaluate which ones are appropriate for your situation.
Timing the Sale Across Tax Years
Whenever possible, holding an asset for longer than a year allows you to qualify for long-term capital gains rates, which are significantly lower than short-term rates for most assets.
Beyond that, if you expect your income to be lower in a future year, it may make sense to delay the sale. For example, if you plan to retire or significantly reduce your income next year, your gain might be taxed at a lower rate in that year than it would be in the current one.
Timing asset sales across tax years is one of the most practical ways to manage capital gains exposure before the transaction is complete.
For larger positions or complex assets, spreading the sale over two or more tax years may also help prevent a single large gain from pushing your income into a higher bracket or triggering additional taxes like the NIIT.
Managing Other Income in the Same Year
Because your capital gains rate depends on your total income, reducing other taxable income in the year you plan to sell can lower the rate that applies to your gain.
Maximizing retirement account contributions reduces adjusted gross income, which can push a taxpayer below the 20% or 3.8% net investment income tax threshold. Contributing to a 401(k), SEP IRA, or health savings account before the year closes may bring your income down enough to matter.
This requires advance planning. You generally need to know your projected income for the year well before year-end to model whether these moves will have a meaningful effect.
Using Losses to Offset Gains
Tax-loss harvesting allows you to sell investments that are down and use those capital losses to offset the realized capital gains generated by other investments. Remaining net losses can be used to offset ordinary income generally up to $3,000, and unused losses can be carried forward to future years.
This strategy has real value, but it comes with rules. The IRS wash-sale rule states that if you buy the same investment or any investment the IRS considers substantially identical within 30 days before or after the sale, you will not be able to claim the loss.
The rule also applies across accounts. The wash-sale rule applies not only to purchases within the same account but also to purchases in other accounts owned or controlled by you or your spouse, including tax-deferred accounts such as IRAs and 401(k) plans.
Losses carry their character too. Short-term losses first offset short-term gains, and long-term losses first offset long-term gains. Your advisor and CPA can help determine whether harvesting losses is worth pursuing given your overall portfolio and tax situation.
Charitable Planning When Giving Is Already Part of Your Goals
If charitable giving is already part of your plan, there may be a more tax-efficient way to do it than selling assets and donating cash.
When you donate appreciated assets that have been held for at least a year directly to a qualified charity, you avoid paying capital gains tax on the appreciated portion, subject to IRS rules and your specific circumstances. Because charities are tax-exempt, the organization can then sell the security and receive its full market value without being subject to capital gains tax.
A donor-advised fund can add flexibility. A donor-advised fund allows you to make a charitable contribution, receive a tax deduction in the current year (assuming you file an itemized return), then allocate funds to various charities over time. DAFs can be a particularly effective strategy during years in which your income is higher than normal.
This approach is most relevant if giving is already something you plan to do. It is not a reason to donate just to avoid taxes, but it can meaningfully improve the outcome if you are already charitably inclined and are holding appreciated positions.
What to Do Before You Sell
Gather Cost Basis and Records
Your taxable gain is calculated as the sale price minus your cost basis. If your records are incomplete or your basis is wrong, you could end up overpaying or underpaying taxes.
Cost basis includes the original purchase price, adjustments for any improvements (in the case of real estate), and in some cases, reinvested dividends for investment accounts. For assets held over many years, reconstructing basis can take time.
Gather records early. Your brokerage statements, closing documents, and improvement receipts are all relevant. Bring these to your CPA before the sale, not after.
Run a Tax Projection
A tax projection gives you a clear picture of what your tax liability will look like before you commit to anything. A good projection accounts for your base income, the size of the gain, applicable federal and state rates, NIIT exposure, and how the sale might interact with other events happening that year.
This matters especially when you are close to a rate threshold. A relatively small change in income or timing can shift the tax outcome significantly.
Coordinate with Your CPA and Advisor
Capital gains planning sits at the intersection of investment strategy and tax planning. Your financial advisor can help you think through the timing, structure, and portfolio-level implications. Your CPA handles the tax side, including projections, filings, and compliance.
When these two are in communication before the sale, you are far less likely to face surprises. A well-coordinated plan built before the transaction is almost always better than a reactive one built after.
FAQs
The most effective approaches involve planning before the sale. Holding an asset for more than a year qualifies you for lower long-term rates. Timing the sale in a year when your income is lower can reduce the applicable rate. Using investment losses to offset gains, contributing to tax-advantaged accounts to reduce total income, and donating appreciated assets to charity if giving is already part of your plan are all strategies worth discussing with your CPA and advisor. What works depends on your specific situation.
In most cases, no. Simply reinvesting the proceeds from a sale into another investment does not eliminate the capital gains tax you owe from the sale. One exception is a Section 1031 like-kind exchange, which allows investors to defer capital gains on the sale of investment real estate by reinvesting into a qualifying replacement property within specific timeframes. This is a complex strategy with strict rules and is not available for most asset types, including stocks or personal property.
When you donate appreciated assets that have been held for at least a year directly to a qualifying charitable organization, you can avoid capital gains tax on the appreciated portion, subject to IRS rules and your specific circumstances. You may also receive a deduction based on the fair market value of the asset if you itemize. This is most useful when the giving was already part of your financial plan. The strategy requires that the asset be donated directly rather than sold first.
It can help, but the extent depends on how many losses you have available. Capital losses offset capital gains dollar for dollar. If your losses exceed your gains, you can use up to $3,000 of the remaining net loss to offset ordinary income, and unused losses can be carried forward to future years. If you have a very large gain and limited losses, harvesting alone may not move the needle much. It is most effective as part of a broader tax strategy rather than a standalone fix.
Rental property sales come with a layer that many investors do not anticipate: depreciation recapture. When you sell a rental property, the IRS taxes the portion of your gain equal to prior depreciation deductions at up to 25% for Section 1250 real property, and any remaining gain is taxed at long-term capital gains rates. This can result in a higher overall tax bill than investors expect, even for long-held properties. A 1031 exchange can defer both the capital gain and the depreciation recapture by rolling the proceeds into a qualifying replacement property, but timing and structure requirements are strict.
Yes. Capital gains count toward the modified adjusted gross income (MAGI) calculation that determines whether you are subject to Medicare's Income-Related Monthly Adjustment Amount (IRMAA). IRMAA adds a surcharge to your Medicare Part B and Part D premiums when your MAGI exceeds certain thresholds. Because IRMAA is based on your tax return from two years prior, managing capital gains now may affect your Medicare costs two years down the road. For retirees on Medicare, a large sale in a single year can have a premium impact that lasts well beyond the year of the sale. This is an important consideration when timing a major transaction.
That depends on the size of the gain, your other income sources, and your tax rate in each year. Spreading a sale across two tax years can prevent a single large gain from pushing your income into a higher bracket or triggering the NIIT. However, it may not always be practical, especially if the transaction is a business sale or real estate closing. Running a projection for each scenario is the best way to compare. Your advisor and CPA can model both options and help you decide what makes sense given your full financial picture.
For investments, you will generally need brokerage statements showing your original purchase date, purchase price, and any reinvested dividends or adjustments to your cost basis. For real estate, you will need your original closing documents, records of any capital improvements, prior depreciation schedules (for rental property), and any refinancing records that could affect basis. Gathering these before you speak with your CPA saves time and helps ensure the projection is accurate.
Plan the Sale Before It Becomes a Tax Bill
A well-timed sale can reduce taxes, avoid Medicare surprises, and keep your overall plan on track. The difference often comes down to decisions made before you sell, not after. If you want help modeling the tax impact of a sale, coordinating it with your income plan, and identifying ways to reduce the hit, schedule a complimentary consultation with a CFP® professional at Bauman Wealth Advisors. We’ll help you turn a one-time transaction into a tax-aware strategy.
