The Comprehensive Playbook to Reduce  Capital Gains Taxes

Capital gains taxes can be significant, with federal rates reaching up to 20% and, in some cases, even higher. On top of that, you may have state and local taxes to consider.

Without a plan, these taxes can take a big bite out of your profits. But what’s unique about capital gains is that, with the right strategies, you may be able to reduce or even eliminate the tax burden.

Through our work with clients, we’ve uncovered a range of tax-saving options, many of which are not widely known. Below is a carefully selected list of strategies designed to help manage capital gains tax.

The purpose of this post is not to provide a deep dive into each strategy but to give you a general understanding. In most cases, you will need the help of your CPA or tax expert to implement them properly.

If you anticipate a taxable gain, now is the time to act. Schedule a consultation, and we’ll explore the best ways to minimize your tax liability.

4 Strategic Approaches

We’ve categorized tax-saving strategies into four key groups. Each group addresses a different approach, such as eliminating taxes entirely, offsetting gains, or deferring them for future savings.

• Strategy 1: Capital Gains Elimination
  The ideal scenario is to eliminate capital gains taxes altogether. Certain tax structures allow you to legally bypass these taxes by leveraging gifts, charitable contributions, or holding assets until they qualify for a stepped-up basis.
  
  

• Strategy 2: Offsetting Gains with Deductions & Losses

  If elimination isn’t possible, the next best approach is to offset taxable gains with deductions, depreciation, or losses from other investments. These strategies help minimize your overall tax liability, and there is no tax bill on the gains in future years.

  
  

• Strategy 3: Long-Term Deferral Strategies

  When taxes can’t be avoided, deferring them for years or even decades is a powerful way to delay the tax hit and maximize cash flow. These strategies allow you to reinvest your gains without immediately triggering a taxable event.

  
  
• Strategy 4: Short-Term Deferral & Spreading Out Gains
  If long-term deferral isn’t an option, short-term deferral and installment-based strategies help spread out the tax burden over multiple years, often reducing the effective tax rate and providing more flexibility.
  

   

Now, let’s explore each of these strategies in detail.

Capital Gains Elimination Strategies

Game Plan 1: Upstream Gifting – Eliminating Capital Gains Through Step-Up in Basis.

🎲 Here’s How It Works:

1. You transfer an asset that has grown in value to your parents (or another older family member in a lower tax bracket)
2. They keep the asset throughout their lifetime.
3. When you inherit the asset back, its tax basis is reset to its market value at the time of inheritance. The trust documents should clearly name you as the beneficiary to ensure a smooth transfer.
4. As a result, if you sell it later, you pay little to no capital gains tax because any appreciation before inheritance disappears for tax purposes.

🧐 Why does this work? Because the tax code allows a step-up in basis upon inheritance, meaning the asset’s value is adjusted tax-free to its market value at the time of inheritance.

⚠️ Key Considerations: Ensure the trust documents clearly name you as the intended beneficiary. This strategy only works if the asset remains in the family member’s estate until passing. Watch for estate planning and Medicaid eligibility concerns.

Game Plan 2: 0% Capital Gains Tax Rate – How to Qualify for Tax-Free Gains

The IRS allows a portion of capital gains to be taxed at 0% as long as your taxable income stays within a certain limit. For 2025, that limit is $96,700 for a married couple filing jointly (MFJ). This means that even if you have capital gains, you could owe nothing in federal taxes if your income is low enough.

Of course, $96,700 isn't a high threshold, but as we will see below, there are legal tax planning strategies that can help you reduce your taxable income and fully utilize the 0% capital gains bracket. 

🎲 Here’s How It Works:

• Use Deductions to Lower Taxable Income – Whether you itemize (charitable donations, mortgage interest, medical costs) or take the standard deduction ($20,250 for MFJ in 2025), both can help you qualify for the 0% capital gains rate. Even without itemizing, you can have up to $116,950 in AGI and still pay zero capital gains tax.
• Business Owners Can Reduce AGI Further – Self-employed individuals can deduct half of their SE tax, while additional deductions like the QBI deduction, 401(k)/SEP IRA contributions, and business expenses can further reduce taxable income, making it easier to stay within the 0% bracket.
• Spread Out Gains to Stay Tax-Free – Selling too many assets in one year can push you above the 0% capital gains limit. Instead, spread sales over multiple years to keep your taxable gains within the 0% bracket. This strategy works especially well for stock sales, where you can control how much you sell each year to avoid unnecessary taxes.

⚠️ Key Considerations:

• State Taxes May Still Apply – Even if you qualify for the federal 0% capital gains rate, you may still owe state capital gains taxes depending on your location.
• Tax Brackets Change Annually – The 0% capital gains tax threshold adjusts each year, so ongoing tax planning is needed.
  
• Stacking Rules Apply – If you have capital loss carryovers, they must be used first before the 0% capital gains rate kicks in.

💡Related Strategy for S-Corp Shareholders

A related strategy to consider: Taking money from your S-Corp above your "basis" is treated as a capital gain. If your taxable income is low enough to qualify for the 0% capital gains rate, this can be a powerful way to extract profits without paying federal capital gains tax. By carefully timing capital gains in a low-income year, you can lock in permanent tax savings that would otherwise be taxed at a higher rate in the future.

Game Plan 3: Donating Property or Stock to Charity 

Do you own stocks, bonds, mutual funds, or property that have increased in value, but you haven't sold them yet? By donating these assets to charity, you can avoid paying capital gains taxes and receive a tax deduction for their full market value.

This approach offers a real double benefit. Not only do you eliminate the tax hit from selling an appreciated asset, but you also receive a full charity receipt. Your donation's entire fair market value counts as a deduction on your tax return, potentially lowering your tax bill significantly. Read more here, including some practical examples!

⚠️ Key Considerations:

• Holding Period Requirements – To qualify for the full market value deduction, donated securities must be held for more than one year.

• Limits on Deductions – The deduction for non-cash donations is capped at 30% of income.

• Appraisal Requirements – Publicly traded securities have a straightforward valuation, but non-publicly traded assets such as private stock or real estate will require a qualified appraisal.

Game Plan 4: Invest with Your Roth Retirement Account 

Instead of buying stocks directly and facing the prospect of a significant capital gains tax when you sell, consider using a self-directed Roth IRA or 401(k) for your investments. This approach lets your investments grow tax-free! When it comes time to sell, you don't have to pay any capital gain taxes!

For example, if you invest $6,000 in a Roth IRA that grows to $30,000 over time, you can withdraw the entire amount tax-free in retirement (assuming you meet the qualification requirements), effectively avoiding all capital gains taxes on the $24,000 of growth.

Game Plan 5: Selling Your Primary Residence – $250K/$500K Capital Gains Exclusion (Tax-free gains up to $250K (single) or $500K (married).) Partial 1031 for a Rental Portion of a Home (If part of the home was rented out, the rental portion may qualify for a 1031 exchange.)

https://www.oberlanderandco.com/insights/selling-your-home-capital-gain

• see QOZ

Offsetting Gains with Deductions & Losses

• Lazy 1031: Selling and Reinvesting with Cost Segregation – Accelerating Depreciation to Offset Gains (Depreciation helps offset taxable income from gains.)
• Tax Loss Harvesting – Offsetting Gains with Stock Losses (Selling underperforming assets to cancel out taxable gains.)
• Refinancing Instead of Selling – Accessing Cash Without Paying Taxes (Not technically an offset but a way to avoid realizing gains.)
• CLAT & CRUT – Using Charitable Trusts to Offset Capital Gains Taxes (Sheltering gains while preserving an income stream.)

Long-term deferral Strategies

1. 1031 Exchange – Deferring Capital Gains on Real Estate Sales

2. Holding and Refinancing Instead of Swapping (Using refinancing instead of selling to avoid a taxable event.)

3. 721 Exchange – Moving Real Estate into a REIT Tax-Free

   https://www.notion.so/oberlanderandco/721-Exchange-REIT-bc2b4d1cceae489fbe5980197c651aa4

4. Qualified Opportunity Zones (QOZ) – Deferring and Reducing Capital Gains

   https://www.notion.so/oberlanderandco/QOZ-726e237bc063409b96c5003cca61400a

Short-Term Deferral Strategies & Spreading Out Gains

1. Using 1031 to Push Capital Gains to Next Year (Delaying tax by structuring a sale close to year-end.)

• Installment Sale (Seller Financing) – Spreading Out Capital Gains Over Time

  Installment Sale/Seller Financing

• Monetized Installment Sale – Deferring Capital Gains While Getting Cash Now

  Monetized installment sale

Capital gains taxes can be significant, but they don’t have to be. With careful planning and the right strategies, you can significantly reduce your tax burden—or, in some cases, eliminate it.

The key is to act before a taxable event occurs. Having a plan can make all the difference when selling real estate, a business, or an investment.

Don’t wait until tax time to discover what you could have saved. Schedule a consultation today, and let’s explore the best tax-saving opportunities available.